Bank of America just accepted a short sale on my client’s property AND gave him $8,200 in cash back at closing! WOW. This was part of a pilot program Bank of America was doing last year and my client was lucky enough to be part of it. Many lenders are doing similar programs right now and offering incentives to upside down homeowners to short sale.
I’ve also had Chase offer $20,000 to a Seller who had not paid her mortgage in quite some time, and Wachovia offered $5,000 to a Short Sale seller I worked with. Many banks are doing this right now because its cheaper for them to offer a Seller incentive than to re-inherit through foreclosure a property that’s been beat up and stripped of appliances and anything of value.
But this topic brings me to the issue at hand. Many homeowners are still upside down in the mortgages and there’s something important that’s about to change so if you’ve been considering a short sale as an option – be sure to read on. You may have heard of the Mortgage Forgiveness Debt Relief Act and Debt Cancellation of 2007. Did you know that President Obama has not yet signed to renew this act and that if you complete a short sale after 2012, the debt may be taxable?
Here’s more from the IRS website on this issue:
If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.
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.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
As I said, if Obama does not renew this law, and your short sale closes after 2012 you could potentially be on the hook for the taxes due on the amount forgiven in the short sale transaction.
If you are thinking about short saling your home, or would just like more info about what other options you might have, please feel free to contact me. I am Certified Distressed Property Expert (CDPE) and I have a 100% success rate with my short sales.