Blown Mortgage

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

Here is an interesting Q&A from the LA Times which highlights another fun aspect of a short sale.  A short sale is when a home owner sells his home at market value even though the mortgage balance is higher than the sale price.  This typically occurs when people are facing foreclosure and the bank doesn’t want to take possession of the property, auction it off, etc.  If the bank finds the proper bid (the one that makes them more money than the aforementioned chain of events) then it will take a short sale and eat the loss on the mortgage.

An interesting wrinkle to this is that the IRS considers "debt relief" a taxable item for the home owner.  So the home owner will receive a 1099 for the difference between the mortgage amount and the price of the short sale, which can be in the mid-five figures.  This "income" has to be reported and will be taxed by the IRS.

So not only do you lose your home - because you were unable to make your mortgage payments - but you get a nice additional tax hit from Uncle Sam on the short sale.

If the government wants to step in and help with the market implosion this would be an easy, easy way to save some people hardest hit by this crunch a few thousand dollars.

Note: Talk to your financial adviser about tax-related matters; I’m not a CPA and don’t play one on the Internet either.

Share This