“Under U.S. law, a homeowner with an underwater mortgage who goes through a short sale has part of his or her debt forgiven by a bank. The amount forgiven is legally considered income, as if the lender gave the owner a monetary gift by saying, “You no longer have to pay this.”

“ As a gift, that money is income and taxable by the IRS when the homeowner fills out his yearly income taxes. However, a temporary law effective through Dec. 31, 2012, nixes that amount as homeowner income, making the debt forgiveness tax-free. A short sale in 2012, then, allows a homeowner to walk away free of debt.”

 As it stands now, that rule expires next year, and underwater homeowners who go through a short sale could be taxed on the amount forgiven.

 “However, a bipartisan bill introduced late last week by U.S. Senators Debbie Stabenow (D-MI) and Dean Heller (R-NV) – the Mortgage Relief Act – would extend that rule past Dec. 31 if approved by both the House and Senate and signed by President Obama. Senators Robert Menendez (D-NJ), Sherrod Brown (D-OH) and Jeff Merkley (D-OR) cosponsored the legislation.”

 “It is bad enough that so many families are faced with mortgages that now exceed the value of their home,” says Stabenow. “But to add insult to injury, without this bill, the IRS would once again require these families to pay hundreds or thousands of dollars in additional income tax when they sell or refinance their home. That’s just wrong.”

“Stabenow championed the original Mortgage Relief Act of 2007 designed to fix the problem that now expires at the end of 2012. Stabenow and Heller’s new bill will extend this tax protection for underwater homeowners through 2015.  Approximately, 20 to 25 percent of American homeowners are currently underwater on their mortgages.”

“As part of a settlement with state attorneys general, the five largest mortgage servicers are adopting new requirements for short sales, which is expected to speed-up what has been known as a lengthy process.”

Here are some of the new requirements for servicers under the settlement:

• Servicers must provide borrowers with a decision within 30 days after receiving a short sale package request.

• Servicers will be required to notify a borrower, also within 30 days, if any necessary documents are missing to process the short sale request.

• Servicers must notify a borrower immediately if a deficiency payment is needed to approve the short sale. They also must provide an estimated amount for the deficiency payment needed for the short sale.

• Servicers are also required to form an internal group to review all short sale requests.

• Banks will be considered in violation of the settlement requirements if they take longer than 30 days on more than 10 percent of the short sale requests. Violations can carry fines of up to $1 million and $5 million for repeat offenses.

“If a real estate broker can get a checklist from the bank detailing what documentation is needed, everything can be provided up front, and the bank will be required to give a thumbs-up or a thumbs-down within 30 days,” short sale specialist Chris Hanson with the Hanson Law Firm told HousingWire. “That’s not a bad deal.”

”An estimated 1 million foreclosure-related notices for defaults, auctions, and home repossessions that should be filed by lenders this year will be pushed back until next year, according to the latest report by RealtyTrac. “

“While the delays could give home owners more time to catch up on their payments and try to avoid foreclosure, housing experts warn this means the looming shadow inventory of distressed properties likely will continue to plague the real estate market even longer.”

“The best-case scenario is we don’t get back to normal levels of foreclosure activity until 2015, which means the housing market recovery gets delayed by at least a year,” says Rick Sharga, a senior vice president at RealtyTrac.”

Foreclosure Notices Drop, Threat Still Looms

“Overall, the number of homes repossessed by lenders in the first half of this year dropped 30 percent compared to the same period in 2010. But foreclosure processing delays — with lenders taking longer to take action against delinquent borrowers — is stalling the housing recovery, experts note.”

“About 1.2 million homes received a foreclosure-related notice in the first six months of this year — in other words, one in every 111 U.S. households, RealtyTrac reports.”

“Nevada continues to face the most foreclosures; one in every 21 households in that state received a foreclosure notice in the first half of the year.”

“The foreclosure process continues to lengthen too. From April and June, homes took 318 days on average to go from the first stage of foreclosure to ultimately where it was repossessed by the lender — that’s up from 298 days in the first three months of the year. (In New York, the foreclosure process took the longest at an average of 966 days or 2.6 years; Texas boasted the shortest at 92 days.)”

“Foreign buyers are helping to stoke home sales in U.S. vacation hot spots decimated by the real estate crash, especially in southern Florida.”

“For the 12 months ending in March, 31 percent of Florida’s home sales were to foreign buyers, up from 10 percent in 2007, according to a survey by the National Association of Realtors.”

‘In Arizona, 6 percent of sales in the same period were to foreigners. That was down from 11 percent last year but still up from 5 percent in 2007, the data show.”

“Foreign buyers are being enticed by low U.S. home prices, down 30 percent nationwide since peaking in 2006, and the weakened dollar, which makes their money go further. Since the start of 2006, the Canadian dollar has soared 18 percent against the U.S. dollar, while the euro has gained 22 percent, says data tracker Oanda.”

“U.S. home prices, meanwhile, have fallen far more than the national average in some places, down 55 percent from their peaks in Miami-Fort Lauderdale and Phoenix, and 36 percent in Los Angeles, says Zillow.com. Those are three of the most popular areas for foreigners searching for real estate on Trulia’s website, that company says.”

“Sales are so brisk in the Miami region now that more houses and condominiums could sell this year than in 2005, the peak year, says Ronald Shuffield, president of Esslinger-Wooten-Maxwell Realtors in Coral Gables, Fla.”

“International buyers have been the fuel for the Miami recovery,” Shuffield says.

“About 40 percent of buyers are international vs. less than 35 percent before the bust, he estimates. Many buyers are South American investors snapping up condominiums to rent out, says Peter Zalewski of market researcher Condo Vultures.”

‘In the Phoenix region, there are at least 20 percent more foreigners in the market now than usual, says Don Hammer, manager of Realty Executives in Paradise Valley, Ariz.”

“One of those shoppers is retired hedge fund manager Peter Duerr of Austria. He’s planning to buy a home in Scottsdale, having sold one there in 2005. “The U.S. is a great buy right now,” Duerr says.”

“The largest share of foreign buyers, 23 percent, come from Canada, the Realtors’ survey found. China followed at 9 percent. The survey includes foreigners living abroad, those in the U.S. with long-term visas and new immigrants.”

“The improving economy and job creation mean growing demand for commercial real estate, according to the National Association of REALTORS®.”

“Lawrence Yun, NAR chief economist, said job creation will be the biggest factor moving forward. “Job growth creates demand for commercial space, and the economy should be adding between 1.5 million and 2 million jobs annually both this year and in 2012, with the unemployment rate falling to 8.0 percent by the end of next year,” he said. “Given the minimal new supply in recent years, the rising demand means vacancy rates will be trending down in the commercial real estate sectors. Individual markets are now stabilizing and in some cases rising.”

“From the second quarter of this year to the second quarter of 2012, NAR forecasts vacancy rates to decline 1.0 percentage point in the office sector, 0.9 point in industrial real estate, 0.5 point in the retail sector and 1.1 percentage points in the multifamily rental market.”

“The Society of Industrial and Office Realtors®, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 360 local market experts, shows a firming up of market fundamentals.”

“The SIOR index, measuring the impact of 10 variables, rose 6.8 percentage points to 57.5 in the first quarter, the highest since the fall of 2008. The Northeast and South drove improvements in market conditions. Vacancy rates are improving, but concessions continue to make it a tenant’s market.”

“Although the SIOR index remains notably lower than a level of 100 that represents a balanced marketplace, this is the sixth consecutive quarterly improvement after almost three years of decline. The last time the index was at 100 was in the third quarter of 2007.”

“A separate NAR commercial lending survey shows 65 percent of REALTORS® report lending conditions have tightened thus far in 2011, and six out of 10 failed to complete a transaction this year due to financing problems. Regional banks provide the majority of commercial loans, followed by private investors. National banks are a distant third.”

“Just as in the residential sector, lending problems are the biggest issue impacting commercial real estate,” Yun noted.

“The multifamily sector is the only area that has clearly turned the corner, resulting in consistently falling vacancy rates and rising rents. “Solid rises in apartment rents will force some renters to consider home ownership,” Yun said.”

“NAR’s latest COMMERCIAL REAL ESTATE OUTLOOK offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors.”

Office Markets

“Vacancy rates in the office sector are expected to fall from 16.3 percent in the second quarter of this year to 15.3 percent in the second quarter of 2012.”

“The markets with the lowest office vacancy rates currently are Honolulu and New York City, each with vacancies below 9 percent.”

“Office rents are projected to rise 0.3 percent this year and another 4.3 percent in 2012. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, is likely to be 26.6 million square feet in 2011.”

Industrial Markets

“Industrial vacancy rates are expected to decline from 13.9 percent in the current quarter to 13.0 percent in the second quarter of 2012.”

“At present, the areas with the lowest industrial vacancy rates are Los Angeles and Salt Lake City, with vacancies in the 7 to 8 percent range.”

“Annual industrial rent should decline 1.5 percent in 2011 before rising 2.0 percent next year. Net absorption of industrial space in 58 markets tracked is seen at 126.1 million square feet in 2011.”

Retail Markets

“Retail vacancy rates are forecast to decline from 13.1 percent in the second quarter of this year to 12.6 percent in the second quarter of 2012.”

“Markets with the lowest retail vacancy rates currently include Honolulu; Long Island, N.Y.; and San Jose, Calif., all with vacancies below 8 percent.”

“Average retail rent is expected to decline 1.4 percent in 2011, and then rise 0.7 percent next year. Net absorption of retail space in 53 tracked markets is projected to be 5.4 million square feet in 2011.”

Multifamily Markets

“The apartment rental market – multifamily housing – is continuing to tighten as household formation grows. Multifamily vacancy rates should drop from 5.8 percent in the current quarter to 4.7 percent in the second quarter of 2012.”

“Areas with the lowest multifamily vacancy rates presently are Pittsburgh; San Jose, Calif.; and Portland, Ore., with vacancies below 3 percent.”

“Average apartment rent is likely to rise 3.4 percent this year and another 4.3 percent in 2012. Multifamily net absorption is forecast at 250,800 units in 59 tracked metro areas in 2011.”