Q: My neighbors bought a home for their mother, who has since passed away. They owed $125,000 on the mortgage. The bank allowed them to do a short sale for $56,000. The three daughters who bought the home for their mother have considerable assets. How can they be forgiven for this debt by the Internal Revenue Service if they are not distressed? The people who are doing the short sales are ruining the values of our homes, yet we have always made our payments on time, and owe much more than these short sales. Can you please explain this to me? A: A month ago, I wrote about the Mortgage Debt Forgiveness Act, under which some folks who sell their homes for less than they owe on it (e.g., a short sale) are exempt from being charged income tax on the debt that is forgiven by their lender(s), if the short sale is completed before the end of 2012. Many upside-down homeowners who are staying on time with their payments, like yourself, have cried, "That's just not fair!" Th...
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