Short Sale Now or Pay Tax Consequences

A seller recently called me in a panic, "I received a 1099C from the bank and I owe the IRS almost $18,000." She had done a Short Sale last year and was preparing her taxes. She received the Bank's 1099 Form showing the forgiven debt, the difference between what the house sold for and what she owed.

However, the good news for this seller is the Mortgage Forgiveness Debt Relief Act of 2007. The law saved her from having to pay this huge tax. Once the seller filed the IRS Form 982, the problem was corrected on her taxes.

According to the IRS, "The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief."

Prior to 2007,the difference between what the house sold for and was owed, was considered forgiven debt, and may have been taxable.

Since the law only protects those that qualify until of the end of 2012, if you have been considering a short sale now is the time to do it. Since short sale bank approvals can take anywhere from 3-6 months, you need to start making plans .

While I always advise sellers considering a short sale to consult with their attorneys and/or an accountant, you will also want to consult with a Realtor who has the Short Sale Foreclosure Resource designation from the National Association of Realtors. Agents with this designation have gone through special training to specialize in short sales.

For more information, you will want to visit the IRS website on Mortgage Debt Relief Act of 2007 .


Virginia Hall
ABR, CRS, e-Pro, GRI, SFR
Coldwell Banker Residential Brokerage
VirginiaHall.com
Direct (619)258-8585

Can't Eat Your House: Buying After a Short Sale

With the economy the way it is today, a lot of people are getting in the mindset of why try to pay the mortgage when you are losing the house anyways. For some people this may be true. You can't eat your house.

However, for those who are able to keep up your house payments and undergo a short sale, your credit will not suffer as much and you will be able to buy another house sooner.

While the average short sale seller has to wait 2-3 years to buy another home, there are some home loans out there for certain sellers, who can buy immediately based on the criteria below:

• have not missed a house payment
• can prove steady employment for the last 2 years
• have a credit score at least 640

When I looked at these criteria, I wondered who might qualify since most banks require the short sale sellers to have legitimate financial hardship to qualify for a short sale. Financial hardships normally include job loss, divorce, unaffordable rising interest rates, job relocations, health problems, etc..

However, there may be circumstances where some people who are still making their house payments such as in the case of a job relocation or going through a separation or divorce, where financial hardship is imminent, but they still manage to squeak by.

For those who fall under the criteria above, there is now an alternative home loan program to consider after rolling over one those bumps in life. For more information contact me.

--Virginia Hall
ABR, CRS, GRI, SFR, e-Pro
Coldwell Banker Residential Brokerage
www.VirginiaHall.com
Virginia@VirginiaHall.com
Direct: (619)258-8585