1. Just the Facts Ma’am – This is short, sweet and to the point. It focuses on just the numbers.
2. How Does that Make You Feel – An interpretation of the numbers and what we’re seeing out in the field.
3. Featured Videos – NEW!! Each month we bring you videos on what’s going on around town and information on local businesses.

Just the Facts Ma’am
Thankfully, the numbers are still giving us reason to be optimistic. While the number of new listings coming on the market has gone up, so have the sold listings! With all the discussion about Foreclosures and Short sales, we thought this was a great opportunity to share what’s really going on in the market. As the numbers show, Scottsdale and Paradise Valley are still showing primarily ‘normal’ sales.

How Does that Make You Feel
Tax Credit Extension!!
The good news is that the inventory is still moving. With supply low and demand high, the market is finally showing signs of recovery. And we have more reason to be optimistic. Earlier this week the House of Representatives passed legislation to extend and expand the $8,000 first-time homebuyer tax credit, which was approved by the Senate this week. The legislation will be sent to the President, and upon his signature, made law.

Under the legislation, homebuyers will qualify for the tax credit until April 30, 2009 (as long as they have entered a binding contract), and have an additional 2 months (until June 30, 2009) to close the transaction. Borrower income limits have also been increased to $125,000 for individuals and $225,000 for couples (up from $75,000 and $150,000 respectively under the current program). The legislation also includes a tax credit not exceeding $6,500 for move up buyers who have owned their current homes for at least 5 years.
HVCC Petition
The Home Valuation Code of Conduct (HVCC) was originally put into place as an answer to the real estate market crisis. But what it has done, is create is a ridiculous set of rules that prevents professionals from doing their jobs. The following some of the hot points that this new regulation has caused. I implore you to sign the petition to get this off the books permanently!
1. Since “Appraisal Management Companies (AMC’s)” are taking up to 40% of the total appraisal fee, and are not being regulated to ensure that their appraisers are licensed and competent, we are seeing unlicensed and inexperienced individuals performing property inspections with grave data entry errors. These inferior appraisals are then being “signed-off” by other parties that NEVER INSPECTED THE PROPERTY and are creating unnecessary financial hardship for buyers and sellers.
2. With mortgage loans being denied due to inaccurate appraisals, borrowers are being forced to apply with other lenders who in turn have to charge the consumer ANOTHER APPRAISAL FEE to proceed with the transaction. This vicious cycle can go on endlessly costing well intended clients a great deal of money and time.
3. Under HVCC, no one involved in the transaction is allowed to communicate these major issues (EVEN LICENSED LOAN ORIGINATORS) directly to their appraisers. So countless real estate transactions that would have otherwise closed are now failing, resulting in continued property devaluation and offering NO stimulus to our economy with the exception of the unregulated AMC’s who are making unjustified profits at the expense of home loan applicants and licensed, qualified appraisers.
4. Licensed appraisers have legal and ethical standards in place already. The emphasis should be on making appraisers abide by these, rather than frustrating the ordering and communication process. This well intended legislation is severely misguided.

http://www.hvccpetition.com/

Videos of the Month ~New~
We are so excited to share this new feature with you! Each month we’ll be featuring a local business, event and/or home via video! We’ll be bringing you the 411 on Arizona and all that it has to offer! Be sure to check out our YouTube channel for more videos!
The Shack
Stacey and I were lucky enough to be at a book release party here in Arizona and the author of The Shack, William P. Young, took some time to come to our table to sign some copies of the book before the party. It’s a great peak into why the book was written and how this little book took off like a rocket!

http://www.youtube.com/watch?v=794Ctawoq_Q

As always, please feel free to call or email if you have any questions or want The 411 on Arizona Real Estate!!

1. Catchin’ Up – While I send this email monthly, we will be updating the blog more regularly and in this section I highlight some topics you may have missed.

2. Just the Facts Ma’am – This is short, sweet and to the point. It focuses on just the numbers.

3. How Does that Make You Feel – An interpretation of the numbers and what we’re seeing out in the field.
Catchin’ Up

Here’s some of the articles we’ve posted on www.The411onArizonaRealEstate.com in the last month. If you’re interested in having information (the 411) on Arizona Real Estate, be sure to sign up for the RSS feed!
· More 411…

o Home Buyer Down Payment Questions
o $8000 Tax Credit for First Time Home Buyers
o Shopping for a Mortgage
o Preparing Your House for the Market

Just the Facts Ma’am

While the number of sold listings in August is lower than it has been in the last few months, the inventory is still at a record low. With the supply being so low and the demand rising (Hello first time home buyers!!! Time is running out), we are seeing an increase in multiple offer situations and homes selling for above asking price.

How Does that Make You Feel

Attention First Time Home Buyers…. Time is Running out!! In order to take advantage of the $8,000 tax credit, your home must close by the end of November. With typical closings now hovering around 45 days, you need to be in the market and actively looking for a home now to ensure making the deadline. We will need to have you pre-approved through a lender before we can even begin the search. If you’ve even thought of purchasing a home, now is the time to jump off that fence! If you have any questions, please feel free to give me a call and I’ll be happy to discuss the process and market with you.

And whether you choose to use me, my partner Stacey Gross, or another agent, please be sure that they truly are working in your best interest. Each transaction is as different as each home is. I’m frequently asked about specifics of the home buying process, specifically on short sales and foreclosures. Questions like;

· How long does it take to get a response?

· How long will the escrow process be (how soon can we close)?

· Will the bank pay for closing costs and such?

· What will the home go for?

Because each transaction means that we’ll be dealing with different listing agents, banks and asset managers, the answers to these questions are different for every property listed. Because of this, Stacey and I call each listing agent before we take our clients to view a home. In doing so, we often find out additional, valuable information regarding that listing. When speaking to the listing agent we ask questions to find out as much information as we can such as if there’s offers on the property, how high they are (sometimes we get specific answers, sometimes we don’t), what kind of relationship they have with the bank (if a bank is involved), and any other information they are willing to share. We recently received information on a property that wasn’t even listed yet just because we took the time to build that relationship, and therefore our buyers had a jumpstart on the process.

As with anything in life, building relationships is an important part of the process and Stacey and I make it the highest priority in our business. If you should ever have any questions related to real estate, whether you’re using our services or not, please don’t hesitate to call us and we’ll be happy to help you anyway we can.

How long do you anticipate living in your new home?

Do you foresee any changes over the next few years, such as expanding your family or having children go off to college?

Do you anticipate any adjustments in income due to promotions, relocations, retirement, inheritance, or pensions?

Are you expecting a change with regard to your investments?

When it comes to investment strategies, are you conservative, aggressive, or somewhere in between?

As a mortgage professional, it’s my job to match clients with the mortgage product that best serves their changing goals and needs. I
take pride in helping each and every client succeed.

JASON Smith
Senior Corporate Loan Officer
Americn Mortgage Specialists
Phone: 480-539-9000
Fax: 480-315-3291
jasonsmith@amsaz.com
www.jasonsmith.amslo.com

ISSUE 1
The banks or asset managers refuse to spend money prior to close of escrow to get a
home FHA qualified.
The FHA Streamline 203k is essentially a one time close construction loan that
allows buyers to finance improvement (rehabilitation) to the property they are purchasing
as part of their first mortgage. In simple terms there is a hold back of up to $35,000
allowed, if the buyer qualifies, that is set aside to pay for improvements or rehabilitation
after close of escrow. As long as any item that is keeping the home from qualifying as an
FHA property is included in the construction work to be completed after close of escrow,
then it qualifies under the FHA Streamline 203K loan. Utilization of the FHA Streamline
203k loan program gives the bank or asset manager the comfort that no money will have
to be spent on the property until after successful close of escrow by the buyer, and then at
the buyer’s expense (through the loan proceeds).

ISSUE 2
It is hard to find the perfect home for a buyer with all the damaged or poorly
maintained homes on the market.
This loan program allows Agents to go back to selling homes to buyers based
upon their interests. Agents can find out buyers preferences on school districts, floor plan
design, lot location, etc. Instead of spending time and burning fuel looking at many,
many homes to find that one perfect home, Agents can locate a potential home based
upon the buyers preferences and then use the FHA Streamline 203k loan to rehabilitate or
improve the home and make it the buyer’s own new home.

ISSUE 3
Agents are writing multiple offers on multiple properties and the buyer still does not
have a purchase contract on a home.
Bank and asset manager response times are slow with the workload being so high. On
the well maintained and clean houses with multiple offer situations it is hard for an Agent
to get an offer approved on behalf of their buyer. The FHA Streamline 203K allows for a
buyer to target a home where the listing may be aged and need updating or rehabilitation
and get out of that competitive situation. In fact, the buyer will probably have more
equity in the home by purchasing the home and rehabbing it through the FHA Streamline
203k loan than if they purchased a similar home through a multiple bid situation where
the price for the home will be pushed to the upper end of the market.

ISSUE 4
Once the buyer does have a contract on the home, there is still a lot of risk that the
appraised value may not be there to allow the home to close.
This risk is greatly mitigated with the FHA Streamline 203k loan. The loan to value for
the FHA Streamline 203k loan is based upon the lesser of the purchase price of the home
plus the improvements, or 110% of the improved value. This is an important aspect of
this program. This allows for the opportunity that most homes will appraise, so long as
the quality and scope of the improvements or rehabilitation are comparable to the overall
quality and scope of the surrounding market. As an example of how important this is,
here is an example:
Purchase Price of the Home $120,000
Cost of Improvements After COE 10,000
Total Price plus Improvements $130,000

Subject-To (as Improved) Appraised Value $120,000
110% of Appraised Value $132,000

In this scenario the appraised value after improvements would allow for the buyer to
purchase this home under the FHA Streamline 203K loan program. It is important to
note that the down payment requirement is calculated off the purchase price plus the
improvements.

While the process of the FHA Streamline 203k is not a difficult process it is extremely
important that Agents educate themselves on the program prior to working with a buyer.
Equally important for the Agent is that they include both a mortgage professional and a
licensed general contractor with FHA Streamline 203k experience at the very beginning
of the real estate transaction. This will ensure the process goes smoothly and results in a
happy buyer moving into a beautiful new home.

Mason Cave is CEO of MAC Homes, a licensed general contractor and is also a
Certified Public Accountant. He can be reached at 480.282.9032 ext. 100 or
mason.cave@machomesaz.com.

Q. Are there any no-down payment programs left?

Yes. While it’s true that most of the popular no-down payment programs disappeared in the wake of the subprime mortgage collapse, there are still two longstanding government-backed programs that offer mortgages with no down payment: the USDA Rural Development Program and the VA Loan Program.

A USDA Guaranteed Loan is a government-insured, 100% purchase loan. This means there is no down payment required if you – and the house you intend to buy – qualify for the program. Not all areas qualify, but you’d be surprised at how many neighborhoods in your area do. There are income and other limitations, but if coming up with a down payment is challenging, you might want to consider this program.

If you or your spouse is a military veteran, you may qualify for a 100% financed loan from the US Department of Veterans Affairs. More than 29 million veterans and service personnel qualify for this service benefit. Give us a call to find out if you’re one of them.

Q. Are there any other government-insured programs that can help someone struggling with a down payment?

Yes. In 1965, the federal government created the FHA loan programs to encourage homeownership throughout the country. FHA-insured mortgages offer many benefits, including a minimum down payment of 3.5%. FHA-insured loans have grown in popularity recently due to the seller’s ability to pay closing costs up to 6% and a temporary increase in loan limits up to $729,750 in certain high-cost areas, which allows more potential buyers to utilize this program.

Q. May I use a gift from family members as part of my down payment?

Yes. In many cases, immediate family can provide monetary gifts to be used as a down payment. There are restrictions of course, and strict documentation will be required, but we will gladly walk you through the finer details of this process. Be sure to mention this option when you’re filling out an application with us.

Q. May I use funds from my IRA for my down payment?

Yes. First-time home buyers can use funds from an IRA under certain circumstances for a down payment. The rules regarding this option, however, can be complicated, especially with a Roth IRA, and it’s important to understand any and all tax implications before tapping into these accounts. Please talk to your tax professional before making any decisions. If you don’t have one, we’ll gladly refer you to one we work with on a regular basis.

Q. May I use the $8,000 tax credit as my down payment?

No. At the time of the writing of this article, qualified first-time home buyers do not have direct access to the $8,000 credit to use as a down payment. In May, HUD officials made an announcement to the contrary, but statements backing the announcement were quickly withdrawn from the HUD website. This doesn’t mean that HUD and lawmakers will not allow this in the future. We’re following this issue closely and will let you know if anything changes. Just keep reading our newsletters and other materials we send to you or give us a call and we’ll let you know if any progress has been made.

For additional information contact Jason Smith at American Mortgage Specialist 480.539.9000

Let’s assume that the homeowners are not aware of the legal ramifications. In Arizona when you sign the Deed of Trust you are acknowledging that the permanent fixtures are just that, permanent. Meaning that the loan you are given is for the kitchen in tact, that the plumbing and fixtures i.e. tiolet, faucets and sinks are part of the real property and are not to be removed. This is a felony and the Arizona law is actually stricter than the federal statutes.

The master minds that are taking the house apart don’t realize that putting these items on Craigslist and other selling avenues is the direct link that the authorities are using to find them. Since April there have been six successful prosecutions. And there are more to come. If you know anyone that is stripping a property please contact Andrew Thomas, Maricopa County Attorney’s office or the FBI in Phoenix. Every complaint is reviewed and followed up on.

Source: American Mortgage Specialists c/o Jason Smith

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

More information, including detailed examples can be found in Publication 4681 , Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17 .

The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act and debt cancellation:

What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
• Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
• Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
• Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
• Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
• Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.
These exceptions are discussed in detail in Publication 4681.

What is the Mortgage Forgiveness Debt Relief Act of 2007?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.

What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.

How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.

Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.

If the forgiven debt is excluded from income, do I have to report it on my tax return?
Yes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return.

Do I have to complete the entire Form 982?
No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.

Where can I get this form?
If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.

How do I know or find out how much debt was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.

Can I exclude debt forgiven on my second home, credit card or car loans?
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details.

If part of the forgiven debt doesn’t qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?
Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples.

I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.

If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?
Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area. See Form 982 for details.

If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my foreclosure, may I still exclude the canceled debt from income under the qualified principal residence exclusion, even though I no longer own my residence?
Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

Will I receive notification of cancellation of debt from my lender?
Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form.

What if I disagree with the amount in box 2?
Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C.

How do I report the forgiveness of debt that is excluded from gross income?
(1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2. Any remaining canceled debt must be included as income on your tax return.

(2) File Form 982 with your tax return.

My student loan was cancelled; will this result in taxable income?
In some cases, yes. Your student loan cancellation will not result in taxable income if you agreed to a loan provision requiring you to work in a certain profession for a specified period of time, and you fulfilled this obligation.

Are there other conditions I should know about to exclude the cancellation of student debt?
Yes, your student loan must have been made by: (a) the federal government, or a state or local government or subdivision;

(b) a tax-exempt public benefit corporation which has control of a state, county or municipal hospital where the employees are considered public employees; or

(c) a school which has a program to encourage students to work in underserved occupations or areas, and has an agreement with one of the above to fund the program, under the direction of a governmental unit or a charitable or educational organization. Can I exclude cancellation of credit card debt?
In some cases, yes. Nonbusiness credit card debt cancellation can be excluded from income if the cancellation occurred in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See the examples in Publication 4681.

How do I know if I was insolvent?
You are insolvent when your total debts exceed the total fair market value of all of your assets. Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or your pension and other retirement accounts.

How should I report the information and items needed to prove insolvency?
Use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to exclude canceled debt from income to the extent you were insolvent immediately before the cancellation. You were insolvent to the extent that your liabilities exceeded the fair market value of your assets immediately before the cancellation.

To claim this exclusion, you must attach Form 982 to your federal income tax return. Check box 1b on Form 982, and, on line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately prior to the cancellation. You must also reduce your tax attributes in Part II of Form 982.

My car was repossessed and I received a 1099-C; can I exclude this amount on my tax return?
Only if the cancellation happened in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See Publication 4681 for examples.

Are there any publications I can read for more information?
Yes.
(1) Publication 4681 , Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) is new and addresses in a single document the tax consequences of cancellation of debt issues.

(2) See the IRS news release IR-2008-17 with additional questions and answers on IRS.gov.

Short sales and foreclosures are becoming common place in our market. We are consistently asked questions by owners and agents alike about the Arizona anti-deficiency statutes and the tax consequences of a foreclosure or a short sale and deed in lieu. This article answers the two most common questions we receive.

When do the Anti-Deficiency Statutes Apply?
For the anti-deficiency statutes to apply, three requirements must be met:

1. The property at issue must be a duplex or a single family residence;
2. The real property must be two and one-half acres or less; and
3. The loan at issue must be a purchase money mortgage.

A purchase money mortgage is one where the loan proceeds are used to acquire title to the property. A refinance of a purchase money mortgage is also considered a purchase money mortgage for purposes of the statute. A HELOC that is obtained after the close of escrow is generally not considered a purchase money mortgage.

Assuming all three of these requirements are met, the Arizona anti-deficiency statutes apply. What this means is that the lender’s remedy will be limited to regaining possession of the real property at issue through a foreclosure process or otherwise. If the anti-deficiency statutes apply, even if the amount due to the lender exceeds the value of the property, the lender may not pursue the borrower for the difference or deficiency.

What are the Tax Consequences of a Short Sale or a Foreclosure?
Generally, when a lender is unable to collect the full amount due on a note, this forgiveness of debt constitutes a taxable gain for the borrower. The theory is that the borrower is paying less than the full amount originally received when the loan was funded. Thus, where a lender is collecting less than the full amount due on the mortgage, either through a short sale, a deed in lieu of foreclosure or because of the anti-deficiency statutes, there will typically be a taxable gain for the borrower. The taxable gain is the difference between the amount owed to the lender and the amount received by the lender. Many lenders have been and will be issuing a Form 1099 to borrowers for this debt forgiveness. Under certain limited circumstances the Mortgage Forgiveness Debt Relief Act of 2007 may eliminate the consequences of this gain.

The information set forth in this article contains general rules only. It should not be construed as legal or tax advice. If you or your clients have any specific questions based on their specific circumstances, please consult your legal and/or tax advisor.

Richard V. Mack is a shareholder at Mack Drucker & Watson, P.C. He is a State Bar of Arizona Board Certified Real Estate Specialist and AV rated by Martindale Hubbell. Mr. Mack practices commercial litigation with an emphasis on real estate litigation.

Source; http://aarnews.com/2009/03/common-short-sale-and-foreclosure-questions/