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Mortgage Debt Relief Act Extension

Good news for homeowners who are struggling to make their mortgage payments.  Congress saw it fit, as part of the “fiscal cliff” deal,  to extend the Mortgage Debt Relief Act which was originally enacted in 2007.  This legislation provides necessary tax relief for homeowners attempting a short sale.

If you are not familiar with a short sale, it is an option for homeowners who owe more on their mortgage than the fair market value of the property and who have encountered a financial hardship making it difficult or impossible to stay current on their payments.  Hardships may include job loss or transfer, medical bills or divorce to name a few.

Without this legislation, a homeowner who owes $200,000 on a property with a market value of $150,000 would owe Uncle Sam taxes on the $50,000 of forgiven debt – the amount considered as taxable income.  Provisions of the act were extended through 2013 allowing these owners to pursue this sales option without the additional obligation of taxes on the forgiven amount.

Many lenders will work with homeowners to pursue the short sale option as it can save the lender thousands of dollars versus taking a home in foreclosure.  Keep in mind that banks have no interest in becoming owners of a foreclosed property.  In many situations, banks will waive the deficiency (or shortfall amount between the sales price and the payoff on the mortgage) as well.

Keep your eyes on the horizon for more information about short sale options as we move into 2013.

Happy New Year!

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