Will I Be Forgiven of My Debt in a Short Sale in Palm Beach Gardens, Florida?

by Rodney Forbes on November 6, 2012

West Palm Beach Short Sale RealtorDo you want to avoid foreclosure on your home? You should consider short selling your property. A short sale refers to the procedure of a lender accepting a discount or a lowered price on a mortgage of a home.

For example, if you are embracing the chance of a foreclosure on your home, a lender will search for potential buyers that wanting to buy your property at a discounted rate. The rate that is discounted already has been considered as the full payment of your loan.

Short Sale Debt Forgiveness

If you are determining short selling your property, then you might face the problem of a possible foreclosure. You may also be concerned if your debt will be forgiven in a short sale. These are valid questions that you should ask yourself before you choose to short sell your home. There are certain situations where you may be absolved of your debt in short selling your property. What you should do is learn as much as you are able to about this subject in order for you to make the best choice.

Here are some of the most crucial questions that you should ask about short sale debt forgiveness:

When is a debt forgiven in a short sale?

If you are concerned about paying for higher fees and taxes while you short sale your home, you should understand that there are some exceptions that can be made to forgive any debts that you may have. Through these exemptions, you could abstain from having to pay a large amount to IRS even following short selling your property in most cases.

One situation where your debt may be resolved in the event of a short sale is when you are considered as insolvent before the debt is being discharged. The excluded amount from your income is usually the amount that covers the extent of your insolvency. Regardless, any amount that is more than the extent of your insolvency would be reported and tax will already be included.

West Palm Beach Short Sale RealtorAnother case where your debt may also be wiped away is if you have gone bankrupt. This sort of exemption from income unlimited, as you can exclude any amount of debt discharged if you filed for bankruptcy. While the court will offer you a discharge on any of your debts, you will be managed by the bankruptcy court.

What is the Mortgage Forgiveness Debt Relief Act?

The Mortgage Forgiveness Debt Relief Act of 2007 is a provision that allows you to exclude income from the discharge of your debt on your principal residence. You can qualify for this relief if your debt is lowered through a restructuring of your mortgage or if your mortgage debt is forgiven because of the possibility of foreclosure. It is vital that you understand this option that you have if you are considering going for a short sale.

The Mortgage Forgiveness Debt Relief Act of 2007 applies to debts that are forgiven in 2007 up to 2012. This exclusion may reach up to $ 2 million worth of debt forgiven, or $ 1 million if married filing is done separately.

Although, this provision does not apply if the debt discharged is because of any services given to the lender. This provision also doesn’t apply to any reason that is not related to the decline in the property’s value or the owner’s financial status.

If my debt is forgiven in a short sale, is it taxed?

There are some situations that a short sale is non-taxable, but there are also certain situations where the IRS won’t consider it as taxable. When you consider short selling your property, you can take advantage of this IRS tax law that is will expire in the year 2012. While this does not have any bearing on most financial institutions, this may mean a significant amount of savings on your part.

However, while you may depend on the Mortgage Forgiveness Debt Relief Act, you should also bear in mind the IRS may consider the forgiveness of your debt as income. Since they look at your debt forgiveness as income, this means that it is taxable. Apart from this, there are also some lenders who may accept a short sale that will pursue you for the difference between the amount that you owe and the amount that you paid. The best thing that you can do in this situation is to consult with a lawyer in order to determine whether your debt is considered non-taxable or not.

West Palm Beach Short Sale RealtorNotwithstanding, it is always encouraged that you contact a Short Sale Specialist Realtor to handle your short sale for you. Although some Realtors claim to know all there is about short sales; one short sale hardly classifies as experienced. You need agents who are thoroughly experienced and have developed the perfect knowledge and skill to take on a short sale. Our Short Sale Specialists are those types of agents. After all, it’s what they specialize in! Contact us and let us make sure your short sale goes smooth and steady!

Why Lenders Accept a Short Sale on a Property

You might be wondering why in the world a lender wants to accept a short sale on a home. Many reasons as to why they do this are so. One of the major reasons behind this is that financial institutions such as banks prefer to maintain their records straight and pure. Most banks likewise, do not want excess inventory on their books. So in the event that they are offered a chance to sell properties that will not end in major losses, they welcome a short sale transaction.

Another point as to why lenders are accommodating to accept a discounted rate on a mortgage is that a short sale proposes them a higher income as opposed to property being auctioned off. There are numerous fees affiliated with a property that goes to an auction. So rather than lose more money on an auctioned property, they are willing to accept a lower price beforehand.

**Rodney Forbes is a Realtor® and registered broker with Forbes Realty of South Florida, based in West Palm Beach Florida. Rodney and his team work in Palm Beach, Broward, Martin and St. Lucie Counties. As a recognized expert on short sales, Rodney has been featured on radio and national web conferences for agents. Rodney has also authored the book “Should I Short Sale My Home?”

Forbes Realty of South Florida also specializes in REO asset disposition. Rodney works with several banks and asset managers in the Palm Beach County area. Rodney is the main author for the popular real estate blog South Florida Real Estate Report. You can find a wealth of information regarding bank foreclosures, short sales, real estate news and local real estate trends.

For more information, please call Rodney at 561-337-4810 or email Rodney@ForbesRealtyOnline.com

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