The Mortgage Debt Forgiveness Act and the future of short sales in San Diego
According to a recent article in the San Diego Union-Tribune, there is a sense of panic spreading through the local housing market as the end of the year approaches. On December 31, the Mortgage Forgiveness Debt Relief Act is set to expire. Real estate journalist Lily Leung examined what the potential expiration would mean for short sellers and real estate in San Diego.
Background on mortgage debt relief
The Mortgage Forgiveness Debt Relief Act was established in 2007 and has helped many financially distressed Americans since that time. Because the state of California currently conforms to the federal regulation, San Diego homeowners who qualify for the act don't have to pay either California or federal taxes. The act is currently set to expire on December 31 unless Congress acts to extend it.
According to San Diego Hope Now, a local organization created to help homeowners understand the facts about mortgage options such as loan modifications and short sales, there is evidence to support that the act will be extended.
Industry professional Brian Ruhl estimated the chances of the act being extended would be at roughly 80 percent if Obama won the recent election (which he did). Ruhl revealed that President Obama has released a proposal to extend the tax break through 2014, and the Senate Finance Committee approved a bill that would keep the act in place at least through the end of 2013.
Rush to short sales
Leung reported in the San Diego Union-Tribune that the expectation that the act will expire on December 31 has led to a significant rise in short sale activity.
"The likely expiration has pushed home sellers in San Diego County scrambling to close on their short sales by year's end, fearing they'll have to pay taxes on the debt amounts forgiven by their lenders," Leung wrote.
Due to factors not necessarily related to the pending expiration of mortgage relief, short sales have seen a significant rise in popularity in the last few years in particular. Short sales allow San Diego homeowners who can't afford their mortgages to sell their homes for less than what they still owe if the lender approves the transaction. The San Diego Union-Tribune reported in October that one out of every five homes that were resold in San Diego County were short sales.
Homeowners in San Diego who remain in a difficult position with their homes are feeling the pressure to act immediately by proceeding with a short sale to avoid the pressures of a high tax bill once again if the Mortgage Forgiveness Debt Relief Act does indeed expire at the conclusion of the year.