The tax implications of a short sale, more specifically the deficiency in the short sale, are a very common question; especially this time of year. Here, specified by a highly placed tax and financial professional, is the definitive answer. Combined with the imminent effect of the Home Affordable Foreclosure Assistance act by Congress, will enable all distressed short sale property owners to breathe a huge sigh of relief.
One more time, a short sale occurs when the mortgage lender allows the property to be sold for less than the balance owed on the mortgage. This can be negotiated with the lender as part of a financial hardship account by the borrower. Short sales are notorious for taking months to complete because the mortgage servicer stalls and ignores the application. A mortgage loan deficiency is the difference between the actual selling price of the distressed property and the mortgage loan balance at closing.
It’s important to get the mortgage deficiency negotiated before closing when the distressed homeowner has control. After foreclosure, the homeowner gives up all control and the mortgage servicer is free to come after the deficiency amount for years.
It has been demonstrated inumerable times that mortgage loan servicers benefit more from a foreclosure than a short sale or mortgage modification. Engaging an experienced short sale negotiator and investor like the ones I represent assures that the lender will not be allowed to stall the process. The one mistake in the expert article is the statement that a short sale decision is clearly up to the lender. By getting the REST Report and an unbiased short sale amount, the homeowner will be supported by their local foreclosure court and the mortgage servicer will not be able to foreclose without good faith negotiations. The REST Report has been sanctioned by every judge who has seen it.
Typically, the lender will issue a form 1099C (cancellation of debt), and the amount canceled would be taxable as income to the borrower (seller). Current law allows short sales of a principal residence completed during 2007 through 2012 to exclude the forgiven balance from taxable income, up to $1 million for a single filer and up to $2 million for a joint return. For more detailed information, consult IRS Publication 4681 or your tax adviser.
While the Home Affordable Foreclosure Assistance law states that the lender will no longer be allowed to come back to the former homeowner for that deficiency, no one who has completed the HAFA process is happy with it. Everyone will tell you that they would have been better off using an independent short sale investor and negotiator.
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The internet being what it is, certain search terms need to be empahasized so that you can find the best information. Obviously this page concerns short sale, short sale rules, and foreclosure alternatives. But other concerns such as try title, quiet title, and clear title may apply. The REST Report is best classified as loan modification software or mortgage modification software. It is used to establish chain of title and assignment of title. But if your reduced income is too low, short sale versus foreclosure or short sale foreclosure is the goal. The REST Report claim to fame is that you use it to calculate Net Present Value exactly the way the banks do, using their software. It is the answer for a real estate title search to decide if your mortgage servicer has the right to foreclose on you at all. This blog is dedicated to independant mortgage advice. You may have a cloud on your title which can block the sale of yourhouse. There is no excuse for foreclosure other than the treachery of your mortgage servicer.
This YouTube video explains the Broken Chain of Title, short sale, cloud on title situation
Click to read more about your Do-it-Yourself Short Sale REST Report
Read the Mortgage and Debt Relief Act of 2007
Read it here
tags: short sale vs foreclosure, short sale foreclosure,short sale, calculate net present value,
loan modification software,mortgage modification software,foreclosure alternatives,rest report,chain of title,real estate title search,independent mortgage advice,assignment of title,short sale rules,
Originally posted 2010-01-09 21:35:40. Republished by Blog Post Promoter
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New blog post for Mortgage Mod Monster: No federal tax liability for short sale deficiency in 2011 http://bit.ly/fhoYXz
No more federal liability for short sale deficiency in 2011. http://t.co/yNu2Ics via @Mod_Monster
http://t.co/3XK8PKQ via @Mod_Monster
No federal tax liability for short sale deficiency in 2011 or 2012 – http://www.mortgage-mod-monster.com/no-tax-liability-for-short-sale-...
Nice site, I just dugg this keep up the good work!
No federal tax liability for short sale deficiency in 2011 or 2012 – http://t.co/0FFqEiJE
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