Mortgage Debt Forgiveness Act – No Cause to Delay Short Sale
Mortgage Debt Forgiveness Act Update 2022: Thankfully, in early 2021 congress extended the Mortgage Debt Forgiveness Act (Consolidated Appropriations Act of 2021) to extend through the end of 2025. This is good news for homeowners obtaining a loan modification, short sale, or deed in lieu of foreclosure because the amount of debt that is forgiven may not be subject to taxation. Without this benefit, taxes would have to be paid on the amount of debt forgiven.
Although, many struggling homeowners were relieved the Mortgage Debt Forgiveness Act was extended, it’s no cause to delay a short sale if trying to avoid foreclosure. A short sale transaction can take a very LONG TIME so it’s always best to begin the process sooner as opposed to later.
Mortgage Debt Forgiveness Act History
We began sharing about this Mortgage Debt Forgiveness Act years ago. At the time it was always uncertain of this act would be extended. In fact, for a few years in a row, we didn’t know if the act would be extended until nearly the last day of the year. This was a huge worry for struggling homeowners because it was during a time when many were facing foreclosure and short selling their homes. In fact, foreclosures and short sales made up over 40% of the real estate market. Also, it didn’t help much that the Act would only be extended one year at a time, so it’s nice to see those in need will now have until 2025.
Don’t Delay Short Sale
This federal tax debt forgiveness extension is certainly a blessing, but we don’t suggest homeowners delay short selling their homes as a result. Setting the Mortgage Debt Forgiveness Act aside for a moment, when facing the possibility of foreclosure, the sooner a decision is made to short sale, the better chance of avoiding foreclosure.
What Happens if Mortgage Debt Forgiveness Act is Discontinued
The Mortgage Debt Forgiveness Act has been around since about 2007, but once this act is discontinued homeowners will be responsible for paying taxes on the difference between what their home sells for and what they owe.
Here’s an example. If a homeowner owes $500,000 on their mortgage but the home short sales for $450,000, even if their lender agrees to forgive the remaining $50,000, the government may not. It’s possible the homeowner would have to pay taxes on the $50,000. If you are struggling with your mortgage and considering a short sale transaction, we suggest obtaining a real estate agent, consult with other professionals and move forward, without delay
We are NOT Attorneys or CPA’s
At the Gregory Real Estate Group, we are real estate professionals and Certified Distressed Property Experts, but NOT attorneys or CPA’s. If you are a Santa Clarita homeowner considering a short sale we suggest you also consult with your tax professional and/or attorney before moving forward with a short sale transaction.
Connect With Local REALTORS
Matt & Meray Gregory
Contact Matt & Meray
If facing foreclosure and considering a short sale, contact us to schedule a consultation. Matt is a Certified Distressed Property Expert with a long history of helping homeowners avoid foreclosure by short selling their homes.
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