One of the most asked questions that I get when people discuss short selling their home, is “Will I have tax consequences with short selling my home?”.

Until 2007, the government taxed a homeowner on the difference between what they owe and what the home sold for in a short sale.  In some markets and some instances, this could be a significant amount that would put a taxpayer into a different tax bracket.  The government introduced Mortgage Debt Cancellation Relief as response to the rising number of foreclosures, short sales and price corrections in some markets.  This Debt Relief is valid until December 31, 2012. 

General Guidelines of the Mortgage Debt Cancellation Relief:

  • Dollar limitation: No more than $2 million in mortgage debt will be eligible for the relief (If married filing separately – the amount is $1 million)
  •  No income limitation: It does not matter what a borrowers income is.  All borrowers can receive relief.
  • Debt Relief applies only to a borrowers principal residence.
  • The debt to be forgiven must have been secured by that residence.
  • Cash-outs are not available for relief.  If it’s a first mortgage that has been refinanced, a second mortgage, a home equity line of credit or other, if it was not used to rehabilitate the residence, it is not eligible.
  • Eligible debt is debt used to acquire, construct or rehabilitate a residence.
    • Refinanced debt:  qualifies if it is not greater than the original amount of debt.
    • Home equity debt or second mortgage:  This qualifies if the money was used to rehabilitate or improve the home.
    • Cash Outs:  Are not treated as acquisition debt.  If the funds are not used on the home, it is not eligible.

There are additional provisions for investors, bankruptcy, insolvency, and other unique circumstances.

To learn more about this act, visit the IRS at:,,id=179414,00.html

Follow the link on that page for a publication with examples and detail on the Mortgage Debt Relief Act.

Will this relief be extended beyond 2012?  We don’t know.  It certainly is something as homeowners, we need to keep track of. 

For Informational Purposes Only.  Please contact your tax advisor for additional information and how this debt relief would apply to you.


This article will appear in the Eagle Informer in February.  It was written by three Woodhouse Group agents that are familiar with the short sale process. 

“Short sale”, unfortunately, is a term that you hear quite often these days.  And while you may think you have a basic understanding of what that means, there are several “moving parts” to a short sale and without an understanding of all of them; you may not have the complete picture.

Fundamentally, short sale means to sell a property for less than what is owed to the lien holder(s) (lenders) to pay off the loan(s.)  What makes short sales complex are the number of variables often associated with a short sale transaction.  For example:

  1.  How many liens (loans) are recorded against the property?  This can include 1st and 2nd mortgages, lines of credit, tax liens, or mechanics liens.  The fewer number of liens on the property, the more straight forward the short sale process because there are fewer lien holders (lenders) to negotiate with.
  2. What types of liens are on the property? Different liens pose different challenges.   Home Equity Lines of Credit (HELOC), for instance, can create more difficult negotiations than a 2nd mortgage lien.  Personal tax liens  and mortgage insurance can also create obstacles.
  3. Who owns the lien?  Does a bank own it or a private investor like Fannie Mae or Freddie Mac?  Sometimes there are different guidelines and rules to follow based on who owns the lien.
  4. Has the property received a Notice of Default (NOD)?  A Notice of Default is the official document that lets the seller know that the bank is foreclosing on the property and states the official date the property is scheduled for auction.  Whether the property has a NOD recorded is important because that can have an effect on the amount of time that is available to complete a short sale.
  5. How does your financial situation look on paper? Not everyone is able to try to short sale their home.  Lenders require sellers to “qualify” for a short sale by a careful review of the seller’s financial situation and their “hardship” to determine the likelihood of the seller becoming more able to resume their payments in the near future.  The lenders will require copies of tax returns, bank statements, investment statements, pay stubs, profit and loss statements if self-employed and a detailed letter explaining the personal situation that has caused the hardship and inability to pay.

There are other variables that could affect the ability to short sale a property.  These topics, and others, will be covered in future articles.  Of the various options a homeowner has when they owe more than the market value of their home and they are struggling to pay their mortgage, a short sale is a viable way to go to try to avoid foreclosure.  The most important thing to consider if you decide to try to short sell your property is to use a real estate agent that has short sale experience.  It could mean the difference between a successful short sale and a foreclosure.

Written by:  Rebecca Standerfer, Marilyn Talbot, and Judy Trimble

Bank of America services an amazing number of loans.  If you are an agent that works short sales, you undoubtedly have worked with Bank of America over and over again.  The processes they have in place continue to improve and I am hopeful this new improvement will help too. The change went in to effect Dec. 1, 2011, and impacts all short sales submitted with an offer in which the homeowner is eligible for the Home Affordable Foreclosure Alternative (HAFA) program.

The good news is they have shortened the timeline for their response back to the homeowner and agent on the short sale offer.  They have also taken away  homeowner requirements to call Bank of America to accept the HAFA short sale program.  “Real estate agents can now indicate a homeowner’s HAFA interest by submitting the necessary documents to in the online system (Equator) within 14 days. During that 14-day window, the short sale will continue moving forward.  Bank of America is transitioning the processing of all HAFA short sales with an offer from outsourced vendor partners to Bank of America associates”.

I am happy to see this transition and am looking forward to having a HAFA short sale go through the system directly with Bank of America vs. an outsourced vendor.  I think this will help homeowners and agents complete short sales in a more timely manner so that we avoid additional foreclosures AND keep the buyers that get frustrated with the time a short sale takes.

With banks/servicers  improving their processes, more homeowners can avoid foreclosure by completing short sales. 

If you have a hardship and are struggling making payments on your mortgage and owe more that what the fair market value of your home is, you should consider talking to a real estate professional about options instead of foreclosure.  Short Sale is just one option. 

If you currently live in your home, but do not want to stay in your home, you may qualify for a HAFA (Home Affordable foreclosure Alternatives) short sale. 

Do you qualify for HAFA?  Here is a link with additional information:


The media has done a good job about talking about the number of short sale and bank owned properties are on the market.  In some areas of the Treasure Valley we do have quite a few of these properties active on the market.  As a buyer what does that mean to you when you are looking for a home how long will you wait for a response?

Bank owned properties can be offered on and closed usually within 30 to 45 days.  This is good for the buyer who wants to get in a home quick.  What to remember with a bank owned:

  1. If the property is priced competitively, we are seeing multiple offers on the same property OR an offer comes in quickly on a property (within the first two days of the listing becoming active).  You will need to act fast to be considered for the home.  Don’t wait to view a home.
  2.  Most banks give people who are going to be occupying the home the first look.
  3. Homes are sold “as is”.  Spend some time when viewing the home to get an idea of the obvious repairs that are needed.  When making an offer, make sure it is contingent on a home inspection.
  4. Remember that you will have to follow the bank rules on the offer.  They may have their own addendum, contract or other forms to fill out and they usually do not deviate from them.

Short sale properties still take some patience when purchasing.  The bank does not own the property yet, but the seller is asking the bank to accept an offer that is less than the amount that the seller owes on the property.  Many banks have streamlined their short sale process and we are seeing some approvals come through 30 to 45 days after submitting an offer.  BUT – most short sale still take a minimum of 90 days from offer submission to close so patience on the buyers part is required.  What to remember when purchasing a short sale:

  1. Some areas are getting offers quickly on short sales.  If you want to be the first offer in, don’t wait to view a home.
  2. If there is a first offer already on the property, make a back up offer.  Many buyers realize that they do not want to wait through the short sale process and they terminate their offer.  You will be next in line to be considered by the bank.
  3. Make sure the agent representing you asks a lot of questions of the listing agent so that you know who the bank (s) are, where they are in the process and what the expected time frame is on this particular home.  If you know you will be waiting 3 weeks for an update from the bank, it helps reduce your anxiety.
  4. Homes are sold “as is”.  Spend some time when viewing the home to get an idea of the obvious repairs that are needed.  When making an offer, make sure it is contingent on a home inspection.  Most sellers are not in a position to fix anything.
  5. Many banks are pretty firm on items that they will and will not pay for.  If your agent finds this out ahead of time, you will have fewer surprises and fewer expenses later in the game.
  6. Expect that you will not have an answer on a short sale for 90 days minimum.  If you get an answer before that, it is a bonus.  It is truly an exercise in patience.

Real estate negotiation is different when purchasing a short sale or bank owned property.  If you are educated on the process and know what to expect you can find some great properties at very good prices.

I would be happy to answer any questions about purchasing distressed properties.

Have a great week-end.