Tax & Issues Related to Distressed Properties in the New Millennium

The California’s real estate market is troubled by a number of factors including:

  • Depressed residential and commercial real estate values;
  • Stagnant growth in employment;
  • Skittish buyers;
  • Over-extended financing and speculation; and
  • Billions of dollars worth of variable/interest only loans “resetting.”

These factors have caused record numbers of defaults or near defaults on residential property financing.  While apartments have done relatively well, the “cracks” in the market hit commercial properties in areas where there has been overexpansion.  While economic forecasters are predicting the bottom of the market will hit the end of 2008, their prediction is that in sectors such as housing, “hitting the bottom” will not mean a recovery, and there will be a several additional years of absorption in overbuilt areas.  If there is slump employment or the economy, these problems may pull the commercial market into a declining position and have some chance for affecting apartments.  Unfortunately, the trend in California is for foreclosures to represent over 30% of the transfers in the market.

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