For review, a short sale is a sale in which the purchase price offered by the buyer is less than the mortgage amount owed by the short-sale seller.\u00a0Here’s a summation of \u00a0Tom Kelly’s article on the subject, published in the Miami Herald on March 117th:<\/p>\n
\u00a0“When a lender agrees to a short sale, it can either retain the ability to collect from the short-sale seller the amount of mortgage debt owed by the seller that is not satisfied by the purchase price, or it can discharge all or a portion of the unsatisfied debt amount.<\/p>\n
If the lender discharges debt, it reports this to the IRS on a 1099-C Cancellation of Debt Form.\u00a0\u00a0Under the Mortgage Forgiveness Debt Relief Act (MFDA) \u00a0of 2007\u00a0\u00a0 individuals are allowed to exclude from tax up to $2 million of mortgage debt cancelled by lenders.\u00a0 Some short sale negotiations do not include language of the forgiveness- that the difference between what is owned and what is paid will actually be “forgiven”.\u00a0 In cases where, for whatever reason, that is not negotiated as part of the short sale, a recent court case ruled that even if the bank gives the borrower a 1099 they still can go back after the borrower for the remaining amount for up to three years<\/em>.\u00a0 The distinction to keep in mind is that currently a 1099 does not necessarily indicate that the debt is forgiven, just that, for the time being, the bank is writing it off as a loss on their taxes.\u00a0\u00a0\u00a0 MFDA\u00a0benefits end at the close of 2012.\u00a0 As\u00a0always, seek the advice of a real estate attorney and accountant\u00a0informed of short sale details and how they apply to your situation.<\/p>\n