Mortgage banks have been pushed between the rock and the hard place in today's reeling real estate market. They are trying to make the right moves to keep their bleeding books from totally blowing up during this perfect storm as more and more home loans go bad. To deal with that, they generally look at three basic options; a mortgage loan modification, a short sale or then the foreclosure, the infamous word that has been in the media a lot lately.

Southern Nevada - with communities like Henderson, Boulder City, Summerlin, Mountains Edge, Southern Highlands, North Las Vegas and Green Valley - homeowners are increasingly finding themselves underwater, meaning that their mortgage balance is higher than the underlying property's value. Many have been able to convince their home loan providers to go for a short sale, whereby the bank will accept a sale that is for less than the mortgage balance. If so, once the deal is closed - it can take months by the way - the homeowner usually thinks the nightmare is finally over.

After all, at some point - normally soon after the settlement - the mortgage loan company sends the homeowner an IRS form 1099C spelling out that the debt has been canceled. The law requires that any canceled debt over $600 must be so reported to IRS and the borrower. And since this is his principal residence he's not obligated to pay income tax on the canceled debt. All this appears reassuring enough.

But the pain may not be over after all for the homeowner.

When the mortgage firm agreed to the short sale, did it also include in writing that it was fully releasing the borrower from the debt? If it did not, things can turn rather nauseating from the settlement on out. What is happening at increasing frequency now is that many home loan companies are selling their real estate debts to collection outfits that then come after the unsuspecting borrowers. All of a sudden a major problem seemingly solved turns into another bad dream.

Obviously mortgage lenders interpret the situation so that they can come after the difference if they didn't explicitly and in writing agree to a complete release. While the homeowners believe the IRS form settles the issue in their favor. Who is right? Hard to say off hand at this stage. The courts are going to have to make a conclusive ruling on short sales and the debt forgiveness.

So, Las Vegas mortgage borrowers who enter into a short sale agreement without a written release from the bank run the risk of being chased for the remaining liability. Historically it has rarely happened, but today things appear to be heading into a different direction.

Photo by tomsaint11