If Mortgage Debt Relief is not Extended - Short Sales May Decline, Real Estate Foreclosures and Bankruptcies will INCREASE in Kansas City

If Mortgage Debt Relief is not Extended - Short Sales May Decline, Real Estate Foreclosures and Bankruptcies will INCREASE in Kansas City

Short sales are becoming more and more common. Ten years ago few real estate agents knew what a short sale was compared to today where 99% of the real estate agents know and experienced a sale that involved a short sale. The increase of short sales in order to prevent a foreclosure may change if tax break that currently does not force homeowners who do short sales to claim the forgiven debt on their tax returns is not extended. 

At the end of this year, the Mortgage Debt Relief Act, also called the Mortgage Forgiveness Debt Relief Act, is set to expire. If it does expire, the amount a short sale falls short of the amount owed on the mortgage on a property will, once again, be viewed as taxable income to the homeowner. Making the short fall taxable income will likely make short sales far less attractive to nearly every current or potential  distressed property owner.

Due to the length of time to negotiate and close a short sale, the short sale market could come to a stand still by mid year.

If short sales decrease, look for strategic defaults to increase. If the homeowner is already loosing money they can't handle the extra  income tax burden so they may choose the strategic default. A strategic default is a form of foreclosure that leaves open the possibility of the mortgage lender to pursue the deficiency amount from the homeowner.The homeowner will be hoping that the mortgage lender will recoup most of the debt and will pursue the homeowner for a small amount. 

The problem is many mortgage lenders will revert to their old ways and wait months to collect an inflated amount or sell the debt to a collection company who will then start the pursuing game.

For the most part, most real estate agents are hoping that the Mortgage Debt Relief Act will be extended before it expires on December 31 of this year. In addition if the legislation is not extended, more defaulting homeowners may opt to declare bankruptcy in order to avoid paying income taxes on their “forgiven” debts.

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Blog post written by the Dowell Taggart Team of RE/MAX Premier Realty 

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