Posts Tagged ‘short sale laws’

Thinking About a Short Sale? You Better Hurry

Wednesday, February 1st, 2012

Are you thinking about short selling your home? Are you underwater (owe more on your mortgage than the current market value of your home)? If you have ever or are considering a short sale, your days are numbered.

The Mortgage Forgiveness Debt Relief Act, that wonderful little piece of legislation passed in 2007 to protect those who short sale from being liable for the capital gains taxes (taxes on the difference between what you sell your home for and what you actually owe), expires on December 31, 2012. For the last several years, most homeowners who have short sold their properties have escaped this tax due to the act.

If you are considering a short sale this year, you need to get your home SOLD before December 31, or the IRS will require the debt be reported as general income. As an example, if you owe $300,000 on your mortgage, but short sell your home for it’s current $250,000 market value (where the lender forgives the difference), after December 31 you will be liable to pay taxes on the $50,000 difference. At a marginal tax rate of 36%, this would equate to $18,000 in taxes.

There are the requirements for the debt relief law to apply:

1. The home you are short selling must be your principal residence, it cannot be a vacation home or investment property

2. Debt ceiling is $2,000,000 (or $1,000,000 if married and filing separately)

3. The law does not apply to a HELOC which was used to pay off debt or as cash-out

Will the act be extended? Of course this is a possibility, but there have been no public discussions as of yet. Taking into consideration that this is also an election year it could either become a big deal or be swept under the rug, as politicians choose to deal with other issues. Regardless, this is not the time to take a chance.

If you are considering a short sale you need to look into the facts now, because as we all know: procrastination gets you nowhere.

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New Short Sale Law in California Protects Homeowners

Tuesday, July 19th, 2011

Governor Brown just signed a new law relating to short sales that will protect California homeowners. Senate Bill 458 prevents first and secondary lien holders from being allowed to pursue homeowners for deficiency amounts after short sales. This is great news for homeowners who need to short sell their properties.

The old law prevented primary lien holders from coming after borrowers upon the close of short sale escrow for deficiencies (the difference between the amount the property sold for and the amount owed to the lender), but it did not include subsequent lien holders. If a borrower had two mortgages on the property (many have a second mortgage or line of credit), the short sale could close and the borrower could later be subject to collection efforts from the subsequent lien holder. That is no longer the case, and the law is effective immediately.

The new law should make the short sale process a bit easier and less risky for homeowners, likely leading to more short sales in lieu of foreclosures and bankruptcies.

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