Short Sale vs Foreclosure
Many financially troubled homeowners are aware that foreclosure is a lengthy process and many have questions about short vs foreclosure. This was sent from an attorney, Bradley Kirscher, who specializes in short vs foreclosure. 2012 is the end of the Mortgage Forgiveness Debt Relief Act of 2007 and many are curious what ramifications there are with a Short Sale vs Foreclosure. Some have heard stories about people living in their home for years without making a payment because their lender was overburdened with defaulted loans and foreclosures. Those stories may convince them that their best choice is to remain in their home without paying until forced to leave. That urge to remain in the home they know, coupled with the commonly-accepted notion that a Short Sale vs Foreclosure is simply too difficult to complete, keeps many people who would otherwise be qualified from listing their home for short sale. Why go through the hassle when I could live rent-free for an indefinite period of time? How does a Short Sale vs Foreclosure benefit me, the struggling homeowner? Aren’t Realtors just trying to earn a commission at my expense? These are difficult questions to answer, since the questions themselves suggest that the homeowner is unlikely to sign a listing agreement. However, now is the time to address these questions, and here is the answer: TAXES!
As a general rule, cancelled debt is treated by the IRS as income. A mortgage lender issues an IRS Form 1099-C anytime it cancels a portion of a homeowner’s debt – whether through short sale or foreclosure (foreclosure by advertisement or “non-judicial foreclosure” in Minnesota results in the lender forfeiting the right to pursue the deficiency, so the deficiency is cancelled debt). Under the Mortgage Forgiveness Debt Relief Act of 2007, in many circumstances the homeowner is not required to pay income tax on the cancelled debt. However, the Act currently applies only to debt forgiven by the end of the 2012 calendar year. HOMEOWNERS CONSIDERING SHORT SALE vs FORECLOSURE MUST ACT NOW TO ENSURE THAT THE DEBT FORGIVEN ON THEIR HOME MORTGAGE DOES NOT INCREASE THEIR INCOME TAX. Considering the state of the market and the time it is taking for some lenders to foreclose, even homeowners that have already missed payments may find that the lender’s delay in foreclosing results in the debt being forgiven in 2013 after the Act expires. Closing a short sale prior to the end of this calendar year results in the debt being canceled in time for the homeowner to take advantage of the Mortgage Forgiveness Debt Relief Act (as long as the canceled mortgage debt was used to purchase or improve the borrower’s primary residence). Waiting could result in the homeowner incurring income tax on the amount of the deficiency, and many markets are seeing deficiencies over $100,000. Coupled with the difficulty in discharging tax debt through bankruptcy and the collection tools at the IRS’s disposal, waiting to “see what happens with my foreclosure” could result in a nightmare for the homeowner.
Short Sale vs Foreclosure Realtor & Attorney Information and Help
Bradley Kirscher has attached some information from the IRS website, http://www.irs.gov/ , on the tax ramifications of cancelled debt and the Mortgage Forgiveness Debt Relief Act of 2007.
For questions about Short Sale vs Foreclosure contact a short sale vs foreclosure realtor or attorney:
Kirscher Law Firm, PA
phone: (651) 209-8440
fax: (866) 880-6386