Mortgage Forgiveness Debt Relief Act of 2007 survives the fiscal cliff! This was set to expire December 31, 2012 and has now been extended through January 1, 2014
What this means for the homeowners that are experiencing financial difficulties in keeping their head above water with their mortgages is that they won’t have an additional burden of paying income on their forgiven debt. When a home is sold through a short sale, and a portion of the mortgage is written off, normally the homeowner would have to claim that difference on their income tax as income. Through the Mortgage Forgiveness Debt Relief Act you will have until January 1, 2014 to sell your home through sale or deed in lieu and not have to worry about paying income tax on the amount that was forgiven.
In order for homeowners to qualify for this Mortgage Forgiveness Debt Relief Act, the home must be your principal residence.
The short sale process can vary, but it will generally work as follows:
1) The lender is contacted to discuss the possibility of a short sale and to determine the lender’s process for completing the sale.
2) The seller issues a letter authorizing the release of personal information about the loan and the property to the buyer or escrow agency.
3) The lender will review a settlement statement, which will indicate the proposed selling price, remaining loan balances and itemize all expenses, including real estate commissions and other fees and expenses associated with the closing.
4) The seller will complete a “hardship letter,” which will detail and explain all financial difficulties. Lenders will usually want to validate the seller’s financial situation by looking at bank statements, investment accounts, along with examining paystubs and other financial records.
5) The lender will then look to the broker to provide a price opinion by examining the condition of the house and the market value of comparable properties.
6) The lender will then want to scrutinize the purchase agreement to determine if all amounts are reasonable and the real estate commission is acceptable.
Because of the documentation required, the short sale process can be lengthy. But if done correctly, it can work well for all parties involved. The lender avoids the uncertainty of the foreclosure process, the seller avoids a foreclosure on his or her credit report (along with potential bankruptcy), and the buyer hopefully got a good deal on a property
Please give me a call and I will be happy to go over the short sale process with you.