If short sales are halted, slowed down or go into a holding pattern, the ringing of the New Year may not be very welcomed by distressed homeowners who were unable to complete short sales by the close of 2013. Unfortunately, Congress left for vacation before extending the December 31, 2013 expiration of the Mortgage Forgiveness Debt Relief Act, the federal law which makes short sale debt forgiveness non-taxable.
At the end of Q3, there were approximately 6.4 million US home mortgages still underwater, according to a study from CoreLogic.
Those 6.4 million homes account for about 13% of all US residences with mortgages. The number of underwater homes fell by 791,000 in Q3. In Q2 there were 7.2 million residences still underwater, or 14.7% of those with a mortgage, so the number has been declining and the housing market has benefited by the government assistance in moving this shadow inventory.
“Rising home prices continued to help homeowners regain their lost equity in Q3 2013,” said CoreLogic Chief Economist Mark Fleming. The S&P/Case-Shiller index of home prices soared 13.3% in the year through September. Homeowners’ negative equity dropped 8%, or $33.7 billion, in Q3 to $397 billion, according to CoreLogic.
Last year, Congress rushed to extend the law during negotiations on the fiscal cliff but only through the end of 2013. Lawmakers and housing advocates argue that the rule hurts those who are already financially strapped. Since 2009, more than 220,000 homeowners have sold their houses for less than they were worth through a short sale with help from a government program.
At the federal level, there are three bills — two in the House and one in the Senate — that call for the law’s extension. One of the House bills enjoys strong bipartisan support, with 29 Democrats and 23 Republicans on board. The Senate bill — which would extend relief through 2015 — is sponsored by Senators Debbie Stabenow, Democrat of Michigan, and Dean Heller, Republican of Nevada. Stabenow sponsored the extension last year.
Don’t be surprised if, with more uncertainty, short sales slow down considerably while folks wait to see if Congress will extend the law or give new options. Let’s hope Congress acts on this important matter soon in 2014.
See Massachusetts Real Estate Law Blog for more information.