What is the Mortgage Forgiveness Debt Relief Act
and why does it matter?
Originally enacted in 2007, the Mortgage Forgiveness Debt Relief Act is important to homeowners who are underwater on their mortgage. There are a still a lot of "distressed" properties out there. The owners of these properties are in a tough spot. Even if they are current on their payments, many homeowners owe more on their mortgage than their home is worth in today's market, making it difficult to sell unless the lender who hold the mortgage agrees to a "short sale". In a short sale, the lender agrees to take a loss on what is owed to allow the property to sell. The agree to forgive part of the homeowners debt. Without the Debt Relief Act, the amount of debt forgiven is treated as income for the homeowner and they are taxed on that amount.
The Mortgage Forgiveness Debt Relief Act allows homeowners who sell a primary residence through a short sale, or who lose a primary residence to foreclosure to avoid paying taxes on up to $2 million (or $1 million if married filing separately). Speaking with an financial professional is always a good idea when you are dealing with complicated tax issues to decide if this option is right for you.
Click here for Ten Facts for Mortgage Debt Forgiveness
This Act was due to expire at the end of 2012, but has been extended until the end of 2013. It may seem like a long time, but it often takes months to get a lender to agree to a short sale. If you are interested in taking advantage of this Debt Relief Act...the time to act is now. Most lenders will not start to negotiate a short sale until the property has been listed and has a purchase and sale in place.
If you list today and find a potential buyer in 3 weeks, and the lender approves a short sale quickly...you could be out of that property in a couple of months. If it takes a while to find the right buyer and negotiations with the lender on the short sale take a while...you could potentially be approaching the end of the year before you are able to close and could miss out on the debt forgiveness.
Fontaine Family - The Real Estate Leader helped 35 families complete short sales ion 2012 alone. We are currently working with 28 more families to gain short sale approval on their properties.
For more information about whether a short sale is right for you,
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