If You're on the Fence You Might Want to Get OFF
If you need to short sale your home I suggest you speak to your accountant and attorney and get your home listed as soon as possible. The Mortgage Debt Relief Act usually allows a seller to exclude income from the discharge of debt on their principal residence. Did you know that this is ending December 31,2012? A short sale must be completed by December 31,2012 to be eligible. Will this act be extended? Obama's 2013 budget proposal did include a request that the Act be extended, but thus far the Senate rejected the budget. Congress returns next week and will have three weeks until the beginning of the new fiscal year to approve a budget. I'm hoping they pass a budget that it includes and extension of the Mortgage Debt Relief Act. Our market has just begun to rebound and homeowners have already had a huge blow when the market crashed. This is very important to pass to keep home sales in the rise in Arizona to help stimulate the growth of our economy. If the Act is not extended then we might see short sales come to a screeching halt.
What is the deficiency?
When a seller does a short sale the bank is agreeing to sell the property for less than what is owed on the mortgage. This is an agreement between the seller and the bank and the remaining balance becomes the deficiency. Here is an example:
Amount owed on property: $200,000
Short Sale agreement: $150,000
Deficiency: $ 50,000
Normally this deficiency becomes income and is taxable. With the current Mortgage Debt Relief Act a seller is allowed to exclude the debt on a principal residence.
Always speak to your attorney and accountant before making a decision to short sale your home. If a short sale is what you are advised then you might want to get working on it.