December 18, 2014
by Goldstein Law Group
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Although many government statistics point towards economic recovery, the New Jersey residential real estate market has been slow to recover. Granted, there has certainly been some gradual increases seen in the price of homes since the mortgage fiasco and real estate crash of ’08/’09. However, many homeowners still find themselves in a situation when they go to sell their home that their mortgage balance(s) exceed the fair market value of their home. As a result, they must seek short sale approval of their home from their lender(s) if they want to sell it before the market takes its sweet time to recover more. And, with some homeowners having experienced a loss in value by 25-30% or more, that may never happen in one’s lifetime. As an alternative, a seller can pursue, and must secure their mortgage lender’s consent to the sale of the home at a price that will not result in sufficient proceeds from that sale necessary to pay off their mortgage balance(s). Many lenders will, under the correct circumstances, and after reviewing the specific situation of the seller (including the seller’s finances as well as the facts surrounding the specific sale, such as the price at which it is sought to be sold as compared with a market value analysis or appraisal, and the amount of the anticipated deficiency). Assuming the borrower meets the requirements of their lender(s) and qualifies to complete the short sale, in most instances, that consent from your lender would include a cancellation or forgiveness of you, by that lender, for the balance you may have otherwise still owed on your mortgage(s) in excess of the amount the lender receives from your sale transaction. That’s the good news. The bad news that typically accompanied it was – the amount of the debt which the lender agreed to forgive or cancel was considered by our tax laws as taxable income to you! Thus, you had to pay income tax on the amount of the deficiency on your mortgage which the lender forgave or cancelled. Many sellers viewed this as a penalty to them, in effect- a slap in the face. Now, the good news!