La Jolla Homes for sale & La Jolla Real Estate

Short sales are the hottest thing going in the distressed-property market, and the trend is expected to get even hotter in coming weeks, when the government starts handing out cash to encourage lenders to close these deals.

"Banks have ramped up short sale approvals," said Duane Legate of House Buyer Network, which connects short sellers with buyers. "They're hiring a lot of the people who once worked in the mortgage-lending industry and moved them over to short sales."

These transactions, where lenders allow homeowners to sell their houses for less than they owe, accounted for 17% of all residential real estate sales in February, up from nearly 13% in November, according to a monthly real estate market survey by Campbell/Inside Mortgage Finance.

And Bank of America (BAC, Fortune 500), the country's largest mortgage servicer, has more than doubled the number of short sales it processed in recent months.

Elizabeth Weintraub, a Sacramento, Calif.-area real estate agent who handles many short sales, was amazed at how quickly a recent deal went through. "Bank of America approved it in 24 days," she said. "That flipped me out."

This is a huge change from even just six months ago when the short-sale market was stalled and most people would describe the process has real estate hell. Because lenders stand to lose so much on these transactions, they have been reluctant to make short sales happen, often waiting months before getting back to potential buyers.

Beware: You lost your house but still have to pay

"In the past, many short sales would never come to fruition and the ones that did averaged over half a year to complete," said Chris Saitta, CEO of Equator, which produces short sale software.

"Things would just fall into a black hole and not come out again," added Weintraub.

And even when banks did agree to the sale, the process could be further complicated if the original owner had a second mortgage.

In most cases, the first lender is repaid in full before any money flows to a second-lein holder. And because most distressed borrowers are severely underwater, there's usually nothing left to send on. As a result, second-lein holders are left holding the bag and have been killing many deals.

But that has been changing. For one thing, banks realize that they make out far better financially with a short sale than a foreclosure. "The lenders lose 50% on a foreclosure and only 30% on a short sale," said Glenn Kelman, founder of the real estate Web site Redfin. "And short sales offer a way to get distressed properties off their books quickly."

And on April 5, lenders and mortgage investors will have even more incentives to offer troubled borrowers short sales instead of foreclosing.

Under the new Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 "relocation incentive" and servicers will get $1,500 for handling a short sale.

The investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims.

Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they're willing to accept. Then, if owners come back to the lenders with bonafide offers, they have to be accepted within 10 days.

Equator's Saiita anticipates a short sale explosion in response to the new program. "The challenge will be handling all the volume," he said.

The company has already tweaked its software, which 58 servicers use, to handle the new HAFA rules. And that should help reduce the time it takes to execute a sale, which currently averages 88 days.

The boom in short sales may accelerate the end to the foreclosure crisis by cleaning out the overhang of borrowers in distress and replacing them with more stable homeowners.

Plus, these sales are better for distressed borrowers because their credit scores suffer less. Going through a foreclosure can knock 200 points off a FICO score, twice as much as the penalty for a short sale.

Legislation to prevent the state from taxing forgiven mortgage debt cleared the state Assembly early Monday, offering potential tax relief to thousands of Californians who lost their La Jolla homes in 2009.

"The feds don't do it and we're not going to do it, either," Assemblyman Charles Calderon, D-Montebello, said Monday before a 47-27 vote that sent the measure to Gov. Arnold Schwarzenegger.

Schwarzenegger's office signaled later that he may veto the measure. The governor opposes an unrelated provision in SBX8 32 concerning tax refunds sought by corporations.

"Our position hasn't changed," said Schwarzenegger spokesman Mike Naple.

The Assembly vote ratified earlier state Senate approval of a measure that aligns many California tax codes with those of the federal government. One clause would eliminate state tax penalties for those who received loan modifications last year or did short sales. In loan modifications, lenders sometimes forgive a few months of payments. In short sales, they agree to sales prices below what they're owed to avoid La Jolla foreclosures. The differences in both are considered forgiven debt for the homeowner and typically taxed as extra income.

Vacaville homeowner Mark Mosley said Monday he received a $21,000 tax bill last week for a $59,000 loan modification he received in 2009. He said his lender notified him he owes $13,000 to the federal government and $9,000 to the state.

It's almost certain, however, that Mosley doesn't owe federal taxes. The federal government has banned the IRS from taxing forgiven mortgage debt through the end of 2012. The state government had similar bans in place for the 2007 and 2008 tax years. But it hasn't yet extended the ban to the 2009 tax year.

While every homeowner's case can be different, typically those who live in the La Jolla homes they own can avoid being taxed for forgiven debt. Lawmakers called it a fairness issue Monday, arguing that people having mortgage hardships shouldn't also get hit with a big state tax bill.

"We should provide relief to those who are struggling and at risk of losing their homes," said Assemblywoman Mariko Yamada, D-Davis.

Schwarzenegger opposes a clause that penalizes businesses for seeking some tax refunds. Businesses say it's often hard to calculate what they owe the state, and thus, overpay to avoid stiff penalties. But Democrats say some companies unfairly seek state tax refunds that they aren't owed.

Vacaville homeowner Mark Mosley said Monday he received a $21,000 tax bill last week for a $59,000 loan modification he received in 2009. He said his lender notified him he owes $13,000 to the federal government and $9,000 to the state.

It's almost certain, however, that Mosley doesn't owe federal taxes. The federal government has banned the IRS from taxing forgiven mortgage debt through the end of 2012. The state government had similar bans in place for the 2007 and 2008 tax years. But it hasn't yet extended the ban to the 2009 tax year.

While every homeowner's case can be different, typically those who live in the La Jolla homes they own can avoid being taxed for forgiven debt. Lawmakers called it a fairness issue Monday, arguing that people having mortgage hardships shouldn't also get hit with a big state tax bill.

"We should provide relief to those who are struggling and at risk of losing their homes," said Assemblywoman Mariko Yamada, D-Davis.

Schwarzenegger opposes a clause that penalizes businesses for seeking some tax refunds. Businesses say it's often hard to calculate what they owe the state, and thus, overpay to avoid stiff penalties. But Democrats say some companies unfairly seek state tax refunds that they aren't owed.

Despite signs that the La Jolla real estate market might be lurching forward, prices are expected to fall further this year and next.

The average La Jolla homes for sale price in the United States will fall by about 6% by September 2011, according to a joint report between Fiserv and Moody's Economy.com. And that's after plunging more than 27% in the past three years.

Most of the projected La Jolla homes for sale price decline will occur during the usually slow summer months of 2010. After that, prices should begin to stabilize, according to Fiserv, and stay almost flat through fall of 2011.

The main reason for continued decline, according to Mark Zandi, economist and co-founder of Economy.com, is La Jolla foreclosures -- the same thing that's plagued markets for the past three years.

"Foreclosure sales will pick up this spring as mortgage servicers figure out who can qualify for a modification and who can't," said Zandi.

He figures there are at least 4.5 million mortgage loans either in foreclosure or clearly headed in that direction. When that additional inventory hits the market, it will provide numerous choices for buyers and encourage sellers to drop their listing prices.

Check the home price forecast in your city

The end of two federal programs, which have been propping up markets, will also tamp down prices.

The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities. But the Fed's program lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates.

Any resulting rise in rates will cause some buyers to withdraw from the market and others to look for lower priced homes. Either way, demand for La Jolla homes for sale drops and so do prices.

A month after the Fed bows out of the mortgage-buying market, the homebuyer tax credit will start to expire. To qualify for the $8,000 credit, homebuyers must sign a contract before April 30 and close by June 30. When the first date passes, many buyers are expected to vacate the market, weakening the demand for La Jolla homes for sale.

In a broader sense, home prices are ultimately decided by employment. "If [the job market] improvement is stronger than expected, prices will get better. If it's weaker than expected, prices will be worse," Zandi said.

Worst of the worst

The worst performing market will be Miami, Fla. Moody's projects prices there to drop a heart-stopping 29.2% by Sept. 30. That follows a 47.7% decline the metro area recorded in the past three years. Grand total: 64% drop.

Other disastrous performances will be turned in by the Hanford, Calif., metro area, where prices are projected to plummet 27.2% through Sept. 30, 2010 following their 36.9% drop for the previous 36 months. Ft. Lauderdale and West Palm will also register steep drops.

There's some good price news coming out of California's Central Valley for a change; prices will begin to emerge from their free fall toward the end of this year.

In Merced, for example, which crashed and burned by 71.8% in the past three years (through last September), they'll only fall only another 6.2% in the next six months before bouncing back with a rise of 10.1% by Sept. 30, 2011. 

NEW YORK (CNNMoney.com) -- Conservative radio host Rush Limbaugh is saying adios to the Big Apple and selling his Fifth Avenue penthouse, asking almost $14 million.

Limbaugh bought the 10-room condo at 1049 Fifth Ave. in 1994 under the name of R H Trust, according to city property documents. The pad sprawls across nearly 5,000 square feet and two of its terraces overlook Central Park and its famous reservoir.

The pre-war property features a double living room; a wood-paneled library; four terraces; enormous baths; and a maid's room. But it's not for the faint of heart -- or those afraid of a big renovation. The general appearance can be described as, well, ornate, with trompe l'oeil ceilings and mural-covered walls.

Other lavish features include gold leaf moldings, mahogany floors, upholstered walls and an Italian marble foyer.

Luxury broker Corcoran Group is listing the property, but the firm chose not to release photos or confirm the celebrity resident. Limbaugh was not available for comment.

So what's all that worth? Limbaugh hopes to get $13.95 million for his home. For the tax rolls, the city values the property at $1.56 million and says property would rent for more than $26,000 per month.

Limbaugh, host of "The Rush Limbaugh Show," has been a major voice in the conservative media arena for decades. In 2009, the pundit said he would sell his property after New York governor David Paterson proposed a so-called "millionaire's tax" on residents who make more than $500,000 a year.