It’s a great time to do a short sale.
Banks have finally realized they have much more to gain by agreeing to a short sale rather than allowing a home to go through foreclosure.
Data released by RealtyTrac today shows pre-foreclosure sales, which are often short sales, were up 15% in the fourth quarter of 2011.
It’s easier than ever before to walk away without a deficiency and maybe even thousands of dollars in your pocket.
And to top it off you usually don’t have to pay taxes on the debt you walked away from when you agreed to the short sale on your primary residence.
If you can’t stay in your home, this is frequently the best possible scenario.
You don’t have to pay taxes on that debt because of the Mortgage Forgiveness Debt Relief Act, which was enacted in 2007 as President George W. Bush was leaving office.
But like all good things, it may not last.
There is growing speculation that this tax break, which will expire at the end of 2012, will not be renewed.
Even though the bill passed with overwhelming bipartisan support and was enacted by a GOP President, tea partiers and Republican strategists alike seem fixated on the ‘moral contagion’ factor as well as the program’s $2.7 billion price tag.
Which means that if you agree to a short sale on your $200,000 home for only 150K, you could have to cough up taxes on the $50,000 of forgiven debt.
Currently the Debt Relief Act allows for up tax relief on up to $1 million of debt if you’re single, $2 million if you are married.
Once again there’s a lot of talk from some conservatives about the cost to the taxpayer. Never mind the fact that President Obama and the $25 billion settlement has made principal reductions and loan modifications the centerpieces for stabilizing the housing market.
So even the idea that this tax break might not see the light of day in 2013 is a slap in the face to everything the Attorneys General spent months haggling over.
The same government that is dangling the carrot of refinancing in front of you might very well bat it away with a massive tax bill.
Bottom line, if you’re thinking about a short sale, get started NOW. Short sales can sometimes take months to complete, and if you wait til one minute after the clock strikes midnight on December 31st, you run the risk of your beautiful stage coach turning back into a pumpkin.
It is of course an election year, so this lame brain duck Congress cannot be counted on to come through for homeowners. I thoroughly expect them to let the Debt Relief Act lapse, and once again you’ll be on the hook for taxes on ‘loan forgiveness income’.
Loan forgiveness income. If that’s not an oxymoron, then I don’t know what is!
