Call Us Now for a Free Consultation!
hablamos Espańol
305-672-7495

Blog

No Federal Tax Liability For Short Sale Deficiency in 2011 or 2012

Posted by Jeremy Resnick | Jan 20, 2014 | 0 Comments

The tax implications of a short sale, more specifically the deficiency in the short sale, are a very common question; especially this time of year. Here, specified by a highly placed tax and financial professional, is the definitive answer. Combined with the imminent effect of the Home Affordable Foreclosure Assistance act by Congress, will enable all distressed short sale property owners to breathe a huge sigh of relief.

One more time, a short sale occurs when the mortgage lender allows the property to be sold for less than the balance owed on the mortgage. This can be negotiated with the lender as part of a financial hardship account by the borrower. Short sales are notorious for taking months to complete because the mortgage servicer stalls and ignores the application. A mortgage loan deficiency is the difference between the actual selling price of the distressed property and the mortgage loan balance at closing.

It's important to get the mortgage deficiency negotiated before closing when the distressed homeowner has control. After foreclosure, the homeowner gives up all control and the mortgage servicer is free to come after the deficiency amount for years.

It has been demonstrated inumerable times that mortgage loan servicers benefit more from a foreclosure than a short sale or mortgage modification. Engaging an experienced short sale negotiator and investor like the ones I represent assures that the lender will not be allowed to stall the process. The one mistake in the expert article is the statement that a short sale decision is clearly up to the lender. By getting the REST Report and an unbiased short sale amount, the homeowner will be supported by their local foreclosure court and the mortgage servicer will not be able to foreclose without good faith negotiations. The REST Report has been sanctioned by every judge who has seen it.

Typically, the lender will issue a form 1099C (cancellation of debt), and the amount canceled would be taxable as income to the borrower (seller). Current law allows short sales of a principal residence completed during 2007 through 2012 to exclude the forgiven balance from taxable income, up to $1 million for a single filer and up to $2 million for a joint return. For more detailed information, consult IRS Publication 4681 or your tax adviser.

While the Home Affordable Foreclosure Assistance law states that the lender will no longer be allowed to come back to the former homeowner for that deficiency, no one who has completed the HAFA process is happy with it. Everyone will tell you that they would have been better off using an independent short sale investor and negotiator.

About the Author

Jeremy Resnick

Attorney Damien Aranguren is a native Floridian and was raised in Osceola County. Damien graduated with his undergraduate degree from the University of Central Florida in 2004. He received his Juris Doctor degree from Stetson University College of Law in 2008  before being hired as an Assistant A...

Comments

There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment

Areas we Serve in Florida

We serve clients throughout Florida including those in the following localities: Miami-Dade County including Aventura, Miami, Coral Gables, Doral, Hialeah, Homestead, Kendall, Key Biscayne, Miami Beach, Miami Lakes, North Miami, Tamiami, Westchester, and North Miami Beach; Broward County including Fort Lauderdale, Hollywood, Cooper City, Coral Springs, Hallandale Beach, Oakland Park, Pembroke Pines, Plantation, and Weston; and Palm Beach County including West Palm Beach

Menu