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How Big Is Benicia-Vallejo’s Shadow Inventory?

Rod Herman — Fri, 08 Apr 2011 01:02:09 +0000

About a week ago, I listened to Rick Sharga, Sr. V.P. of Realty Trac, share his firm’s current foreclosure numbers. In his talk, one statistic really stood out: right now, there are 1 million foreclosures in the U.S., yet only 300,000 of them have come on the market.

In other words, 7 out of every 10 U.S. homes that the banks already own haven’t even hit the market yet. That’s the “shadow inventory” that you may have heard people talk about.

It prompted me to look at our local market a little closer and see how big our own shadow inventory is right now. The numbers were pretty startling. Not quite as large as the nationwide figures that Mr. Sharga talked about, but still pretty shocking nonetheless.

I looked at all five cities in our primary market area (Benicia, Vallejo, Fairfield, Suisun City & Vacaville) and found that about 3 of every 5 foreclosed homes have not yet come on the market.

Overall, 1,830 homes show up as bank-owned (REOs) in my foreclosure database right now, yet the banks have kept 59% of them (1,079) off the market.

Individually, here’s how the cities shape up:

Vallejo has 804 REOs, but 64% (515) haven’t come on the market.

Fairfield has 449 REOs, with 59% (263) yet to hit the market.

Vacaville has 332 REOs and 173 (52%) haven’t come on the market.

Benicia has the fewest REOs (83), yet 45 of them (54%) haven’t come on the market.

Suisun has 162 REOs, with a shadow inventory of 83 (51%).

But that’s only half the story.

In addition to those 1,800+ REOs, twice that number of homes are currently in the midst of the foreclosure process in those same five cities. And out of 3,500+ such homeowners, less than 1,400 have put their homes on the market.

In other words, another 2,100 homes are headed directly to foreclosure right now.

And to take it one step further, that doesn’t include those who’ve stopped paying their mortgage (or are about to do so), but who haven’t yet received an official Notice of Default, which formally starts the foreclosure clock.

So if you add it all up, right now more than 5,300 homes in Benicia, Vallejo, Fairfield, Suisun and Vacaville have either already been foreclosed upon or are heading that way. And only about 2,100 of those — or 40% — have come onto the housing market so far.

All of which means that we still have a ways to go before the local housing market turns itself around.

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10 Ways To Help Avoid A Short Sale Disaster

Rod Herman — Fri, 11 Mar 2011 23:35:09 +0000

As anyone looking for a home in Solano County right now can tell you, many of the homes on the market right now are short sales (where the seller owes more than the home is worth and can’t complete the sale without their lender(s) agreeing to reduce the amount they owe).

Short sales are far more complicated than a regular sales transaction and can take far take longer, too, due to the time a bank can take to review the seller’s financial situation.

Right now, about 4 out of every 10 homes on the market in Solano County are short sales, including 43% of the homes in Benicia and 47% in Vallejo. And, despite what you may have heard, many short sales do indeed close escrow.

Most of the short sales we’ve represented clients on over the past few years have successfully closed.Yes, there can be some drama or unexpected twists and turns along the way.

But sadly, many sellers or agents either throw in the towel far too early — either out of frustration or by giving up at the first sign of a short sale decline.

If there’s one thing I’ve learned from representing short sale clients it’s that there’s definitely an art to successfully negotiating a short sale. There’s far more to it than just shuffling papers and waiting for the bank to give its answer.

Over the years I’ve found that there are 10 critical factors that either the listing agent or the seller can directly control.

Some are crucial and can spell instant short sale doom, whiles others give you added leverage and can be difference-makers in whether or not a deal goes through. Without most of these, your chances of short sale success drops considerably.

The home must be priced right. If it’s priced to sell quickly but far below its real market value, you’re just asking for a decline letter. If it’s priced too high, the seller’s bank might like it, but the home will never appraise for the buyer.
The seller must be “on board” and willing to provide all financial documentation the bank will require.
The seller must have a legitimate hardship. Banks aren’t charities, so unless the seller really has a hardship, the bank probably won’t approve the sale.
Is the seller willing to contribute? Many banks try to get the seller to contribute towards the loan shortfall. There are strategies and arguments that can sometimes convince a open-minded bank to relent when the seller won’t contribute.
The listing agent must make sure all the contractual costs and fees are incorporated into the estimated closing statement, which is what the bank will rely on in determining whether or not to approve the short sale.
The listing agent must know how to package all the short sale documents so that the bank doesn’t decline the sale due to missing documents. Many banks will close the file if missing items aren’t provided on a timely basis.
The listing agent must know how to escalate a file to upper management when a lower-level bank negotiator stymies a deal that should be a no-brainer.
It’s far easier to negotiate with the bank if you know their numbers. You’re going to be far more effective at countering a bank’s demands if you have a general idea of what they’re going to net in a sort sale vs. foreclosure.
Followup is crucial. If the listing agent simply submits the file and then sits back and waits for the bank to call, the file may stay at the bottom of the negotiator’s inbox. And if months have gone by before the bank gets around to looking at the file, there’s a pretty good chance the buyer will have “moved on” by then.
Read the fine print. Many approval letters are conditioned on matters the seller may not be willing or even legally able to agree to. If you wait until you’re ready to close to discover and deal with these, it may be too late.

These 10 items alone certainly won’t guarantee a successful short sale. But they’ll definitely give a much better chance of getting your short sale approved.

If you’re in a situation where you think a short sale might be a viable alternative for you, feel free to contact us and we’ll be happy to discuss your situation in complete confidence.

Anyone considering a short sale should also consult with their tax or legal advisers, since some of the decisions you make could have significant tax or legal consequences.

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What Obama’s Mortgage Reform Plan Means For Solano County Home Buyers & Sellers

Rod Herman — Thu, 17 Feb 2011 16:38:22 +0000

You may have heard that President Obama unveiled his plans to reform the mortgage industry last Friday. Since then, his proposal has taken a lot of heat in real estate circles, especially since one of his recommendations is to reduce the maximum loan limits on conventional mortgages in high-cost areas by more than $100,000 as early as this fall.

Among some of the proposals in Obama’s plan:

Drop the maximum loan amount in high cost areas (which includes much of the Bay Area) from $729,750 to $625,500.

Phase out both Fannie Mae and Freddie Mac by reducing their loan portfolios by 10% a year

Raise fees for borrowers

Increase minimum down payments borrowers

What This Means To Solano Home Buyers & Sellers

It’s still unclear whether the White House’s proposal to lower the maximum loan limit would really impact Solano County. Currently, for most of the U.S., the limit is $417,000. The majority of the Bay Area, though is at $729,750 — which is the amount that Obama’s plan wants reduced by about $105,000.

In Solano County, however, our limit is $557,500, which is higher than the rest of the U.S., but lower than most other Bay Area counties.

So if the White House plan reduces the loan limit for all high cost areas on a proportionate basis, then Solano County buyers and sellers could definitely feel a pinch, since buyers of homes priced above the new loan limit would be forced into higher-rate “jumbo” loans, which would no doubt kick some buyers out of the market or force some sellers to lower prices to attract conventional loan buyers.

But if the White House plan keeps our limit at $557,500, since it’s already below the proposed $625,500 ceiling, then Solano County would be spared any impact from the proposed change. I haven’t seen county-by-county specifics yet. But when I do, I’ll post them.

A Definite Impact In Contra Costa

Contra Costa County, meanwhile, will definitely feel the pinch if Obama’s plan is enacted, since it is one of the Bay Area Counties where the $729,750 loan limit is presently in place. If the maximum loan drops to $625,500, then sellers in the $700,000-$900,000 price range, could soon find it much tougher to find qualified buyers for their homes.

Obama is pushing for a change in the loan limit by this fall. And you can bet there will be a lots of lobbying and grass-roots efforts to either stop, delay or modify his proposal in the coming months.

While the jury’s still out on whether the White House plan will affect Solano’s loan limits, those other three proposals in Obama’s plan definitely would impact buyers and sellers here in Solano County as well as throughout the entire U.S.

Less Fannie & Freddie Means Higher Rates & Fees

According to estimates I’ve seen, almost three-quarters of all U.S. loans are sold to Freddie Mac and Fannie Mae. In Solano County, that percentage is probably a bit lower, since FHA loans have become increasingly popular over the past few years due to lower home prices.

But for borrowers opting for a conventional loan, Freddie or Fannie are what makes the whole money supply machine work. So if you reduce the amount of loans that those two organizations can purchase, that will definitely impact the availability and cost of that financing.

According to the National Assn. of Realtors, Credit Suisse Bank has estimated that interest rates could easily rise 2 full percentage points (to the 7%-plus range) if the government withdraws its backing of Freddie and Fannie, which would easily price many of today’s buyers out of the housing market.

Goodbye To Low Down Payment Loans?

The same would happen if the government pushed lenders to increase minimum down payment amounts. With conventional financing, buyers have to put at least 10% down. With an FHA loan, the minimum is 3.5% down — which is huge for first-time buyers, since many have the income to qualify but not 10% plus closing costs (about $35,000+ on a $250,000 home).

The White House’s premise — more skin in the game by the homeowner means less risk for the lender — makes sense. Before creative financing entered the marketplace back in the 1980s, buyers using a conventional loan traditionally had to come up with 20% down. Of course, back then, most Bay Area home prices were below $100,000.

There’s been quite a bit of talk about FHA increasing the minimum down payment on all of its loans. If that happens and if the same occurs with conventional financing, many buyers would find themselves unable to buy. And that would certainly cause activity to wane, inventory to climb and prices to fall.

I understand the need for mortgage reform. Nobody wants a repeat of 2007-2008. But if the sweeping changes outlined in Obama’s proposal are enacted, Solano County home buyers and sellers will definitely feel it — and not in a good way.

April 2010 Benicia & Vallejo Home Sales

Rod Herman — Tue, 18 May 2010 15:06:02 +0000

Curious what that Benicia home down the street sold for last month? Wonder how much your Vallejo neighbor sold his home sold for? Or how long it took a certain Vallejo or Benicia home to sell?

Just download our April Benicia and Vallejo Home Sale Reports for those answers and more. Some highlights from April’s Benicia & Vallejo Home Sale Reports appears below.

Included in each report is every closed sale from April 2010 — including the address, sales price, days-on-market, net price change, and whether the home was a regular or distress sale (short sale or “REO”/foreclosure).

We post our Benicia and Vallejo Home Sale Reports along with other Solano County home sales reports every month, so be sure to visit HomeSection.com regularly. You can also access previous reports by visiting our Home Sales Report Archives page.

Some highlights from April’s BENICIA home sale report:

Highest Price — $690,000 (1433 O’Hare Dr.)
Lowest Price — $68,000 on 900 Southampton Rd. #81)
Total Sales — 34
Distress Sales — 22 (14 REO / 8 Short Sales)
Regular Sales – 12
Total Sold Above Original List Price — 7
Total Sold Below Original List Price — 19
Biggest Net Price Change — $219,999 (940 West K St.)
Longest Time On Market –414 Days (940 West K St.)

Highlights from April’s VALLEJO home sale report:

Highest Price — $397,000 (9280 Hallmark Dr.)
Lowest Price — $27,500 (424 Corcoran Ave. #4)
Total Sales — 143
Distress Sales — 111 (76 REO / 35 Short Sales)
Regular Sales – 32
Total Sold Above Original List Price — 77
Total Sold Below Original List Price — 51
Biggest Net Price Change — $352,000 (279 Catalina Way)
Longest Time On Market –315 Days (114 Roney Ave.)

To see the full report, with home-by-home totals for every Benicia & Vallejo home that closed escrow in Feb. 2010, click on either of the two buttons below.

If you have questions on any of these properties or would like information on what’s currently available, please contact us or visit our Home Search page to search our multiple listing service. We’re always happy to set up customized automated MLS searches for our clients and prospective clients.

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April Solano Home Sales Report: Prices Holding Steady And Up County-Wide Over Last Year

Rod Herman — Wed, 12 May 2010 05:07:23 +0000

April’s home sales numbers are in for Solano County and on a county-wide basis, the median price last month was $200,000 — exactly the same as it was in March.

Vacaville, Vallejo and Suisun all reported median prices that were almost the same as the previous month, while Benicia’s median was way up and Fairfield’s was noticeably down.

The huge jump in Benicia’s median price is probably more a correction of last month’s equally huge drop than an indication that prices are suddenly going through the roof in Benicia.

Keep in mind, too, that Benicia’s relatively small sample size means that a few random sales at either end of the price spectrum can easily skew the numbers.

Meanwhile, the number of sales in Solano was down 10% county-wide, but up in Benicia and Fairfield.

At first glance, the big story seems to be Vallejo’s 28% drop in sales last month — from 198 in March to 143 in April. But before jumping to any conclusions, you have to look back a few months. For April’s total is still the second strongest month of 2010 and close to November’s and December’s totals.

Compared to last April, prices in Solano County are up 14%, led by Vallejo (up 28%) and Suisun (+15%). The number of sales, meanwhile, was down 17% county-wide, mainly due, I suspect, to the smaller inventory of homes on the market this April compared to last April.

You can see all of April’s Solano home sale statistics in detail by downloading April’s Solano County Home Sales Report. Archived copies of previous reports are also available by following the links near the bottom of this post.

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Inventory Of Available Homes Still Way Up For The Year Throughout Solano County

Rod Herman — Tue, 20 Apr 2010 04:15:17 +0000

You’d never believe it if you talked to most buyers, but the inventory of homes for sale throughout Solano County is still up dramatically for the year.

Every city in our Solano market area has at least 20% more homes on the market today than it did at the beginning of January.

The leader is Vallejo, with a whopping 55% increase in 3-1/2 months. There are 374 homes on the market there right now, compared to 242 on Jan. 4.

The other four cities’ year-to-date increases, in descending order: Vacaville +37%, Fairfield +26%, Suisun + 24%, Benicia +20%.

Now, if you’re a buyer who’s been involved in countless multiple-offer negotiations, you’re bound to have a hard time believing that the inventory is any higher today than it was three or four months ago.

And, while the local housing supply is indeed up by a very large percentage, in Vallejo, Benicia and Fairfield, today’s numbers still pale in comparison to where we were last year at this time. Fairfield’s inventory today is 31% lower than a year ago, Vallejo is off 28% and Benicia is down 13%.

However, the opposite is true in Vacaville and Suisun, where the inventory of homes is 28% and 20% higher, respectively, than last year April.

I track the inventory of homes for sale in all five cities in our Solano market area on a weekly basis. I also keep track of the number of pending and closed sales in Benicia, Vallejo, Fairfield, Suisun and Vacaville, too. Our Solano County Real Estate Report has cumulative week-by-week statistics for all five cities.

We publish this weekly report on HomeSection.com on a periodic basis. So be sure to check back regularly to see all the latest housing trends and statistics for Benicia, Vallejo the rest of our Solano County market area.

And, if you’re planning to buy or sell, we’d love to assist you and put our market expertise to work for you. To see the current housing supply for any city in Solano County, be sure to visit our Home Search page. For more information on any of those properties or to discuss selling your home, please contact us.

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Benicia-Vallejo Monthly Home Sale Report: Details On Every Closed Sale For Mar. 2010

Rod Herman — Fri, 16 Apr 2010 07:03:57 +0000

Want to know how much your neighbor’s home sold for or how long a certain home took to sell. It’s all here in the March Benicia and Vallejo Home Sale Reports.

Both reports show the address, sales price, days on market, net price change from start to finish and whether the home was a regular sale, short sale or REO (foreclosure).

You can download both reports by clicking on the links below. I publish this and other local Solano County home sales reports monthly, so be sure to visit HomeSection.com regularly.

You can also access previous Benicia & Vallejo home sales recaps on our Home Sales Report Archives page.

Some highlights from March’s BENICIA home sale report:

Highest Price — $515,000 on Olive Branch Ct.
Lowest Price — $105,000 on Southampton Rd.
Distress Sales — 21
Regular Sales – 8
Biggest Net Price Change — $85,000 (Brentwood Dr.)
Total Sold Above Original List Price — 9
Total Sold Below Original List Price — 16
Longest Time On Market –216 Days (London Cir.)

Some highlights from March’s VALLEJO home sale report:

Highest Price — $450,000 on Landmark Dr.
Lowest Price — $18,000 on N. Camino Alto
Distress Sales — 150
Regular Sales – 48
Biggest Net Price Change — $182,000 (Buckskin Pl.)
Total Sold Above Original List Price — 97
Total Sold Below Original List Price — 88
Longest Time On Market — 391 Days (Miller Ave.)

To see the full report, with home-by-home totals for every Benicia & Vallejo home that closed escrow in Feb. 2010, click on either of the two buttons below.

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Quarterly Stats Paint Uncertain Picture For Solano’s Real Estate Market

Rod Herman — Thu, 15 Apr 2010 04:00:56 +0000

I just downloaded and analyzed the 1st quarter housing numbers for Solano County and to be honest, it’s hard to tell exactly where we’re headed.

In fact, it’s hard to even figure out exactly where we’ve been. Or what these first quarter numbers really tell us.

Year-Over-Year (1st Qtr 2010 vs. Q1 2009)

If you look at the first quarter of 2010 compared to the same period a year ago, you’ll see that in the county’s most affordable cities (Vallejo, Fairfield & Suisun), prices are definitely higher today than they were for Q1 of 2009. But in the county’s most stable markets (Benicia and Vacaville) they dropped.

Countywide, prices were up 8%, from $185,703 last year to $200,000 in 2010. Here’s the rundown for the five cities in our Solano market area:

Since the inventory of homes was so much larger a year ago than it is today, you’d expect fewer sales this year than last. And that’s exactly how it played out (at least everywhere except Benicia, where sales were up 49% over a year ago — but Benicia’s sample size is very small, so don’t read too much into that statistic).

Huge Drop In Distress Sales, But Don’t Get Too Excited

The number of distress sales in Q1 was dramatically lower throughout most of the county (Benicia was again the lone exception with a 26% increase). Everywhere else in our Solano market area, the number of REO’s and short sales dropped by at least 1/3 compared to a year ago.

On the surface sounds pretty significant. But then with fewer overall sales, it just follows that you’d expect to see fewer distress sales, too. So while it’s good to see a reduction in the number of distress sales, don’t get too excited by that statistic.

A lot has definitely changed since the first three months of 2009. Back then, the market was still trying to find a bottom and there weren’t yet any signs of economic recovery. So most of these increases and decreases are fairly predictable.

Q1 Compared To The Last Quarter Of ‘09

What I was really waiting for was to see how the current quarter compared to the last quarter of 2009. For if the market was really starting to move forward, you’d expect to see some encouraging numbers.

Well, here’s how they shaped up:

As you can see, on a countywide basis, prices were down 3% in the first three months of 2010, compared to the last three months of ‘09. Overall, the change wasn’t very remarkable — up a few percentage points in one city, down a couple of ticks in another. Benicia was the only city with a huge disparity, but again, remember my warning about its low sample size.

Both the number of distress sales and the number of total sales dropped by almost identical percentages throughout the county.

So while a 16% drop in distress sales would be very big news if the total number of sales stayed the same, alas, that decrease is just a reflection of the drop in overall sales. Certainly not a game-changer.

So What Does All This Mean?

So like I said at the top of this post, the more you digest these 1st quarter numbers, the more you realize that they don’t really paint a clear picture of where we’re heading. Here’s what they say to me:

1. Inventory remains rather low (though it has increased throughout the county since January).

2. Prices have pretty much stabilized in those cities where prices fell the most (Vallejo, Fairfield, Suisun), but still may have a little more to give in higher-priced cities like Benicia & Vacaville.

Whether prices will move higher again in the near future or stay in their current range remains to be seen. I don’t see anything in these numbers that points to a sudden price spike, but I also don’t see anything that suggests a sudden drop.

In other words, as I said earlier, we seem to be in a period of uncertainty right now.

If you’d like to see a complete breakdown of the first quarter’s statistics, be sure to download our full 1st Quarter 2010 Solano Home Sale Report. You can see past reports on our Solano Home Sales Report Archives page.

Questions about our quarterly report or want information about buying or selling a home in Solano County or Central/East Contra Costa? Please contact us.

And, if you’d like to search for single family homes, condominiums or townhomes in Solano County, be sure to visit our Home Search page. You can even set up a customized personal search and receive MLS listings directly in your email inbox whenever new listings or price changes occur in our MLS.

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March Home Sales Activity Soars Throughout Solano County

Rod Herman — Wed, 14 Apr 2010 05:50:50 +0000

Meanwhile, Prices Drop In Benicia & Vallejo But Climb In The North County

After a February in which home sales activity in Solano County dropped noticeably, it roared back with a gusto in March, perhaps in part due to the upcoming end of the federal tax credit program.

Solano Up 44% Over Last Month

All five cities in our Solano market area showed robust gains in the number of closed sales last month. Countywide, the number of home sales in Solano was up 44% over February.

Vallejo led the way with an incredible 71% increase, followed by Benicia (61%), Vacaville (56%), Suisun (34%) and Fairfield (9%).

Prices Up 5% Countywide, But…

Prices, though, were another story. Up north, in Fairfield, Vacaville and Suisun, prices were up. In Vallejo and Benicia they were down. County-wide, the median price climbed from $190,000 to $200,000 — a very healthy 5% increase.

Fairfield had a huge one-month gain, as its median jumped 18% — from $190,000 in February to $225,000 in March. Vacaville was up 9%, from $215,000 to $234,325. And Suisun’s median of $200,000 was 2% higher than a month ago.

Vallejo, meanwhile, was down a mere 1% at $148,500 (from $150,000 in Feb.). The big drop, though, was in Benicia, where the median plummeted from $311,375 to $251,000 — a 19% decline.

Before You Get Too Concerned About Benicia

Now, before you jump to any conclusions about Benicia, remember that 29 closed sales is a very small sample size, especially when you consider that there were 529 home sales countywide in March.

And, as I’ve cautioned many times before, there’s a real danger in reading too much into a single month’s median price figures, since a few extra sales at one end of the price spectrum can often skew the median, particularly in smaller cities like Benicia or Suisun, where the sample size is quite low.

Quarterly figures are often much more relevant, for they allow you to smooth out the highs and lows over a 3-month period. I’ll be publishing the 1st Quarter 2010 numbers in the next day or two.

In terms of comparison, Benicia’s $251,000 median price for March is incredibly 40% lower than it was as recently as January, when the city reported its highest total in over a year, at $420,000. So I suspect the quarterly numbers for Benicia will paint a somewhat different story than March alone.

Compared To March 2009

Compared to a year ago, the number of sales is down 14% countywide, which is due in large part to there being far fewer homes on the market today than there were a year ago, particularly in the most affordable cities in the county.

At the end of March, for example, Vallejo reported 374 active listings. A year earlier, there were 629. Fairfield had 301 this March and 461 at the end of Mar. ‘09. So with fewer homes to choose from, you’d expect fewer sales.

Benicia was the only city in Solano County which bucked the year-to-year decrease. It reported 29 closed home sales in Mar. ‘10 compared to 20 in Mar. ‘09 — a 45% increase. But again, we’re talking small sample-size.

Download The Complete March Report

Our monthly Solano County Housing Report features three pages of statistics — probably enough data to satisfy the even the most ardent number hound.

You’ll find statistics for the county and all five cities in our market area for March 2010 plus cumulative totals for the past 12 months. There’s also a year-to-year comparison so you can see how each city in the county fared compared to Mar. ‘09

Be sure to look for our 1st Quarter Solano County 2010 Home Sales Report as well as our Benicia & Vallejo Home Sales Reports. Both will be published in the next few days. A complete archive of previous reports is available by clicking on the links below.

If you have additional questions about this month’s report or would like information about buying or selling a home in Solano County’s complex housing market, please contact us.

If you’d like to search for single family homes, condominiums or townhomes in Benicia, Vallejo or the rest of Solano County, be sure to visit our Home Search page. You can even set up a customized personal search and receive MLS listings directly in your email inbox whenever new listings or price changes occur in our MLS.

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Tax Relief For Distressed Solano County Sellers Finally Goes Into Law

Rod Herman — Tue, 13 Apr 2010 23:34:59 +0000

Not only did the rain clouds disappear yesterday, but so too did the dark black clouds that had been hanging over many penniless distress-sale sellers from last year, who were about to incur huge state income tax bills.

But just about the same time the skies parted over Solano County yesterday afternoon, a new tax relief law went into effect, which will save distressed sellers who sold their homes in 2009 thousands of dollars.

The Long Wait Is Over

Prior to the passage of SB 401, most California sellers who received debt relief through a short sale, foreclosure or loan modification would have been required to report the forgiven debt as ordinary income and pay taxes on it.

As I posted last week, state legislators were hoping to enact a new debt relief law before April 15. Alas, they made it with a few days to spare.

Up To $500k In Relief Tax-Free

Now, according to the Franchise Tax Board, those with a “qualified” principal residence will be exempt for up to $500,000 of forgiven debt on loan balances of up to $800,000.

According to the FTB, only the amount you used to buy, build or improve your principal residence will qualify for the exemption. So if you refinanced your home and pulled out cash to use for other purposes, you still may find yourself subject to some tax.

The federal law allows exemptions for loan balances up to $2 million, so at $800,000, California’s law is definitely more restrictive.

Tax Relief Thru 2012

The new exemption applies to distress sellers whose debts are/were discharged between 2009 and 2012. Those who’ve already filed can amend their taxes, says the FTB.

Not every seller who received debt relief through a short sale, foreclosure or loan modification will be able to take advantage of the exemption. Along with the aforementioned borrowers who used home equity for non-real estate purposes, those who sold or lost investment property or a second home could have a tax event, unless the sellers are eligible for one of the exceptions.

The FTB updated its website earlier today with an information page on the new Mortgage Debt Relief Law.

Now, since I’m not a tax expert nor licensed to give tax advice, here’s the big disclaimer: Don’t make any decisions or construe the content in this post as tax advice. It is based solely on information I have received from others. Accordingly, before making any tax decisions, be sure to consult with your personal tax adviser.

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