Hi, this is Shawn Polston with 520shortsale.com where we are Tucson’s leading short sale team. I wanted to talk to you about something that I’ve been getting a lot of questions about lately. That is an eminent change to the tax code in the way forgiveness of debt is going to be handled with both short sales and foreclosures. After you complete a short sale, the lender is required by the IRS to issue a 1099 for the amount of debt forgiven. One common misconception is letting a house go to foreclosure changes that. It actually doesn’t. Instead it increases the amount of the 1099 typically. Typically the lenders have more costs associated foreclosures they also sell the properties for less than what we sell them for in the short sale. Back in 2007 President Bush put into place the Mortgage Debt Forgiveness act which covers you in certain situations. This can cover people from any tax liability on that 1099. In 2010 it was renewed by President Obama and it’s scheduled to go away at the end of 2012. The reason this is important is my typical short sale process takes from 3 to 6 months to complete. Sometimes it takes more or less time.
If you’re in a situation where you’re trying to decide if you should walk away from that house or you do a short sale, it’s taking the average lender 12 to 15 months to foreclose. One of the reasons I’m bringing this up is that by just simply walking away from the house you could miss out on the enormous tax savings that you’d have and get a 1099 for the foreclosure that you’re going to have significant tax implications on. I can’t tell you for sure if you would have tax implications, because a CPA has to look at your situation. The mortgage debt forgiveness act is pretty straight forward and you can read about it at IRS.gov. I’ll put a link to it on my website as well.
I’m sure you have other questions so don’t hesitate to call me or fill out the short sale request form. I really look forward to speaking with you and helping you out. Again, this is Shawn Polston with 520shortsale.com where we are Tucson’s leading short sale team.