I was on an appointment last night that went into a short sale conversation based on the owners position, the question that came up was “If I sell for less than what is owed using a short sale what about the deficiency balance left, who pay’s that or am I responsible?”.  Great question so I felt others may have the same one so here is a short blog on the topic.

This is a summary taken from the house website on the matter, “Mortgage Forgiveness Debt Relief Act of 2007 to amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income, and for other purposes.”

This is the way I am interpreting the bill based on the real estate tax professionals I have spoke with in the past.  I do however strongly encourage you to seek your own advice and not rely solely on this information to make your final decision.  If you currently own a property as your primary residence and the money borrowed against the property was money used to purchase the property which is considered a purchase money loan than this is debt that can be forgiven based on the new Mortgage Forgiveness Debt Relief Act of 2007.

What does not qualify under this new bill is money borrowed after the purchase, i.e.; you did a cash out refinance to purchase a new motorcycle, car, take a vacation, anything other than money used to purchase your property.  The purpose of this bill is to help borrowers in bad mortgages, who are experiencing a financial hardship due to a lost job, reduction in pay, divorce and or increase in their mortgage payment.  This bill was NOT created to help borrowers who went out and made poor financial decisions by continuing to create debt and borrower money to do other things like play, vacation or live the high life while neglecting their mortgage.

The bill was also not created to help investors shed an investment property dragging them down.  The bill was passed to give homeowners an option to do a Real Estate Short Sale instead of having to go through a full foreclosure process and have that on their credit report.

Short sales are a great answer for many home-owners and should be considered when the hardship is as explained above.  The timeline may not be swift however with the right Realtor a short sale can go smoothly.  If you need help on a short sale property contact us at 612-282-7653 and we would be happy to help.

Derrick