Tax credit on foreclosures for sale

Applicability in foreclosure sales

Almost all mortgage loan agreements contain the foreclosure clause, under which the lender can seize a collateral property, if the borrower defaults in principal or interest payments. The lender resells such property to recover the amount in default. Foreclosure sales have various features like attractive pricing through huge discounts. In addition, the Government initiatives, like tax credit, rejuvenate and propel the reducing steam in the properties market.

Before buying a foreclosed property, some important factors need to be considered. The starting point is a thorough research of the public listings of the available properties for selecting some on broader terms. A personal visit for appraisal of the true physical state of the property comes next in the line. If you are a nonprofessional, availing expert advice is a good idea.

• Foreclosure Prevention Act, 2008. Apart from other significant provisions, this Act contains the welcomed clause of tax credits.

• Conditions

  • This clause is applicable to the purchase for house property only.
  • The property should be bought by a 'first-time homebuyer', defined in the Act as a person who has not been in possession of a home in the preceding three years.
  • The property should be bought by a 'first-time homebuyer', defined in the Act as a person who has not been in possession of a home in the preceding three years.

• Provisions

  • The tax credit available is of $7,500 that can be availed over two years.
  • This credit has to be repaid over a 15-year time @6.67% p.a.

• Benefits

  • The net effect of this provision is a grant of a virtual interest free loan by the Government.
  • This can further help in appreciation in the prices in the housing market, in general.

• Discounts. Low minimum bid prices also add to the attractiveness of the foreclosed property. In addition, as the seller's interest is limited to the recovery of its due, the final settle prices are also quiet low, as compared to the prevailing market prices.
• Maintenance. If enough prudence is exercised in judging the physical condition of the property before purchase, you are likely to save considerably on post-acquisition repair and maintenance efforts.