2007 Mortgage Debt Relief Forgiveness Act expiring at the end of 2012, is it too late for a short sale?
There is nothing worse than losing a house after pouring time and money into it, that is unless you are one of the unfortunate to short sale after the Debt Relief Act expires this year. Not only will you suffer the loss of your home but you will owe taxes on the debt that has been forgiven by the bank.
According to Zillow there are about 16,000,000 homeowners or 30% that are still currently underwater in the United States. Let’s say that you are one of the unfortunate to short sale your home after the expiration of this bill and you owe $300,000 on your mortgage. You will likely find that the majority of U.S. homes have seen a decrease in equity between 30 – 50% and the best fair market offer you get on your home is only $170,000, which leaves a shortfall of $130,000 that the bank must forgive. If the bank approves the deal and your home is sold after December 31, 2012 then the IRS will consider $130,000 shortfall as taxable income and you will be hit with a huge tax debt after the sale for April 2013.
While there have been significant efforts to shorten the short sale approval process from 190 days to 60 days (via HAFA) there will undoubtedly be a massive rush to beat the expiration deadline causing delays in the approval process. Those who plan now and seek assistance from a qualified agent to list and submit their short sale request will be better situated to make the deadlines. Those who are still trying to secure a loan modification will be hard pressed when they find out that the time has run out from them to take advantage of the Debt Forgiveness Act.
There have been efforts in Congress to extend the tax relief into 2015 in the form of (H.R. 4290: Homeowner Tax Fairness Act) sponsored by Rep. James McDermott. The new bill was introduced on March 28, 2012 and has since been referred to Committee. According to GovTrack.US, the bill is estimated to only have a 3% chance of being enacted.
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