Many sellers and their agents are rushing to get their short sales sold by the end of the year. That’s when a tax break expires that could leave borrowers responsible for taxes on any unpaid mortgage debt. On Dec. 31 2012, the Mortgage Debt Forgiveness Act is set to expire and unless it’s extended, in January the IRS will treat any unpaid mortgage debt as taxable income for many borrowers.
Short sales from borrowers behind on their payments jumped 22 percent over last year for the three months ending Sept. 30. Short sales also jumped 17 percent among borrowers who were still current on their payments. This is really salt in the wound for those already dealing with financial challenges and I believe will lead to a decline in short sales and an increase in foreclosures.
SHOULD I STILL SHORT SELL EVEN IF IT ISN”T EXTENDED?
Well, good question. The real answer is ” you need to talk to an accountant and legal counsel”. The soapbox answer “yes, in many cases you should still short sale”. Here’s why:
1. Foreclosures will almost always sell for less than a short sale. So, when it is all said and done, they will make less $$ to pay off your mortgage, and the “deficiency” (charge off) will be higher. In Colorado, lenders can still come after borrowers for the deficiency.
2. Short Sales will almost always sell for more than a foreclosure, thereby paying more $$ towards your mortgage owed and creating less of a deficiency (charge off)
Conclusion – All things being equal in a given scenario, most borrowers will still have a lower deficiency by doing a short sale and my guess is, the tax implication will often be worth paying to have the debt settled.
Now…..full disclaimer…you need to talk to a your CPA and Attorney’s to see what is in your best interest, but the above should give you something to chew on and consider in your conversations.
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