For homeowners with a home that’s worth less than the balance(s) owed, what does this mean to you? This means taking the chance of the debt forgiveness law being extended past the end of the year or getting off the fence and exploring your options for a short sale now.
After a foreclosure or a short sale, the former homeowner is not taxed on forgiven debt under federal and state laws that will expire at the end of this year. In both cases, the lender likely ends up receiving less than the full amount of the outstanding balance. If so, the amount the borrower is no longer responsible for paying to the lender is considered “cancellation of debt” income and, thus, income to the borrower that – prior to the adoption of the federal and state protections – was subject to income tax. Those federal and state protections are scheduled to expire at the end of 2012.
Pride comes before a fall. We know of many people who have simply walked away from their homes that fall into foreclosure, perhaps because they are too proud to ask for help. Not only do borrowers ruin their credit unnecessarily with a foreclosure rather than pursuing a short sale, foreclosures are devastating to entire neighborhoods by dragging down property values of the homes around them. Do you know of someone in your neighborhood who needs help but is too proud to ask for it?
Short sales are a common part of the real estate landscape these days. The best thing we can do is to help get the word out about what homeowners’ options are so that they can make informed decisions…