As more inventory enters the spring market, over half of my new listings are upside down. I list and sell many short sales in Westchester County and beyond, so they tend to find me, but that still speaks to the fact that there are still billions in toxic assets & lots of people underwater out there.
In some cases, the properties are tenant occupied. They unwittingly participate in the problem, for which they have my sympathy. However, sometimes they are also like the UAW in the respect that they negotiated the landlord out of business. For instance, in one single family home, the tenants renegotiated their lease to
- lower the rent 25%
- have the landlord pay for heat/electricity
Can you imagine renting a single family home and getting free heat and electricity? Naturally, the bills are higher the incentive to conserve is lower, and, faced with an $800 per month shortfall, the landlord had to choose between the mortgage and keeping the lights on. Now, unless they can buy the house as a short sale, these tenants will have to move for the 2nd time in less than a year. I don’t blame the tenants, and the landlord is also a neophyte. But real estate mistakes are very, very expensive.
Another challenge is that the 2007 Mortgage Debt Relief Act (HR 3648), which exempts sellers from being taxed on forgiven debt in short sales, does not apply to non-owner occupied houses. Is a large tax bill preferable to a foreclosure deficiency judgment? Of course it is. But it doesn’t make the process easier, and the possibility of having an obligation post closing, whether to the IRS or the lender, looms larger in these cases.
In all cases, the people have either had their job situation adjust or their mortgage rate adjust. The ripple effect of the financial crisis is still with us, and it will be years before we can safely say that the worst is behind us. The downward trend may be slowing, but rising values are still years away in my view.