Just in the nick of time the extension of the Mortgage Forgiveness Debt Relief Act of 2007 passed the Senate and of this writing is still waiting for Congress and President Obama to sign off on it. 

The Act expired Dec. 31. Without an extension forgiven debt could be taxable as income. The extension of the Act is included in President Obama’s fiscal year 2013 budget, which went over the fiscal cliff. 

Without this Act, for example, folks who short sell their homes in the future could be looking at federal income taxes on the portion of the debt that was forgiven.

The Act provides guidelines as to what canceled debt is taxable. According to the Deseret News, “forgiven debt on rental and business properties is not protected by the act. Also, the debt must have been forgiven between 2007 and 2012 and protection is limited to $2 million.”

If you filed bankruptcy, that debt is included in the Act, along with second mortgages and refinanced mortgages of a principle residence.

Taxpayers are required to declare any canceled debt on their tax returns by attaching a Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, to the tax return, the newspaper reported.

As we enter 2013 banks seem more intent on favoring short sales over foreclosures. I’ve heard this repeatedly over the past year but it’s really starting to show up. According to CoreLogic, a leading provider of consumer, financial and property information, “While foreclosures are still high by historic standards, the share of bank-owned foreclosures that are selling is down sharply over the past few years. Listings of foreclosed properties are down by 24 percent from one year ago and by more than 45percent from two years ago.

“While sales of foreclosed properties, which typically sell at a discount, have fallen by about 20 percent from one year ago, sales of traditional homes are up by 1 percent from one year ago, according to Ivy Zelman, chief executive at research firm Zelman & Associates. Prices, then, are rising not only because supplies of homes for sale are down, but demand is up.”

Moreover, the Fannie Mae and Freddie Mac HAFA Short Sale Program expired Dec. 31, as well. A cutoff date of Dec. 14 was established earlier for all short sale agreements without an offer.

 Short sale clients may still be accepted into the program if a fully executed short sale agreement was received and uploaded into Equator — the Internet software program many banks, primarily Bank of America, are using these days — on or before Dec. 31. Files with an offer can no longer be initiated for a Home Affordable Foreclosure Alternative short sale.

Files rejected from HAFA participation may be considered for Bank of America’s Cooperative Short Sale program or a traditional short sale. Fannie Mae and Freddie Mac files can go into a cooperative short sale or traditional short sale process. Homeowners may be eligible for relocation assistance under these programs, the companies report.

So while short sales will continue into 2013, the rules have changed. Here’ a couple of the 12 predictions for 2013 from the Harris Real Estate University, a private organization that trains short sale agents, along with a few comments of my own: (The remaining predictions will be in next week’s column.) 

1) Home price appreciation, already on the rise will continue.

In Utah County we have already seen appreciation of at least 6 percent and possibly as high as 11 percent in some markets.

2) The Mortgage Debt Relief Act of 2007 may become permanent.

As discussed above, once Congress gets its Act together, it may make permanent the provision in the Bush-era legislation. Seems like most legislators and their constituents favor it. 

Rodger L. Hardy is a Realtor affiliated with Prudential Utah Real Estate and a former real estate editor. For answers to your real estate questions please email him at rhardy@utahresidentialEteam.com.

First of a 2-part series