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Short Sales: Is time running out? Will HR 3648 (Mortgage Debt Relief Act of 2007) be extended?


This is perhaps the biggest Short Sales topic of 2012, and I hear very little speculation about it.  Maybe people are putting their heads in the sand because of the stupendously damaging effect on the housing market that will occur if this Act isn’t extended.  I have a theory about why the politicians have been mostly silent about this, but first, we need to recap what the Act means.


The Mortgage Debt Relief Act of 2007

In a nutshell, what this Act does is protect some property sellers from declaring discharged or forgiven debt as income, thereby avoiding a taxable event.  What this means to the average Short Sale seller is simple:  If you are selling your Primary Residence, and you receive a forgiveness of debt, or full liability discharge, you may not have to declare the amount of that forgiven debt as income.  For example:


Balance Owed:                       $200,000

Net to lender after sale:       $100,000

Deficiency Owed:                  $100,000


If the lender, under IRS rules, forgives this deficiency you would have to declare that $100,000 discharge as INCOME, and thereby be responsible for paying taxes on that amount.  HR 3648 now protects many sellers from this significant tax liability, thereby increasing short sales and other alternatives to foreclosure. As you can believe, NOT extending HR 3648 would be a disaster to the fledgling housing market recovery.  Without the tax protection afforded by the Act, there will be a sharp uptick in “Walk  A Ways,” as sellers let properties slip into foreclosure rather than wait out a short sale. 



As usual, the deciding factors are political, rather than in the interest of common good.  My theory is that Republicans are waiting for this Act to quietly go away, and Democrats are keeping an extension in their pocket until just before the election. Either way, expect much bickering, fighting, and delays.  Personally, I would urge any sellers on the fence as to whether to sell short to get their properties listed and sold now.  We cannot underestimate the stupidity of modern politics or politicians, and gambling on a huge tax incentive is foolhardy at best.  If you are in a short sale situation, get it listed and sold NOW!   


Joseph C. Alfe is a Nationally know Short Sale negotiator and educator.




Baird & Warner Realtor


Posted by




Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

It will be interesting to see what happens. My gut feeling is that they will extend it for another year.

Jul 24, 2012 06:35 PM