9.7 Million Homeowners Underwater

Author: Tory Barringer May 20, 2014

The number of underwater borrowers continues to fall, but that was about the only good news Zillow had to report in its latest look at negative equity.

The company released Tuesday its Negative Equity Report for the first quarter, revealing an estimated 9.7 million homeowners continue to owe more on their mortgage than their home is worth. That number, down from about 9.8 million in Q4 2013, represents about 18.8 percent of mortgage-paying Americans, according to Zillow.

Conservative estimates from the company call for a negative equity rate of 17 percent by this time next year as home value growth moderates.

While the continuing downward trend in underwater rates is a welcome sign of improvement in the housing sector, the company notes that the “effective” negative equity rate, which includes homeowners with 20 percent or less equity in their homes, remains elevated at more than one in three.

“The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come,” said Zillow’s chief economist, Dr. Stan Humphries.

With so many borrowers lacking enough equity to comfortably sell their homes and afford a down payment on a new one, Humphries expects inventory to remain choked, driving home values higher and making affordability a greater concern.

What’s more, Zillow found that homes priced in the bottom third of home values nationwide have a greater negative equity rate, with 30.2 percent of that population currently underwater compared to 18.1 percent of those in the middle tier and just 10.7 percent in the top tier.

For those underwater borrowers who happen to be in the lower tier of home values, listing their home will remain difficult without engaging in a short sale or bringing cash to the closing table—another contributor to the supply shortage and a major obstacle for buyers in search of starter homes.

“It’s hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers,” Humphries said.


Great News for Underwater Home Owners in California

Sacramento, CA – April 28, 2014


Great tax relief news for California home owners considering a short sale. The national media has it all WRONG. I just read an article published in Realtor Mag which is a publication put out by the National Association of Realtors (a link to this article below). The headline was “Homeowners Think Twice About Short Sales”. The article painted a gloom and doom scenario explaining the reason Short Sales have dropped. It put most of the blame on the fact that Congress hasn’t passed an extension of the Mortgage Debt Relief Act and therefore there will be an “increase in taxes borrowers will now have to pay on forgiven debt”.


NOT IN CALIFORNIA. I repeat – not in California. This article does not mention the huge California exception which misleads everyone in California reading the article. They are not the only ones. I daily seem to read articles which don’t properly explain the situation for California homeowners.


I will try to explain in the simplest terms why California homeowners have the best laws in the country and will most likely NOT owe any debt forgiveness income tax after a short sale. First let me state that there are other exceptions to this crazy tax the IRS and state taxing bureaus want people to pay. Bankruptcy and insolvency are exceptions but I will not get into those exceptions in this article due to space constraints – and I don’t want to bore you to death.


In December 2013 the California Association of Realtors and Senator Barbara Boxer announced in a press release that the IRS and the California Franchise Tax Board (California’s equivalent to the IRS) both have agreed that a short sale in California is a non-recourse event and therefore does not create so-called “cancellation of debt” income to underwater home sellers for income tax purposes. This is GREAT news! No other state that I know of has such great laws protecting underwater homeowners.


The national media seems to ignore this when doing their reporting most likely because it is a very complicated subject and it’s easier to paint with a broad brush. I have even talked to tax preparers who still haven’t received the great tax news regarding California short sales. Needless to say you should talk to an expert in this area and do NOT accept legal advice from a realtor. Realtors are not allowed to give legal advice and when dealing with a short sale it’s almost ALL legal.


Most homeowners are very concerned about things such as: what if my bank sues me, can they garnish my paychecks, what about my retirement accounts, will I ever be able to buy another house, etc…


If you have any questions or concerns about your own personal situation I would be happy to give you a FREE one on one legal consultation and if I help you with your short sale you pay me nothing. You can call me at 877.442.4577 or send me an email at tgreene@tedgreenelaw.com or just visit my website www.upsidedownca.com.


Ted Greene
California Attorney and
licensed Real Estate Broker