Ticking Time Bomb for Short Sales?


Short Sale Hazards

I just don’t know why the media isn’t headlining this issue week after week and coast to coast. The loss of this federal protection will certainly impact distressed homeowners in San Diego:

The Mortgage Forgiveness Debt Relief Act expires December 31, 2012

This means that homeowners who delay until after 2012 to complete short sales on their homes may be liable for income taxes on the “forgiven debt.”  This “forgiven debt tax” can also dog foreclosures and other types of loan workouts.

Unless this protection, enacted January 1, 2007, is extended unwitting homeowners could walk into a very expensive IRS trap. Here’s an example: 

The Parsons purchased a home in 2006 for $500,000 and using 80 percent financing, put down $100,000.

Today, their home San Diego home is worth only $250,000 and the Parsons need to sell. If that sale occurs after 2012, income taxes will be due on $150,000 in “forgiven debt” That would be the difference between the $400,000 mortgage and the $250,000 sales price. Now, if the Parsons used 100 percent financing as so many did during the bubble years, the “forgiven debt” would balloon to $250,000–and the taxes that go with that type of income

This is an over-simplified example, but we hope it illustrates the dilemma facing so many people who are already in financial hot water–and may not realize where they are heading.

This is a serious issue that our political representatives need to address IMMEDIATELY. But ultimately, the choices are our own. If you owe more than your home is worth and anticipate the need to sell, we would recommend doing to as soon as possible to avoid falling into that dreaded tax trap.

To discuss your options, please call Mike or Roberta Murphy at 877-818-8197 or 760-402-9101/9102.

For Sacramento Short Sales, Gena Riede, is the expert to call!