Since the expiration of the Mortgage Forgiveness Debt Relief Act, home owners have been thinking twice about proceeding with a short sale, says CoreLogic deputy chief economist Sam Khater.
A sharp drop in short sales began at the start of this year, likely because of the increase in taxes borrowers will now have to pay on forgiven debt, Khater says. The MFDRA exempted borrowers from paying taxes on any mortgage debt forgiven by a lender in a short sale or loan modification. Since the act expired on Dec. 31, 2013, borrowers now will have to count forgiven mortgage debt as income on their federal tax returns. Congress has yet to renew the act.
“I probably get a half-dozen calls a week from real estate brokers who say, ‘Can you tell me what’s going on? I have a client considering a short sale,’” Jamie Gregory, the deputy chief lobbyist for the National Association of REALTORS®, told The New York Times. “I tell them I’m fairly certain it’s going to happen, but I can’t tell them when.”
The Senate Finance Committee has approved a package of tax-code extensions that includes renewal of mortgage debt relief retroactive to January 2014 and through Dec. 31, 2015. But it has yet to go before the full Senate.
Until the Senate acts, sellers may remain hesitant to move forward on a short sale. Short sales peaked at 9 percent of total sales in October 2012, but have been on a gradual decline since then. The pace of the decline has spiked this year, with short sales making up 4.6 percent of sales in January and falling to 2.2 percent in February, according to CoreLogic data.
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