The Riverside Short Sale attorneys at De Novo Law Firm can advise you of your legal options when trying to short sale. A short sale is the process where a homeowner sells their home for less than they owe to their bank.
During the Great Recession of the late 2000’s, many Americans faced foreclosures, repossessions, and unemployment as the economy took a turn for the worse. Among one of the factors that affected the increased foreclosures on homes was the Housing Bubble (2001-2006) that burst. In this event, many homeowners refinanced their homes at lower interest rates. As the decade closed, homeowners found that the interest rates were raised back to normal rates and they were unable to their mortgages. In another case, some homeowners began to notice that they owed more on their mortgage than what their house was worth, forcing them to do a short sale. Basically, a short sale is an arrangement between the owner of the home and the lending bank to purchase their house to accept an offer for less than the total amount owed to pay off the residence. A short sale is considered to be an alternative to a foreclosure but should not be seen as an easy solution to debt. In 2007, Congress passed the Mortgage Forgiveness Debt Relief Act, which allows taxpayers to leave out any income from the discharge of debt on the home. This law applies debt that is forgiven between 2007 and 2013 and up to $2 million of forgiven debt is eligible for the exclusion ($1 million if you are married and filing separately). For example, if a homeowner notices that his or her home, that they bought for $100,000 in 2005, declined to about $70,000, they may consider to short sell their home as opposed to foreclosure. The Mortgage Forgiveness Debt Relief Act would allow for the homeowner to claim to the IRS that they short sold their former home and can no longer have taxes imposed on the residence. In order to let the IRS know about forgiven debt, you must include the amount forgiven on the Form 982 and attach it to your tax return by April 15. As always, it is recommended to consult with a law firm that specializes in debt relief and bankruptcy to help you understand how to navigate the process of short sales and the Mortgage Forgiveness Debt Relief Act and what it can do for you.