As many of you know, representation of sellers pursuing short sales has become more complex over the past several months due to the previously anticipated, and now historical expiration of the Mortgage Forgiveness Debt Relief Act of 2007, which relieved short sale sellers of taxation of forgiven debt under certain circumstances. This added additional serious responsibility to attorneys representing sellers of short sales, as the taxability of forgiven debt would likely affect our advice given to our clients selling short sale properties regarding pursuing a short sale or deed-in-lieu of foreclosure, versus allowing a foreclosure to be completed, or filing bankruptcy.
This law did , indeed, expire on December 31, 2012.
I thought that it is important for everybody to know that the American Taxpayer Relief Act of 2012 (commonly known as the law that resolved the “fiscal cliff”) contains a provision that extends the Mortgage Forgiveness Debt Relief Act, so that it now expires on January 31, 2014. This law applies to debt forgiven in connection with a short sale or a modification of a loan on a principal residence only, where that debt is equal to or less than $2 million.
This will have the effect of removing the very serious tax burden from short sale sellers, which should increase short sale seller cooperation, and loosen up the short sale market.
Please call or email me with any questions.
Andrew D. Klapper, Esq.
Klapper & Klapper, P.C.
888 Forest Avenue
Staten Island, NY 10310
Phone (718) 447-2536
Fax (718) 442-5088
Private Fax (718) 307-6467