Senate Legislation Requires Lenders to Speed Up Short Sale Process

Short Sales only impact the credit record for three years while foreclosures last seven years. Thus, many people under water on their mortgages have sought this route to sell their homes. However, lenders are extremely slow and have no strong desire to accept the loss. They hope that over time the home owner will obtain additional finances to continue payment.

Three senators are now banding together to require lenders to speed up the short sale process. The legislation, also known as the Prompt Notification of Short Sale Act, will require a written response from a lender no later than 75 days after receipt of the written request from the buyer. The bill will also allow the buyer to be awarded $1000, plus “reasonable” attorney fees if the Act is violated.

For more head over to DSNEWS

Tax Review - Debt Relief Forgiveness Act of 2007

The IRS requires anyone that received forgiveness from a previous debt to report that amount as income. However, the Mortgage Relief Debt Forgiveness Act of 2007 allows individuals to exclude the amount forgiven on their principal place of residence. This particularly helps individuals that were under water on their mortgage and thus utilized a short sale to unload the property. Currently the exemption applies from 2007-2012.

Obama is now seeking to have this act extended through January 1st of 2015. DSNews

To learn about what qualifies read IRS publication 4681.

Here are some more examples of debt which is not taxable.

• Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
• Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
• Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
• Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
• Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

For specifics you can also contact a certified professional accountant.