Mortgage Forgiveness Debt Relief Act Expiring Soon

SAN RAMON, CA ? The Mortgage Forgiveness Debt Relief Act, originally put into place in 2007, is set to expire at the end of December ? and could be?devastating?for the recovering real estate market.

Starting in January, homeowners who lose their home to foreclosure will be taxed on the unpaid balance of the loan that cannot be recouped through an auction. Loan balances reduced with a principal reduction through a loan modification and any amount written off through a short sale will also be taxable as ordinary income.

Bottom line ? struggling homeowners are first hit with financial difficulties of having an underwater home ? then slapped a second time with a tax bill for the amount forgiven.

The good news is that the first $250,000 (or $500,000 if married) of the amount written off can be excluded from taxes if the homeowner has lived in the home two out of the last five years. In California, that still leaves many homeowners owing taxes. Sellers are advised to consult their tax professional before making any decision to do a short sale or loan mod.

We have seen a severe shortage of inventory (homes for sale) in most East Bay cities, including San Ramon, Danville, Pleasanton, Dublin,and ?Livermore. The number of buyers competing for these homes has increased because of historically low interest rates. This means multiple offers on most homes ? and the competition means higher sales prices.

If the Mortgage Forgiveness Debt Relief Act is not renewed, more homeowners could give up trying to resolve their personal mortgage crisis and let the home go to foreclosure. More foreclosures could mean a flood of homes on the market, leading to less competition and a stunted growth of selling price.

This, combined with rising interest rates, could stall the market and abort recent recovery. For more information, contact Cindi Hagley at 925-867-4663.

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Source: http://thehagleygroup.com/short-sale-sheep/mortgage-forgiveness-debt-relief-act-expiring-soon/

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