June’s uptick in short sales nothing to worry about

Q: Has the Mortgage Forgiveness (Debt) Relief (Act) been extended to 2014? When do you expect the law will pass? Will it pass this year?

— Lena S.

A: Unfortunately for thousands of distressed homeowners who are wondering about this, the answer is not yet. As of this writing, Congress has not extended the federal Mortgage Forgiveness Debt Relief Act of 2007 that expired Dec. 31.

We haven’t heard much news on this issue since April, when the Senate Finance Committee passed a bill out of committee to extend this act.

That means both houses of Congress and the president would still need to approve this legislation, ideally making it retroactive to help those who completed short sales in 2014.

With no guarantee that this law will pass, many distressed homeowners in Nevada and nationwide are wondering what kind of tax hit they may take on their federal income taxes if they sell their home this year via a short sale, which occurs when a lender agrees to accept less than what the borrower owes on the mortgage when the borrower sells the home.

Unless Congress extends this act, any amount of money a bank writes off in agreeing to sell a home as part of a short sale starting in 2014 may become taxable when sellers file their income taxes. This can add tens of thousands of dollars to the tax bill of some homeowners.

Nevada’s congressional delegation, the National Association of Realtors and others have been encouraging lawmakers to extend this act to help distressed homeowners who are still struggling to pay their mortgages after home values fell during the Great Recession.

The good news is that home prices are rising. Compared with a few years ago, fewer local homeowners today are underwater, owing more on their mortgage than their home is worth.

The local housing market has been recovering since January of 2012. That’s when statistics from the Greater Las Vegas Association of Realtors show the median price of existing homes sold here bottomed out at $118,000.

Since then, the median home price increased by 24 percent in 2012 and another 24 percent in 2013. According to the Realtor group’s latest report, local home prices went up again in June to a median price of $199,900.

We’re still a long way from June of 2006, when the median price topped out at $315,000.

Since our real estate roller coaster hasn’t returned to its apex, short sales are still a factor.

In fact, your question comes at a time when members of the news media and the public have been asking why local short sales increased in June. After falling for many months, the Realtor group’s statistics showed that short sales increased in June, from 7.9 percent of all sales in May to 10.8 percent in June.

I don’t have a definitive answer for this one. Perhaps the largest lenders can offer some insight as to why they approved more short sales in June. In any case, I don’t think this relatively minor, one-month increase is a trend.

With so few short sales occurring, it doesn’t take much for this percentage to increase. I wouldn’t be surprised to see fewer short sales in future months, especially if Congress doesn’t extend the forgiveness act.

Meanwhile, homeowners considering a short sale should consult their accountant to find out what’s best for them and how a short sale and the debt that may or may not be forgiven on their federal income taxes may affect them.

Keep those real estate questions coming, and I’ll do my best to answer them.

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. The group has more than 11,000 members. E-mail questions to ask@glvar.org. For more information, visit www.lasvegasrealtor.com.