Oppenheim Law’s Summer School: If Mortgage Debt Relief Act Expires
By Oppenheim Law on Deficiency Judgments, Florida Law, Foreclosure, Real Estate & Roy Oppenheim
Hi, this is foreclosure defense and legal blogger, Roy Oppenheim. I want to talk a little bit today about what could happen to short sales based on a law that may be expiring at midnight on December 31st, 2012. Specifically, as many of you may be aware, right now when you sell your primary residence if, in fact, you have…and you’re underwater, and you have loan forgiveness that the bank has given you either in the sense of a short sale or in a foreclosure, and there is a deficiency and that deficiency for whatever reason has been waived by the bank, ordinarily, you would be 1099’d for that income and you would be getting what’s called loan forgiveness income. You borrowed the money, you didn’t pay it back, the IRS considers that income. Well, when President Bush was leaving office in 2008, as he was closing the door, one of the things he did is that he made sure that this loan forgiveness income, for people in their primary residence, would not be deemed income until December 31st, 2012.
So now the real question is, what is gonna happen in January? Will Congress, between now and then, extend this loan forgiveness income so you don’t pay income taxes on it? Or will the politics of today be that neither the Democrats or the Republicans can get together and actually continue this exemption? If it’s not continued, what will happen is, for example, if you had a $200,000 mortgage and you did a short sale for $100,000, and you now have $100,000 that you technically would owe the bank, and the bank says, “Nah, you don’t have to pay it because you did the short sale.” That $100,000 becomes income and will be lobbed on over and above your family income. So if you made $50,000 for the year, guess what? You just made 150 and you’re gonna pay taxes on $150,000. The risk of that unknown is gonna have a real major effect on the real estate market. Specifically, I think there’s gonna be an acceleration of short sales between now and December 31st so that people will get their short sales done. And then I think at the beginning of the year you’re gonna have this major lag because people are gonna be uncertain about what’s gonna happen in the future. So if you’re in Congress right now, I implore you to make sure that you get that extension renewed as soon as possible. Roy Oppenheim, from the trenches. Good day.