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How the Bank Foreclosure Settlement Can Help U.S. Expats

posted Feb 9, 2012, 6:39 PM by Kaitlin Krozel
Today I watched the press conference in which President Obama announced the 25B bank foreclosure settlement and immediately new it would be a fun night to watch the news. As I write this post, three men on CNBC are intensely debating whether the settlement is a 'War on Banks' or whether it does not punish the banks enough. A few minutes of internet searching will provide you the details and various opinions for or against this settlement. So rather than repeat what is already out there, I am going to answer the question, "How will this settlement affect U.S. expats living overseas?" 

If you have been thinking about buying an investment property in the U.S., or you might be moving back to the U.S. in the next few years and want to purchase a home, the results of this settlement may make 2012 and 2013 a good time to find a good deal. Why? Word on the street is that the roll out of this settlement is going to help the banks clear out 'shadow inventory', or homes that should be on the market but currently are not. This is mainly due to the stalled foreclosure process. Many are saying (including the President) that this settlement will allow banks to move forward with foreclosures and get this 'shadow inventory' to market, which will let the housing market hit the bottom it needs in order to stabilize and begin recovering. Now I have to say that the cynic in me questions whether banks are required to get rid of this inventory in a quick efficient manner. Just because they will be able to place more foreclosed and short sale properties on the market more efficiently, does it mean they will?  If I ran a bank, or any inventory based business for that matter, I would not want to sell my inventory at the bottom of the market (which is the intended result of this settlement). But again, that is my cynical side talking and thinking it through I do think that even if banks held back some properties, we are still going to see nice tidal wave of foreclosures and short sales hit the market in 2012 and 2013. 

So if you are thinking about buying property in the U.S. this year or next, make sure to keep the following in mind: 

Budget for a property manager. You may be living thousands of miles away from your property, so unless you have someone who is willing to help you take care of the place for free (even for family this could be a lot to ask for), you will need to budget for a property manager. A rough percentage of cost is 10% of rent.

Do your research. While you may think you know a city/town/neighborhood inside and out, things may have changed depending on how long you have been out of the country. Use websites like Zillow, Redfin and Wikipedia to do your research (this list is not inclusive). I often search Craigslist ads in a particular zip code when I am trying to get an idea of how much rent I would be able to charge on a property I am analyzing. Don't forget to check out the satellite view on Google Maps so you can see if the property is butting up against the local land fill, airport or busy street before you buy. 

Find an agent who specializes in what you are looking for. Are you looking for a single family home in a specific neighborhood? An apartment building under a certain price? Maybe you just want a deal on a foreclosure or short sale? Make sure to find an agent that specializes in what you need and have the agent set you up now on a listing distribution so you can start receiving emails of properties that fit your criteria. This way you can start to get a better feel of your market before jumping in. Also, make sure you find an agent that is willing/can work with you even though you are out of the country (it will be imperative that he/she is willing to mainly communicate over email).

Last but not least, run the numbers. Make sure to know the financial situation you are committing yourself to well before you buy. If you need help in this area please contact me as I do provide services in this area. The cost of your tax preparation may also increase a bit with the purchase of a rental property as an investment property will require the filing of a Schedule E with your U.S. tax return. Remember that one of the reasons the U.S. got into this housing mess is that buyers bought/leveraged what they could not afford and you do not want to repeat history.

Posted by:
Kaitlin M. Krozel, CPA
kaitlin@krozelcpa.com

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