Expiring debt relief could impact short-sale market

In Maricopa, 50 of the 267 single-family home sales in June were short sales, with a median sale price of $94,500, but with the expiration of the federal law, all that could change

By Christina Sampson


The potential expiration of the Mortgage Fairness Debt Relief Act on Dec. 31 may not be as ominous for some Arizonan homeowners as it is for much of the rest of the country.

That being said, it may not go entirely unnoticed by local homeowners looking to unload through a short sale.

On the bright side, Arizona, along with 11 other states, is a nonrecourse state.

That means when it comes to most mortgages, if there’s a foreclosure or short sale, the lender gets the property back and that’s the end of the matter. The homeowner has no personal liability for the debt owed on the home, provided it was used to purchase the house.

So state law, when combined with Section 108 of the Internal Revenue Code, the little-known tax law the federal debt relief act actually expanded on, allows most Arizonans to unload underwater homes through a short sale without facing hefty tax penalties.

In recourse states, homeowners facing a short sale aren’t as fortunate. For tax purposes, the canceled, or forgiven, debt is considered income and is taxed.



Flagstaff housing market finally thaws/Arizona Daily Star


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August 2012