Are You Eligible for the Mortgage Forgiveness Act?

As a typical Toms River NJ short sale seller, you have your home listed for sale.  You are now hoping that a buyer comes along and makes an offer.  You know that if you get an offer you have to submit it to your bank for their approval and you have been forewarned that that process takes time (maybe even months).  So you are waiting.  Well stop waiting and start acting!  


The Mortgage Forgiveness Debt Relief Act and Debt Cancellation was signed into law on December 20, 2007 and is due to expire on December 31, 2012.  Operating on the assumption that this law may not be extended, that means you have until December 31, 2012 to sell and close on your home. When you sell your home as a short sale, the IRS considers the forgiven debt (the difference between what you owe and what you sold for) as income to you and is taxable. The Debt Relief Act allows for that taxable income to be excluded IF:


1.  The home you sold was a qualified principal residence (investment, vacation and commercial properties do not qualify)


2.  The maximum indebtedness forgiven can not exceed $2 million (or $1 million if filing separately)


My short sale sellers understand that it is imperative we get a buyer for their home now.  This means reevaluating the list price, cooperating with showings, and keeping the home clean and tidy.  Once you get a decent offer (and not any offer**!), the seller must be willing to cooperate and provide the financial documents required by their lender. All of this will go a long way to facilitating the approval process.


Is it possible the Mortgage Forgiveness Act will be extended?  Maybe, but as of today it has not.It is my opinion that you as a short sale seller still have some control over what happens to you.  If you truly want to take advantage of a short sale (instead of waiting for foreclosure) then act today.  This way you can also guarantee yourself that you can take advantage of the debt forgiveness program.


 To read more about a possible extension, please visit my knowledgeable friends at KCM (Keeping Current Matters).




**Remember when considering an offer, the lender will be approving the sale based on the market value of the home (not what is owed on the mortgage).  So if you have a $225,000 market value and the offer you receive is $100,000 you can bet the bank will either deny the offer or come back and negotiate with the seller.  Don't be afraid to negotiate the offer yourself before you submit it to the lender.