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January 7, 2013

Mortgage Debt Relief Act Extended Through 2013

For homeowners considering a short sale or loan modification in 2013, most of last year was a nail biter. That’s because many loan industry insiders believed there was a strong chance that the Mortgage Debt Relief Act of 2007 would simply expire on December 31, 2012. Would these homeowners then be on the hook for paying taxes on their forgiven debt in 2013?

Last summer, I blogged about the perils of the tax relief act expiring. I had been talking with a few individuals who were considering short sales, and there was a very real chance that they ultimately could be responsible for paying a very large tax bill in the process—one they couldn’t afford.

The good news is that the “fiscal cliff bill” passed by Congress last week included a provision for extending the tax relief through 2013.

Bottom line for sellers thinking about pursuing a short sale this year: It’s best to start that process as soon as possible. Short sales require key prep work and lenders take time to approve the sales. Additionally, buyers in contract on short sales sometimes walk away in the middle of the transaction, which can significantly lengthen and complicate the sale process.

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