The housing industry is kicking off the new year with some good news: Congress voted to extend the Mortgage Debt Relief Act of 2007 as part of its fiscal cliff bill.
That means struggling Fresno homeowners who short sale their home this year — sell it for less than it is owed to the lender — won’t have to pay a hefty tax on the forgiven amount.
The relief act also prevents the lender from coming back to collect that debt in the future.
“We almost didn’t think this would be there for so many people,” who need it, said Pamela Santy, a Guarantee real estate agent. “It’s unbelievable.”
A principal reduction or a mortgage debt that is forgiven by a bank as the result of a short sale is considered taxable income.
The debt relief act, which was set to expire on Dec. 31, 2012, gave homeowners a break from paying that tax.
Last month, Santy and other Fresno realtors held last minute short sale workshops to encourage homeowners to sell before the end of the year.
Without the debt relief, real estate experts said foreclosures could increase and home prices could fall this year.
Now, homeowners have a second chance, Santy said.
“Life brings changes and sometimes we need to move on whether we want to or not,” Santy said. “The tax forgiveness bill gives those people the opportunity to leave that home and move on with their life,” without financial penalties.