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Short Sales – Important to Housing Recovery

In 2007, as home sales began to decline, Congress passed the Mortgage Debt Relief Act which eliminated income tax on forgiven debt. Typical in a “short sale” where a seller owes more to their bank than their property is worth, lenders cut the homeown

In 2007, as home sales began to decline, Congress passed the Mortgage Debt Relief Act which eliminated income tax on forgiven debt.  Typical in a “short sale” where a seller owes more to their bank than their property is worth, lenders cut the homeowners principal balance to facilitate a sale rather than gaining title to the property through the foreclosure process.

 

The law has been critical to helping the housing industry begin and sustain its recovery.  The Act which was extended in 2010 is due to expire at the end of this year unless Congress acts between now and then.  Separate bills have been introduced in the House and Senate to extend the mortgage relief tax break for another year.

 

Where “short sales” equal nearly a quarter of all home sales, the elimination of these tax provisions would force millions more homeowners into foreclosure which would negatively impact the lender as well.  According to a spokes person from the Mortgage Bankers Association, the average price of a bank-owned home acquired by foreclosure in about $30,000 lower than a comparable home transferred in a short sale.

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