Foreclosure rates skyrocketed in many pockets of the United States, and, according to Worldwide ERC, the top two reasons for employee reluctance to relocate are “Old location home is in a negative equity situation” and “Slowed real estate appreciation/depressed housing market in old location.”
Companies looking to attract and retain top talent are challenged to establish relocation policies that address the employees’ needs while also considering cost constraints recognized throughout the organization.
Rather than offering full “Loss on Sale Assistance” in the relocation policy some companies had recommended their transferring employees approach lenders to discuss the possibility of a short sale. While a lengthy process, the employee is typically able to sell the home within the timeframe stipulated in the relocation policy, and the company is not required to pay additional funds toward the employee’s relocation. Also, in many cases the employee is able to purchase a home in the new location, whereas in a foreclosure situation, the employee is not eligible to purchase a home for at least seven years.
For home owners who could no longer afford to keep mortgage payments current, short sales became a critical alternative to bankruptcy or foreclosure proceedings. However, short sales may not be the knight in shining armor that they were once considered, as illustrated below, and homeowners should be strongly urged to seek tax and legal consultation prior to proceeding with short sales.
- Homeowners in California may find themselves required to pay state income tax on the amount of forgiven debt. Failure to move Senate Bill 30 out of the state appropriations committee means homeowners who sold their homes in a short sale over the past eight months will be forced to pay state income taxes on money they never received, the California Association of Realtors warned in a report. The previous California exemption to this rule lapsed at the end of 2012, so forgiven mortgage debt on short sales is now considered taxable state income.
- The lender may pursue a repayment of the debt forgiven after the short sale is completed.
- The homeowner’s credit score may take as hard a hit as it would if it went through a foreclosure.
- Home buyers once saw short sales as big bargains, but their appeal has fizzled in some parts of the country — so much so that some real estate professionals in areas with short sales are prevalent are advertising listings as "not a short sale" to attract more buyers.
- Getting bank approval for a short sale can be difficult, and the process of buying a short sale can take four to six months in certain areas.
- According to a recent study, short sales in Boca Raton tended to stay on the market much longer than homes advertised as “not a short sale.”
- According to the same study, when homes were advertised as "not a short sale," they tended to sell for 2 percent to 5 percent more than comparable non-distressed homes that were not advertised the same way.
- Because of rules and guidelines to determine a homeowner’s eligibility for a short sale, the transferring employee may no longer qualify for certain relocation benefits, such as Loss on Sale.