Very interesting. Thank you for the information. We handle a lot of short sale transactions, and I am happy to hear The Congress is researching the process.

Does the bill specifically allow the bank to continue to write-off the loss?  Typically when debt forgiveness is done, a 1099 is issued to the debtor.  If the 1099 is not going to be issued, then can the lender write it off?

I was not aware that the homeowner had to show the deficiency as unearned income.  Very informative post, Lou.  Nice to know that Congress does useful stuff sometimes!

I have not read the entire text of the bill, but the excerpts appear to let the lender expense off the deficiency, since this is lost income, without having to "1099" the Borrower. It makes sense in the accounting side, since the lender increases the expense side of the loan (deficiency) and writes down income for the loss, and get as tx benefit on its books in reduced tax expense.

The Borrower should not incur an unearned income penalty, since there is no economic gain. This would be true even in some of those 125% LTV programs, because the economic benefit of the asset is lost to the borrower when the property goes into repossession by the bank. In fact, the Borrower now has to find another home, or loses potential income from the property if it was a rental.

 Both parties actually lose in a foreclosure. Why should one have an extra penalty for losing their real estate asset to foreclosure?