Short sell my home or not? The question looming over the heads of many home owners under water on their mortgages. The Mortgage Forgiveness Debt Relief Act came to be a law in December 2007 is now set to expire at the end of 2012. Will this leave many homeowners with the burden of paying taxes on the debt relief from the lenders? Possibly yes. The Bill is currently on the senate floor awaiting the possible extension but due to 2012 being an election year, not much action has been taken on this very crucial bill.
This important act was great news and gave most homeowners in hardship the chance to sell their property as a short sale, and NOT have to pay income taxes on the money forgiven them by their lender. Homeowners that had suffered hardship prior to 2007, and needed to short sale their home could be liable to pay taxes on any money forgiven by their lender.
Considering the fact that short sales take several months to process and close, it is important to take action now. If you or any friends or family owe more than the value of your property and have been interested in doing a short sale, this may be your last chance.
On a positive note, The California Homeowner Bill of Rights aims to avoid foreclosure where possible to help stabilize California’s housing market and prevent the other negative effects of foreclosures on families, communities, and the economy. The new law generally prohibits lenders from engaging in dual tracking- which means for short sales, a mortgage servicer or lender cannot record a notice of default or notice of sale, or conduct a trustee’s sale, if a foreclosure prevention alternative has been approved in writing by all parties (e.g., first lien investor, junior lien holder, and mortgage insurer as applicable), and proof of funds or financing has been provided to the servicer. Other provisions of this law prohibit dual tracking for loan modifications, require a single point of contact for borrowers seeking foreclosure prevention alternatives, provide borrowers with certain safeguards during the foreclosure process, and provide borrowers with the right to sue lenders for material violations of this law. This law generally pertains to owner-occupied properties with one-to-four residential units, with certain exceptions.
Will the Senate pass the necessary extension and will the California governor sign off on the State exemption- we all collectively wait with bated breath. This could be a severe blow to the recovering housing market and another disaster waiting to happen to homeowners who want to get out from under the mortgage burden and short sell their homes.