Apparently, readers can’t get enough information about short sales and how best to deal with the federal Mortgage Forgiveness Debt Relief Act after Congress allowed it to expire on Dec. 31.
Here’s a message I received from a reader who happens to be a California-based attorney offering suggestions on how he thinks Nevada might be able to address mortgage forgiveness. I’m also offering a response to this suggestion, based on conversations with government affairs experts for the Greater Las Vegas Association of Realtors and the Nevada Association of Realtors.
Q: There is a California law with Internal Revenue Service and Franchise Tax Board letters that states when a loan is short-sold under the conditions set forth therein, the loan is considered nonrecourse and (there is) no debt forgiveness and no tax. If Nevada passed emergency-type legislation, it can probably do it there, and then short sales would pick up. If you would like to know more, contact me.
— Herman T., Costa Mesa, Calif.
A: Although this is an interesting approach, and I appreciate your suggestions, I’m not sure this would work in Nevada.
To elaborate, I consulted Rocky Finseth, chief lobbyist for Realtors in Nevada, and his team at Carrara.
“By way of background, Nevada’s laws concerning nonrecourse forgiveness are different from those in California. The Nevada Legislature in 2011 and 2013 considered legislation to change Nevada’s statues with respect to nonrecourse ‘clawback’ provisions, and in both sessions, rejected those proposals. It did, however, enact legislation that applied to nonrecourse loans on a prospective basis.
“The specific concern is that by changing deficiency statutes in Nevada, the Legislature would be altering pre-existing contractual relationships between consumers and lending institutions and servicers.
“And, the thought process goes, if the Legislature is universally able to change contractual relationships with respect to nonrecourse forgiveness for borrowers, then what’s next: real estate contracts, auto contracts, commercial contracts?
“In addition, the Nevada Association of Realtors has opposed these efforts — again out of a concern that the Legislature is altering pre-existing contractual relationships.
“In addition, it is unlikely that Nevada Gov. Brian Sandoval would convene a special session solely for this issue. Moreover, special sessions are costly efforts to the taxpayer, and historically, special sessions are called for budgetary issues, not public policy issues. Your suggestion is most definitely a policy issue, not a budgetary issue.”
Finally, Rocky has informed me that he and his staff are exploring the IRS letter angle you mentioned with Nevada’s congressional delegation. I’ll be happy to report back on those discussions in a future article.
I also think it’s worth noting that short sales have slipped recently, falling from 17 percent of all existing local home sales in Southern Nevada in January to 14 percent in February. I suspect uncertainty surrounding a possible 2014 extension of the Mortgage Forgiveness Debt Relief Act may have something to do with this.
Heidi Kasama is the 2014 president of the Greater Las Vegas Association of Realtors and has been a local Realtor for more than 11 years. GLVAR has more than 11,000 members. E-mail questions to firstname.lastname@example.org. For more information, visit www.lasvegasrealtor.com.