Great News! As of January 1, 2013, the Mortgage Debt Forgiveness Act was extended until December 31, 2013. Thus, continuing to protect short sellers from paying taxes on the deficiency of their short sale. If the bill had not been extended, homeowner’s electing to short sale, would have to pay taxes on the ‘short’ amount between the difference of the sales price of their home and their loan amount. For example, if a homeowner takes out a loan for $400k and a few years down the road sells their home for $300k, then they would be liable to pay taxes on the $100k of ‘forgiven debt.’ If a homeowner cannot pay the mortgage in the first place, then how will they be able to pay these taxes? Answer: they can’t. By extending the Debt Relief Act, the government is sending a message to lenders, distressed homeowners, and real estate professionals that short sales are the preferred method to assist homeowners in getting rid of a mortgage they can no longer afford. The tax exemption, along with lender incentives (some banks will give incentives from $3K up to $35K to short sellers), encourage homeowners to be proactive about avoiding foreclosure. Fewer foreclosures will help stabilize home prices and less homeowners in default will mean a decrease in the shadow inventory.
As of late, we have started seeing home prices slowly creep back up – adding validity to how this extension benefits our real estate market. We are very excited about 2013 here at Shhortsale.com and if you would like to explore your options about a possible short sale, we are here to help.