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Michael Gaddis, of Michael Gaddis, J.D. Realty Group and the Law Offices of Michael Gaddis, mortgage and loss mitigation law, talks about how the expiration of Mortgage Debt Relief Act affects homeowners hoping to short sell their house in 2014.
I’m Michael Gaddis your California short sale expert I wanted to take a few moments today to talk about the Mortgage Debt Relief Act of 2007. The Mortgage Debt Relief Act of 2007 will expire at the end of this calendar year. It appears that congress will allow it to expire as such it leaves some questions regarding what is going to happen to homeowners who are still underwater and who desire to short sell their house. Will there will they not incur tax liability related that sale in California? We have an anti deficiency statute and the Code of Civil Procedure section 5b the anti deficiency statue basically says that lenders desiring to approve short sales in the state of California have to waive their right to a deficiency.
Sometimes short sales can be a little bit more difficult when you have second liens involved because second lien holders have to give up their right to pursue deficiency judgments. So, they become a little bit more stubborn about what they want to recover but I digress.Our Senator Barbara boxer was concerned about the potential expiration of the mortgage debt relief act so in a letter to the IRS dated August 28 she asked the IRS’s section 58 EE the Code of Civil Procedure would in any way protect California homeowners from any income tax liability resulting from debt forgiveness. in a letter dated september 19 and basically said this is really good news because the IRS is basically stating that even though the Mortgage Debt Relief Act of 2007 is going away that California homeowners are still protected from a tax liability resulting from short sales.
Shortly after the letter from the IRS to Senator Boxer the State of California’s Franchise Tax Board issued a letter dated December 4 in which they stated that they would take a similar stance related to you the and Mortgage Debt Relief Act and winter but section 58 EE in the same manner as the IRS now this is great news because is it is a confirmation from both the IRS and the state tax Franchise Tax Board that homeowners who were short sale their house will not incur tax liability as a result.
Now the California Association of Realtors read these letters issued a press release dated December 4 in which they are expressing their gratitude to both the IRS and Franchise Tax Board for clarifying this for California homeowners. Because without this clarification homeowners might go into foreclosure or file bankruptcies as a way to try to circumvent any sort a debt forgiveness tax. If you desire arm to see the actual letters the press release from the California Association of Realtors you should be able to find those either by Googling them are you can find him on my web site www.MichaelGaddis.com I have copies a the letter from the IRS to Senator Barbara Boxer and I have a copy of the car press release all stating what I said earlier.
Just for the record I’d like to state that even though I am a real estate Broker, a short sale expert, and a licensed California Attorney, I am NOT a tax attorney and that if you desire to be 100 percent sure about the tax ramifications are the news short sales in California you should consult a CPA or tax attorney. With that being said the letters from the IRS and the franchise tax board are very clear. Still, I suggest that you read them yourself and if you have any questions or comments regarding them you can either contact me or our CPA 760.692.5950
Jenny Winford July 23rd, 2017
Posted In: Uncategorized