Legal Question in Real Estate Law in California

Mortgage Forgiveness Debt Relief Act of 2007
I have a friend (really, a friend, not me...) who bought a house with a partner. The deal was that they would refinance the house after a year and buy the partner out, which they did. She is about to lose the house (the loan balance is about $200,000 above the asking price by the bank on a short sale). Will the Mortgage Forgiveness Debt Relief Act of 2007 help her, since the money she got in refinancing the house was used to buy out a share in the house?

Asked on 3/11/08, 5:35 pm

2 Answers from Attorneys

Bryan Whipple Bryan R. R. Whipple, Attorney at Law

0 users found helpful

0 attorneys agreed

Re: Mortgage Forgiveness Debt Relief Act of 2007

Well, I know what you mean, and I think there are two issues. The first is whether interest is forgiven when the lender may have the right to pursue a deficiency judgment because the protections of the antideficiency laws might not apply. The second is whether the Act applies to loans used to buy out a co-owner, whether or not the lender could pursue a deficiency judgment. I don't know the answer, but I think your friend should ask the IRS itself, unless your friend's accountant is a tax whiz. I must admit to a bit of laziness here, because I could look up the full text of the law and give you my interpretation, but it's late and the IRS is a better source of an opinion on this anyway. Another idea would be to ask the lender (if it is a sophisticated institution) whether it intends to "1099" the borrower.

Answered on 3/12/08, 2:02 am

Mark as helpful