Articles Posted in short sales

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For tax purposes, housing debt that is forgiven or written off is treated the same as income. The difference between the short sale price, or price at a trustee’s sale, and the loan balance may be forgiven debt. It can be considered income, which is reported by the lender on form 1099-C. The Mortgage Debt Forgiveness Act, which applies if the debt was forgiven in years 2007 through 2012. This requires that the debt was incurred to buy or substantially improve the taxpayer’s principal residence. This includes a refinance loan, to the extent that the principal balance of the old mortgage would have qualified. Taxpayers concerned with whether their forgiven debt qualifies should consult with an experienced Sacramento and El Dorado real estate attorney.

california short sale.jpgThe Mortgage Debt Forgiveness Act requires that the debt was incurred to buy or substantially improve the taxpayer’s principal residence. This includes a refinance loan, to the extent that the principal balance of the old mortgage would have qualified. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The amount of debt forgiven must be reported on your tax return. The act first extended such relief for three years, applying to debts discharged in calendar year 2007 through 2009; with the Emergency Economic Stabilization Act of 2008, this tax relief was extended another three years, covering debts discharged through calendar year 2012.

short sale.jpgThe forgiven debt may also be excluded from your income if:

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Mike Kelly of Sonoma recently reported in his blog that an unnamed executive with Bank of America told him that B of A will be using Equator (REOTrans) to manage their Short-Sale negotiations nationwide. This task oriented web portal means that they are getting serious about Short-Sales.

This move gives borrowers 24/7 access to a portal through which they can provide the necessary information to process a short sale and receive real-time status updates electronically. As reported in DSNews, it also automates decision making for the lender, handles approvals for faster turnaround, provides quick fulfillment, and assures full compliance with government programs.

This is a good thing. It’s no secret that Lenders have not been responding to short sale deals. Whether they chose to be understaffed or not, the workload has been an obvious problem. Automating the process, like their standard mortgage procedure, indicates the belief that short sales are no longer an aberration, but rather a new portfolio. The more lenders that take this approach, the better.

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Senate Bill 306, signed into law this September, changes some of the rules for California real estate short sales . Much of the excitement around this legislation is a revision to Civil Code section 2943 that provides, when an owner/borrower submits to the lender a “short sale request,” the lender is required to accept or decline it within 21 days.

This excitement overlooks what is required by the statute to trigger the lender’s duty to respond quickly. The statute describes a short sale request as a written request that includes;

A. A copy of an existing contract to purchase the property for an amount certain;
B. A copy of the short-pay agreement in the possession of the entitled person.
C. Information related to the release of any other liens on the property, if any.

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