Christian Debt Recovery

Debt Relief Act Short Sale

April 6th, 2010 |

Author: Gavin

debt relief act short sale

What is a Deed in Lieu and Short Sale

What is a deed in lieu? A deed in lieu is voluntarily giving your home back to the lender.

If you have decided to not keep your home and you have tried to qualify for a loan modification, special forbearance, or a repayment plan and have failed. A deed in lieu might make sense for you.

If your lender approves you for a deed in lieu it will impact your credit report however, not as severely as a foreclosure or bankruptcy. You will want to ask a few questions before considering this option.

1) Taxable income? Will I be taxed on the amount of debt that is forgiven?

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. For more information go to:

More can be found in Publication 4681 (http://www.irs.gov/pub/irs-pdf/p4681.pdf), Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17 (http://www.irs.gov/irs/article/0,,id=179073,00.html

What is a short sale? Selling of your home by you for less than what you owe.

Again you will still need to be approved to do this by your lender. Very similar to the loan modification process meaning typically same type of supporting documents will be requested. A short sale will impact your credit but again not as badly as a foreclosure which can stay on your credit for up to seven years and not as bad as a bankruptcy.

Will you still be responsible to pay back the difference of what the house did not sell for? Refer to the Mortgage Debt Relief Act of 2007

Under the Home Affordable Foreclosure Alternative Program HAFA, you may qualify for relocation assistance and other incentives. If saving your home by applying for a loan modification isn’t an option then giving the home back with the least amount of damage to your credit would benefit you in the long run. Understanding your options will save you time and money.

About the Author

My legal practice covers many areas of law, but specialize in real estate law, development, title and foreclosures defense. I also have experience in joint ventures, acquisitions, and commercial real estate. I enjoy speaking on Real Estate Law matters and I enjoy not only protecting my clients but educating them as well. If you need honest counsel in legal matters please visit my website.