What You Need to Know about Cancellation of Mortgage Debt

By Linda Goold RISMEDIA, Monday, March 12, 2012— This column is brought to you by the NAR Real Estate Services group

Summary: The mortgage company holding your note can cancel the remainder of your debt in the event of foreclosure. The lender reserves the right to sue the note holder for the difference owed from what is due and what the house sold for in foreclosure.

My opinion: If you even think you might lose your house because you're falling behind on payments and the future looks bleak, immediately contact a Realtor to initiate a "short sale." A short sale takes about 4-6 months, but when complete, absolves the borrower from the remaining debt and future litigation. If you do initiate a short sale, don't be distracted by time consuming paper work, like the HAFA program or BoA industry programs. While these programs are fantastic because they provide up to $3K in closing cost or moving assistance, don't lose sight of the big picture. The goal is to sell the house and be absolved from tens of thousands of dollars of debt, not qualify for a potential $3K in assistance.

Key Quotes:
The general tax rule that applies to any debt forgiveness is that the amount forgiven is treated as taxable income to the borrower. Some exceptions to this rule are available, but, until recently, the borrower was required to pay tax on the debt forgiven. A new law enacted in December 2007 provides relief to troubled borrowers when some portion of mortgage debt is forgiven. However, this relief expires on December 31, 2012 and NAR will be working to obtain an extension throughout the year.

Read the full article to obtain all the info you need about this law and the cancellation of mortgage debt at: What You Need to Know about Cancellation of Mortgage Debt

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga