Robin,

Good advice. Some approached me yesterday concerning the same question. Although I told them what I thought, the best advice I could give was to see a competent attorney and tax professional. Keep up the good blogging.

You need to check out the 1099 insovency bill that was passed. This information is outdated. They can no longer go after the debtor for teh Short and the loss from the mortgage company. Signed by Bush several weeks ago. Hope that helps.

Angela, I appreciate your response.  However, the bill you refer to, H.R. 3648, that President Bush signed into law on 12/20/07 does not cover all homeowners as you are assuming it does.  In fact, it only applies to a primary home, so if you get in trouble on an investment property or vacation home you could still be on the hook.  Additionally, it only applies to amounts that can be considered acquisition indebtedness.  So if a homeowner purchased a home and then got a second mortgage, perhaps a Home Equity Line of Credit, they now have a second lien (the HELOC), which is not considered to be acquisition indebtedness.  They could possibly have it counted against them as income if that loan is forgiven in a short sale or foreclosure process.  Considering that the second lien is usually the one that has to forgive all or most of the debt, there is still a very real possibility that the homeowner could be liable for taxes on his/her income unless they can prove insolvency as discussed in my blog.

For an in-depth review of the wording of this bill, I suggest that you read this blog:  http://www.homesalessandiego.com/blog/mortgage-debt-forgiveness-law/

On our commission update class in December 07, the instructor (a well known Real Estate Laywer) told us about a case where a seller had sued his agent because he was hit with a very hefty tax after the short sale. So the seller went after the agents commission, claiming that he didn't know about the tax ramifications. So, always, always... ask them to refer to tax expert (accountant) or attorney. ~Rita

Robin, Good advice. The law that was passed by President Bush does apply to primary residence like you've stated. I was sure about investment properties as I have heard that it could go either way. I'll check into that link you provided. It is always a good thing to advice sellers to seek professional counseling from tax personnel and attorney for clarifications and the implications it would have on doing a shortsale vs foreclosure. I had thought that even with a Heloc, it would be waived as well if it is a primary residence and purchase money.

Rita - Thanks for the reminder and the example of how easily an agent can get into trouble. Our job is to "know our stuff" yet to remember that we are not experts in other areas and to give our clients the benefit of knowing when they should seek professional advice other than our own. Jim - On a Heloc, my understanding is that the portion that is used as purchase money would fall under this new law. However, for purchases, I typically see a second that is simply a second mortgage as opposed to a HELOC, which is a line of credit drawn against equity in the home.

If the homeowner lived in  the home for 2 years or more then the tax hit gets wiped out by the gains exemption .

If the homeowner lived in  the home for 2 years or more then the tax hit gets wiped out by the gains exemption .

I have had my home listed for 6 months and have not had an offer of a short sale.  I was just notified that the house will go up for the shiriff sale on May 29.  I called about doing a deed in leu and the mortgage company seemed like that was possible but I needed to act now.  Will I still get hit with the tax 1099 with a deed in leu?  This is my primary residence and I have no second mortage.  I,m sure that I can prove insolvency.  Thanks for your help