(PRWEB) October 09, 2012
As reported earlier this year by The Baltimore Sun on June 20th, unless Congress grants an extension, a law created in 2007 to help troubled homeowners expires at the end of this year. It allows them to avoid paying taxes on forgiven debt for their primary residences. As of this date, Congress has failed to take any action which could leave many sellers facing a daunting tax bill in 2013. If, for example, a lender wipes away a $100,000 debt in a short sale or finalizes a foreclosure on a delinquent homeowner, the typical borrower could owe more than $25,000 in taxes.
In recent years, most underwater homeowners who lost property to foreclosure or short sales were excused from having to pay taxes on this income, thanks to the Mortgage Debt Relief Act of 2007. The current law states that homeowners don’t have to include forgiven debt as income provided:
1. The debt was secured by a principal residence. Mortgages on investment property or vacation homes don’t qualify.
2. The debt was “used to buy, build or substantially improve a principal residence, or to refinance debt incurred for those purposes,” according to the IRS.
3. The maximum amount that could be treated a “qualified principal residence indebtedness” is $2 million, or $1million if married and filing separately.
Lance Denha, Esq., of the Law Offices of Lance Denha explains that “In many cases, a short sale is the best option for escaping a burdensome mortgage. The seller avoids foreclosure and often can have an attorney negotiate with the bank to reduce or eliminate the deficiency – the difference between what’s owed and what the house sells for.” Because lenders often take several weeks or months to approve short sales, homeowners who don’t start the process soon are likely to miss the dead-line.
To apply for a short sale, a homeowner must have a financial hardship, such as a job loss or large medical expenses. New government guidelines that take effect in November allow for a short sale if the homeowner must relocate more than 50 miles away for a job transfer or new position. While there appears to be bipartisan support for keeping the law, some analysts say an extension may not come until after the presidential election in November.
Lance Denha commented earlier this year that “The scheduled expiration of the mortgage debt relief law means a lot of uncertainties for a whole lot of underwater homeowners who are in the process of foreclosure.” If a homeowner is early in the foreclosure process or has yet to initiate a short sale, it may already be too late to beat the December 31st expiration of the law unless an owner arranges a deed in lieu of foreclosure. Mr. Denha cautions however, that “Rushing to hand over the deed to a lender may be a mistake if Congress ends up extending the debt relief act. In addition, lender forgiveness of debt is not automatically assured and many times a securitization audit by a law firm specializing in this process would have uncovered errors by the lender, thus allowing for legal action and keeping the home.” At the very least, the consumer should consider all options and perhaps consult an attorney or accountant so that an expert can help explain the situation.
The Law Offices of Lance Denha, P.A has negotiated numerous deficiency balances with creditors and is committed to ensure that every possible avenue is pursued so that the homeowner’s legal rights are preserved. Actively monitoring the ever changing landscape of foreclosure laws, recent foreclosures across the nation as well as state imposed rules and procedures associated with foreclosure is vital to ensure and protect these rights.
The Law Office of Lance Denha P.A. is a multistate law firm and helps legally defend wrongful foreclosures against homeowners and utilize any and all legal tactics available to help accomplish preserving homeowner’s rights. For further information or assistance, please call at 954-840-0770.