Tampa Palms, Westchase, Carrollwood and Tampa Bay Real Estate News From Jeanne Prigitano

If you have been thinking about selling your house for less than what you currently owe (short sale), then 2012 may be the year to do it.

A lender has always had the option of placing a deficiency judgment on the Seller. A deficiency is the difference between what the house sold for and what is owed. In helping homeowners with short sales, part of the negotiating process is to ask the lender to forgive the deficiency. If the deficiency is forgiven, the bank can issue a 1099 for the difference because it is considered income. I know that you are wondering how on earth a deficiency can be considered income. Well, if you are short $100,000 and don’t have to pay it back, it is as if someone just gave you $100,000. This deficiency is now taxed as additional income (phantom tax).

The Mortgage Debt Relief Act of 2007 can protect borrowers from this phantom tax if it is the primary residence (homestead). However, this rule changes on January 1, 2013. Lenders must forgive the difference in writing by December 31, 2012 in order for the deficiency to be considered non-taxable. For more information about the Mortgage Debt Relief Act please go to: http://www.irs.gov/individuals/article/0,,id=179414,00.html

Since short sales can take a significant amount of time to complete, now may be the best time to list your home. Keep in mind if you decide to rent your home and subsequently sell it, it will no longer be considered a primary residence and the deficiency may be subject to the phantom tax.

If after doing all of the research, you decide that a short sale is your best option, please contact me. I have helped other families in the Tampa Bay area with the short sale of their home. Just make sure you have all the facts. Please pass this information to any family members or friends who may find it useful.