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Short sale debt forgiveness extended

A seller will not have to pay taxes on the amount of debt that is written off by a lender in 2013

Posted: January 6, 2013 2:00 a.m.
Updated: January 6, 2013 2:00 a.m.

Listed at $355,000 as a short sale, home on Paragon Drive in Saugus sold within a few hours of being listed for sale in July of 2012..

Homeowners who are underwater on their mortgages were given a one-year reprieve by Congress on Jan. 1.

As part of the “fiscal cliff” resolutions, and in the final hour, Congress passed the American Taxpayer Relief Act of 2012.  

Included in the fiscal cliff legislation, which President Barack Obama signed into law Jan. 2, was the extension of the Mortgage Forgiveness Debt Relief Act first enacted at the end of 2007.

Now set to expire Dec. 31, 2013, a homeowner who sells his home for less than the amount owed on their home — a short sale — will not have to pay taxes on the amount of debt the lender writes off.

While Santa Clarita real estate agents don’t know if the extension will help improve the inventory shortage, locally, experts expect the news to help in the ongoing recovery of the real estate market.

“The extension will help with real estate recovery, because the faster we can get homeowners who are underwater help, the faster the market recovers,” said Kathy Salisbury with Triple D Realty.

Legislation that went into effect in California preventing lenders involved with existing short sales from foreclosing on a home will also help the local market move “full steam ahead,” said Mike Lebecki with RE/MAX of Santa Clarita.

Realtors, however, caution homeowners not to wait too long before beginning the process for short sale of their home as it can take months for banks to approve some of these sales.

“(Waiting until) the third quarter will be too late to have a short sale completed by Dec. 31, 2013,” Connor MacIvor of RE/MAX said.

Still, if a homeowner is struggling with choices, he said, a short sale is better than a foreclosure as it is easier for sellers to recover from a short sale than a foreclosure.

Credit scores aren’t hit as badly and the sellers can buy another home in a shorter period, experts said.

Local Realtors caution homeowners and buyers, however, to work with agents who are experienced in the short sale process to avoid the pitfalls or excessive delays that can occur with an agent who does not have enough experience managing them.

“If a buyer ties up with a short sale being listed by an agent that does not know what they are doing, the process will be painful to say the least,” MacIvor said.

“Not to mention how the seller could increase their chances of being in the “unapproved short sale” pile,” he said.

Overall, local agents believe extension of the mortgage forgiveness program is good news and that the real estate market in 2013 will continue to gain momentum.

“The active inventory is down 74 percent from this time in 2012 but pending sales are up 17 percent over last year,” said Michael Regilio with Realty Executives Santa Clarita. “That is a good sign that there are still sellers selling and buyer’s buying in the area.”

If the active inventory was this low and pending sales were also down, that would be a completely different story, he said.

What’s even more encouraging, Regilio said there is nearly a 10.9 percent increase in number of homes sold in 2012 over 2011.

Buyers and sellers shouldn’t wait too long before looking at a short sale, however. According to experts, it’s a long process and there’s no guarantee the program will be extended beyond 2013.

“2013 will be the year of the Santa Clarita short sale,” MacIvor said. “We will see a huge increase in short sale listings.”


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