At the end of 2012 debt forgiveness on the amount written off by the lender goes away.  So if you have a loan for $500,000 and $250,000 goes away in a short sale, you now do not pay taxes on the $250,000 that was forgiven by the bank. This law expires at the end of 2012.  Do you think it will be extended?  Do you think it will make short sales less attractive if it does expire?  If people could pay the amount that will be owed in taxes they probably would not have to short sell or be foreclosed on.

So what do you think will happen.  My answer is I have no idea, that is why I am asking you.

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  • Well this is a very good subject, our economy is still weak, home prices keep dropping and if congress pass the new laws on down payment requirements and elimination of tax credit for the interest that we pay on our mortgages, I don't see a recovery anytime soon, actually that might hurt our housing industry even more. I think the government would have to do one of two things, one is to modify all current loans to preserve sustainable home ownership, the type of modification should be re-appraising the homes that are upside down and start from a scratch with new loan based on the current price and at a lower 30 to 40 year loan, but I doubt that would happen.

    Second is to extend the debt forgiveness for another 12 to 24 months, and continue with short sales, but looking at all the issues with short sales and the lack of rules and control to expedite them and the rate of short sale listings that get foreclose, I have the feeling that banks and the government don't believe short sales are a solution to our problem and they might just do what government does best and that is nothing to really fix the problem.

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