Welcome, this is Derik Lewis from Lawyers Realty Group, the top short sale team in the Southern California area. We have helped many people in the Southern California area avoid foreclosure and short sell their homes.
I wanted to talk a little bit about the Mortgage Forgiveness Debt Relief Act. Some people think that this act is going to be an end to deficiency or protect them against deficiency, which it will not. It really has nothing to do with deficiencies or liability from the lender.
The Mortgage Forgiveness Debt Relief Act really has to do with taxes and if you are going to be taxed if a lender forgives your deficiency, which is called cancellation of debt. When you have cancellation of debt it’s typically taxable. For example, if you take out a loan and on top of that take out a line of credit and you don’t have to pay back that line of credit for some reason, the IRS wants you to pay taxes on it because it looks as if it was gifted to you.The Mortgage Forgiveness Debt Relief Act states you might be exempt if it’s qualified principal residence indebtedness that has been forgiven.
If that line of credit was used to buy or improve the home, it qualifies for principal residence indebtedness. Again, if that is forgiven, you don’t get taxed on it. It is similar to the purchase money debt we have previously discussed, but don’t be confused because they are two different things.
Lawyers Realty Group is always here to provide you with alternatives to avoid foreclosure, such as short selling your home. If you have questions regarding the Mortgage Forgiveness Debt Relief Act or would like information about short sales, please feel free to contact me. I would be happy to answer any of your questions.