Although some homes are still recovering their values before the economic collapse from their highs in 2006 and 2007, there are some neighborhoods that will not regain their values for years to come. In Florida, this is especially true in some areas of Tampa Bay. This leaves a lot of home owners upside down. In other words, their home values are less than their mortgages.
In 2007, Congress passed the Mortgage Forgiveness Debt Relief Act to help people who loss of their homes. This act was passed to help former homeowners from getting a large tax bills after short selling their homes. A short sale is “a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens’ full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt.”
Benefiting both the property owner and lender, a lot of people have taken advantage of a short sale rather than letting their home become foreclosed upon. A short sale will have less of an impact on your credit score than a foreclosure. If the lender does not have to foreclose on the home (saving the lender on attorney fees, carrying costs, maintenance expenses, etc.), most lenders will waive the deficiency judgment against the previous property owner. However, the lender does not have to waive the deficiency judgment. Although a lender might forgive the deficiency judgment, the property owner is still liable to get a tax bills after short selling their homes. In other words, the former property owner losses his home and the lender allows the borrower to accept a price that is less than the amount owed, but the borrower has to pay taxes on forgiven debt because it isn’t money that was earned. For example, someone owes $150,000 on a home but can only sell it for $125,000. The difference, $25,000, would be considered taxable income. The Mortgage Forgiveness Debt Relief Act allowed the borrower to have this debt to be forgiven (Up to $2 million of forgiven debt qualified for the exclusion). It looks like this act is not going to be extended for 2014.
If the Mortgage Forgiveness Debt Relief Act is not extended for 2014, I predict that more people will just opt for foreclosure and stay in their homes longer rather than short selling their homes. This will cost lenders a lot of money and delay a housing recovery.
If you are interested in buying a new home or an existing home, please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida 33511) and I can help you find a new home in the Tampa Bay Area. My email address is firstname.lastname@example.org or call me at 813.205.9280. If you are just starting your search, you can search the MLS for homes on my website at this link.
1 “Real Estate Short Sale”. Investopedia. Retrieved 13 April 2012.