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Short Sales Are Affected by the Debt Relief Act

by Doug & Gwen Campbell at Sun Bay Associates

Short sales are affected by the Debt Relief Act, and that act has expired.  As of Dec. 31, 2013, the Mortgage Debt Relief Act expired and here is what that means.  If you, and this is a generic you, owed $300,000 on your house but could only get a market value of $200,000 when you sold it, and you are in a 30% tax bracket, you now are looking at having the $100,000 shortfall considered income.   This means that you are now on the hook for a $30,000 tax bill.  That is money due the IRS, and we all know the IRS does not fool around when it comes to collecting money owed.

Your congressman can get things started and re-enact the Mortgage Debt Relief Act so that you do not get hit with a tax bill of $30,000 or whatever you could be responsible for when your house is sold at short sale.  Say you "only" are forgiven $25,000 on a mortgage.  That still translates to a tax liability of $7,500 if you are in that 30% bracket.  Sounds like a tax increase to me.

Contact your congressman or congresswoman and tell them that it is time to extend the Mortgage Debt Relief Act so that we can get the housing market back on its feet, get the homeowners out from under crushing debt - or tax liability, and get our economy moving.  There are many homeowners who owe more than their houses are worth in today's market and they are not selling yet.  In Florida, where we are just about at the top of the foreclosure rate, short sales are still better than a foreclosure.  Couple this with the uncertainty of flood insurance, which is a topic for another blog, Congress can do something to help the real estate market moving forward.

Short Sale - A Happy Real Estate Story

by Doug & Gwen Campbell at Sun Bay Associates

Here is something you seldom see, a Realtor singing the praises of a bank with a short sale in the story line.  On May 26, 2013 we listed a condo, as a short sale, with two mortgages.  The two mortgages on the condo were both with Chase Bank.

Today, August 21, 2013, the short sale was completed.  Chase Bank is wonderful to work with!

Our seller is happy, our buyer is happy, and the Realtors who dealt with Chase Bank are happy.

Thank you Chase Bank.  A closed short sale in less than 90 days.  Woo Hoo!!

Now that the good news is out, here is the kicker.  Not every story has a happy ending.  The Mortgage Debt Relief Act will expire at midnight on December 31, 2013.  Congress has no intention of extending it.  If you are in the position of having, or wanting, to sell your home and it is worth less today than your mortgage balance, you might be in a short sale situation.  You still have time to list your house and get it sold and NOT have the forgiven balance count as income.  After January 1, 2014, the forgiven amount of a "short mortgage" may be counted as income.  Thus, someone who sells their home for, for example, $100,000 and the mortgage balance is $150,000, the amount the bank forgives, $50,000 could count as ordinary income.  What this could mean is that someone who earns $75,000 a year, and has a short sale after January 1, 2014, could have the $50,000 added to their taxable income.  If you're in a potential short sale situation, act now.

A short sale does not have to be a big scary monster.  Talk to us and we can provide you with expert information, including finding an attorney who specializes in distressed property if that is necessary.

To learn more about what this might mean to you, contact us at Sun Bay Associates.  If you are not sure of the current market value of your home, click on our home valuation link and get an estimate of your current market value.

Mortgage Debt Relief Act, tax forgiveness set to expire

by Doug & Gwen Campbell at Sun Bay Associates

Yes, here is yet another article from a Realtor about short sales. If you, or someone you know, own a home, need to sell it and owe more than it is worth in today's market, you or they may be in a short sale situation. If so, you will be asking your lender to forgive a significant amount of money. So far, nothing new.

What many people don't yet understand is that as of now, the Mortgage Debt Relief Act of 2007 will expire on Dec. 31, 2012. What this means to the homeowner in a short sale situation is that if they do a short sale that closes after Dec. 31, 2012, under current law, the forgiven debt may be taxed as income. Presently, if an owner has done a short sale for their primary home, the Mortgage Debt Relief Act has allowed taxpayers to exclude income from the discharge of debt, which means the forgiven debt is not taxed.

Before the Mortgage Debt Relief Act was put in place, the IRS considered forgiven debt as taxable income. Since 2007 and thru 2012, forgiven mortgage debt, for a primary residence, has not been considered taxable. Here is the issue, if Congress does not extend the Mortgage Debt Relief Act, or amend it in some meaningful way, any debt forgiven through debt restructuring, or short sale, may be considered as taxable income. An example would be a homeowner is forgiven $50,000 in mortgage debt when their home sells, in February of 2013. That $50,000 could be added directly to the homeowner's taxable income!

Now, if you are a homeowner who is considering a short sale, or if you feel that in the next several months you may be in a short sale situation, and if you believe that the Congress is going to agree to extend the Mortgage Debt Relief Act to 2013 or beyond, relax. If you have a hard time believing that Congress can agree what time it is, then you should be concerned.

Short sales happen for numerous reasons, mostly as a fact of life that our real estate market has suffered enormously in this recession. In the Tampa Bay area, almost every home purchased between 2004 and 2010 has a lower market value today than when it was purchased. Reasons to sell vary widely, from job transfer, to the kids have all moved out, to a death, a divorce, job loss or whatever else happens in life.

Before you do anything, consult your financial advisor and your attorney about the situation with your mortgage. Find a professional Realtor who is expert in short sales to guide you through the complex short sale process. Because of the backlog of short sales the banks are already processing, a short sale can take many months. So if you are considering selling your home and may be in a short sale situation, don't wait. Act now. You just might not have the tax relief next year that is available today.

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Photo of Gwen and  Doug Campbell - The Campbell Team Real Estate
Gwen and Doug Campbell - The Campbell Team
at Keller Williams Realty
30522 US Hwy 19N, Suite 107 S
Palm Harbor FL 34684
Doug's Cell 727-741-4189
Gwen's Cell 727-741-7260
Fax: 888-447-7908