Susan Hilton College Station Real Estate
Realtor & Vice President of Sales
Read my blog below
Short Sales? Upside Down Sale? Mortgage Debt Forgiveness Relief Act!
April 8th, 2008 Categories: Foreclosures, Selling Real Estate
(Yes the house is supposed to be “SHORT” for “Short Sale… Get it?)
Behind on house payments… Need to get out from under the house payments? Need to sell FAST but sales prices and values have gone down? You can’t sell for as much as you owe, nor as much as you need… NOW WHAT?
A short sale may be the answer…. A short sale is one where you are able to sell your home for less than you owe. Wouldn’t that be nice! Selling for less than you owe while the lender doesn’t ask for the difference! The lender “forgives” the difference.
In the past when you sold your property for less than you owed, you either had to bring the difference to closing (money out of pocket at closing) or if the lender allowed you to sell anyway, they would then send you a 1099 form at the end of the year. You would then owe the IRS income tax on the difference between what your home sold for and what you owed on it. It was like you were paid the difference! Even though you couldn’t afford the house payments and had to sell, now you have to pay taxes on the money you never even received. Something sounds wrong here…
What happened was that most sellers couldn’t afford to bring the money to closing and/or couldn’t afford to pay taxes on the “forgiven” debt so they just had to let it be foreclosed. But, in December a new law was passed by the federal government. The Mortgage Debt Forgiveness Relief Act of 2007 was passed. In a nutshell this new law allows that if you have to sell your home in a short sale in 2007, 2008 or 2009 the IRS will not ask for income tax on the debt the lender forgives.
Why do you care? If you are stuck with a property that you can’t sell and the prices are going down – DON’T LET IT GO INTO FORECLOSURE and hurt your credit for a LONG time to come! Contact the lender and together price the property to sell – GET AGGRESSIVE! Most lenders do NOT want the property to go into foreclosure. Lenders know that foreclosures hurt neighborhoods, drive the values down, hurt the bank and hurt the real estate industry. Talk with your lender (and your accountant to make sure this new law applies to YOU) and find a way to GET THE PROPERTY SOLD! And it is sure nice to know that you won’t be stuck with a HUGE tax bill when you are finished.
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