The Mortgage Cancellation Act - a Positive View for Investors

The Mortgage Cancellation Tax Relief Act of 2007 may just benefit investors - particularly those who buy short sale properties.

Under prior rules a lender that forgives a deficiency was required to report the forgiven debt as income to the foreclosed homeowner. This added a tax bill to an already struggling taxpayer's worries. However the Mortgage Relief provision excludes this “phantom income” from the sellers’ gross income. No longer do they have the additional worry of a tax bill on their principal residence debt that has been forgiven.

With the passage of the Mortgage Tax Relief Act, homeowners that find themselves facing foreclosure may find it more easy to opt for a short sale. Investors, in turn, could potentially use this information when negotiating with sellers. Sellers may turn to an investor to assist with negotiation of a short sale with the bank. Ultimately, this may lead to an investor being able to purchase the property for a lower price than prior to the Act.