Paddy Deighan is a real estate investor, attorney and advocate. This blog is dedicated to providing useful information, tips and guidelines for all of your real estate needs.
Sunday, December 30, 2012
MisInformation Regarding the Expiration of the Mortgage Debt Forgiveness Relief Act
It is no secret that many of us on rallyed hard to get the word out that the Mortgage Debt Forgiveness Relief Act (MDFRA) should be extended. It is theoretically possible that it could be extended in the future and the extension could be retroactive to January 1, 2013. The President and both houses of congress have their hands full right now.
However, there has been so much misinformation about the MDFRA situation and there are going to be a lot of distressed home owners that are making the wrong decisions and for the wrong reasons. As we approached the end of the year, many sellers decided that they were not going to sell because the close of escrow would not be before the end of the year, and hence, they would have a forgiveness of debt tax ramification.
An example is that a listing agent received an approval on short sale on Friday evening, December 29th. She asked if the buyer could close on Monday!!! She advised my client, the buyer, that her clients were refusing to close because they will have a forgiveness of debt tax issue. I advised her that knowledgable tax professionals and attorneys can alleviate the tax ramifications most of the time. I advised that I have been successful over 90 % of the time when I challenged this with the IRS or state.
The listing agent responded that the sellers' tax advisor indicated that they will have a tax problem if they close after January 1st.
I suggested two things...1). they will have a larger forgiveness of tax issue when the property is foreclosed upon and subsequently sold because the bank will get less at Sheriff sale (presumably) than the short sale proceeds; and 2). they are facing litigation for failure to close. There is no valid justification for breaching the contract because you will have a tax problem that was clearly foreseen months ago. The listing agent is not in a good position here either as the approval took 8 months and it was an easy approval for a variety of reasons. She put herself in harms’ way after a third party negotiator failed to do much of anything on the file. I offered to negotiate the file but she insisted and now she faces problems with the buyer or seller in whatever happens (or does not happen) next. She also will not get a commission on a million dollar home.