Foreclosures & Short Sales - Here to Stay
- Published: 12/02/2011
- Viewed: 9460 times.
- Download: Foreclosures & Short Sales - Here to Stay
Foreclosures, Short Sales, and their unexpected tax consequences will remain part of the home-buying market for the foreseeable future. This message was delivered by Brett Hersh, President, HBS Tax, to a recent gathering of experienced realtors at Century 21 Sterling Realty.
Mr. Rick Boswell, broker and owner of Century 21 Sterling Realty, welcomed Mr. Hersh to the group and reminded his agents that the complexity of the short sale requires the participation of a banker, realtor, attorney and a tax professional, all of whom have proven expertise in these transactions. “Seeking advice from an attorney and accountant is the best advice the homeowner should be given in order to determine if a short sales is feasible.” He said, “Our office staffs the most SFR (short sale, foreclosure resource) agents around the Panhandle.” The SFR agent is trained under a program implemented by the National Association of REALTORS. “Utilizing a trained agent will make your sale or purchase easier and less stressful. Buying a home should not be taken lightly.”
Hersh, an IRS Enrolled Agent who received an Economics Degree from Shepherd University and an MBA from West Virginia University spoke to the group about economic conditions that will keep foreclosures and short sales as a large portion of the housing market for the foreseeable future. “When one looks at the data,” says Hersh, “Berkeley and Jefferson counties are a microcosm - a near-perfect case study - of the growth and burst of the housing bubble. According to the Census Bureau, 36% and 25% of housing units in Berkeley and Jefferson Counties respectively were built between 2000 and 2010 – with the vast majority constructed between 2002 and 2007. In many housing developments that sprang up during this period, the only owners not under-water are recent purchasers of foreclosures and/or short sales. Add the number of homes refinanced for more than acquisition cost and it is not a stretch to estimate that 40-50% of our region’s homeowners are under-water. This is comparable to some of the worst-hit regions in the US.”
The focus of Hersh’s presentation was tax consequences of not seeking tax and legal assistance prior to a short sale or foreclosure. “Many who face a short sale or foreclosure simply want to move on with their lives.” says Hersh, “Their last concern is taxes. Unfortunately, this mindset can cost thousands in unexpected tax dollars owed to Uncle Sam.”
Hersh made this point abundantly clear by sharing some “real world” scenarios he has encountered over the past few years. In one example, a man used the equity in a rental property purchased in the 90’s to purchase another rental. After the housing market collapsed he was lost the property to foreclosure. Hersh explained how such situations can create capital gain and cancellation-of-debt income - the taxes on which can be especially brutal. In this example, “The man lost his property, owes over $30,000 in federal and state taxes, and…..is broke, although not technically insolvent.”
Although he runs into similar situations on a regular basis, Hersh says that, “Tax liability can often be avoided through effective planning – planning which must happen before, not after, the property is sold or lost.” Hersh continued with the example by illuminating five possible actions the taxpayer may have considered to avoid the $30,000 tax bill. Speaking to the realtors, Hersh reiterated, “Your clients facing foreclosure or considering a short sale really need to consult with a trained tax professional and an attorney prior to a foreclosure or short sale, not after. After is too late.”
After running into numerous situations similar to those in his examples, Hersh decided to proactively educate real estate agents, loan officers, and closing attorneys about the tax implications of short sales and foreclosures.
In addition to free presentations, HBS TAX has developed an educational brochure highlighting the tax implications of foreclosures, short sales, and abandonments. Those who would like to schedule a presentation or receive free brochures can phone 304.267.2592 or visit HBSbusiness.com.
Photo: Brett Hersh of HBS TAX discusses the tax consequences of short sales and foreclosures with area realtors.