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Weather, Property Insurance, Taxes, Short Sales

NOV 19, 2012 5:58pm ET
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Thousands of citizens in the Northeast are still recovering from the ill effects of Hurricane Sandy and the follow-up snowstorm that added insult to injury.  If you think there’s no connection between bad weather and mortgage closings, think again.

Here’s a pop quiz for mortgage bankers and brokers alike. What’s the one thing you always need to close a mortgage? Answer: Homeowner’s insurance.

Once the property insurance industry finishes counting up losses due to the “super storm” mortgagors and servicers might notice a little something extra in the monthly statements: higher premiums. Some insurance carriers might even bolt coastal areas entirely, especially regions where sea side views are a plenty and “starter” homes cost $1 million (like certain parts of the Jersey Shore and Long Island).

In case you missed the news, in anticipation of the storm, New York Gov. Andrew Cuomo—a former Housing and Urban Development secretary, by the way—issued an executive order three days prior to the storm’s arrival, prohibiting insurance carriers from cancelling covered policies in the counties likely to be hardest hit by the storm for a 30-day period.

Hopefully the governor’s action solved some mortgagor’s refi closing problem. Then again, if the power is out, your closing is on hold anyway.

Yes, property insurance is going to be something very special that brokers and loan officers pay close attention to in the years ahead. Have I mentioned that it’s December and the winter storm season is about to start?

If you don’t have insurance, I won’t be seeing you at the closing table.

Recently, in the wake of Hurricane Sandy, a Sarasota, Fla., newspaper published an editorial calling for the creation of a national disaster insurance fund to deal with these new mega-storms. Is this an idea whose time has come?

Well, maybe. Maybe not. Naysayers (probably those who don’t live near the water) don’t like the idea of having to bail out those with ocean views. And can we blame such thinking? Then again, is it logical to think that we should all abandon the coasts for the middle?

As for the overall housing recovery, there’s another looming issue that could damage the short sale market, namely tax forgiveness on forgiven debt. Under current law, when a seller has debt forgiven on a short sale they do not have to pay income taxes on the mortgage debt that is wiped out. However, this law is set to expire at the end of 2012. (Is Congress great or what?)

You might say that like the weather, short sales are not going away anytime soon.

Short sales would be a lot less attractive to a seller if they have to pay income taxes on the amount of the debt forgiven by their lender. A bill (S-2250) is pending in the Senate which would extend the debt forgiveness to short sale mortgagors for another two years through 2014. Why not give your senator a call and encourage him/her to pass the measure? This way you will have a few more deals to work on next year.

Of course, I wouldn’t mind seeing favorable tax relief to homeowners who bought high and who sold low and took a bath without going through a short sale. Writing off a gain on the sale of your primary residence is easy. However, if you want to sell your primary residence (and are losing a bundle) you don’t get a tax break. With holidays approaching I will now start my letter to Santa.

 

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