By Chris Kaucnik and Michael J. Greenen

RISMEDIA, Oct. 30, 2008-No matter the circumstances, there’s a lot of stress a homeowner goes through in a foreclosure or a short sale. The loss of the home itself and any equity can add a lot of anguish to a situation that may be beyond the control of the homeowner from job loss or illness to changing market conditions.

Prior to December of 2007, if a homeowner lost his or her house due to a bank foreclosure, and the bank forgave any difference between the price it was sold for and what was owed, the homeowner would owe additional income tax on that portion.

Let’s say the homeowner owed $300,000 on the mortgage, but the foreclosure sale only brought in $200,000. Then the bank forgave the $100,000 shortfall. The homeowner would have been liable for the income tax on the $100,000 debt forgiveness from the bank.

The IRS considered this money effectively paid to the homeowner, and it would be taxable in their top bracket. The special reporting form 1099-C depicts the explanation of this exactly - the “C” stands for cancellation of debt and the law said this was taxable income.

Now, because of the unique stresses in the housing industry lately and on our whole economy, last December Congress stepped in to provide temporary relief in the form of forgiving this debt, but only for the 2007, 2008 and 2009 tax years. After that, the old rule applies again.

But Wait, There’s More

To be eligible for this tax relief, the mortgage must be for your principal residence. It does not apply to vacation, investment or other properties. And no more than $2,000,000 of forgiven debt can be excluded from taxable income. Well, most of us would fall below that threshold anyway.

Home Equity Loans

Another very important detail in this temporary tax break is if part of the forgiven debt was a home equity loan and used for purposes other than to build, buy or substantially improve the property, that portion is still taxable. In other words, home equity loans used for vacations aren’t included.

Short Sales

Now, what happens in a short sale? In brief, this can occur when a borrower is behind on the mortgage payments and the lender agrees he can sell his house for less than what is owed on the mortgage. But all proceeds must be turned over to the bank.

The portion of the mortgage the bank forgives, plus any commission expenses or other selling costs are taxable income if this debt is canceled. Yes, even the commission and selling expenses count. No free rides. But, again for taxable years 2007, 2008 and 2009 Congress has provided the same temporary relief in this short sale situation.

A short sale is not always the answer. First, the bank must agree to it and generally will weigh the cost of the short sale against the cost of a foreclosure.

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 Why I Don't Practice Dual Agency

by Rich Schiffer, Weichert Realtors

I have a personal policy of never representing both sides of the same transaction. I do not practice dual agency.

Definition: (per Pennsylvania Association of Realtors' Glossary of Real Estate Terms)
Dual Agency: A business relationship where the licensee, with written agreement from both parties, works for both the seller and the buyer in the same transaction. Dual agency will limit some of the duties owed to both parties. Dual agents cannot take any action that is adverse or detrimental to either the buyer or the seller in the transaction.

Many realtors ask me why I chose this policy, thereby limiting my income to only one side of the equation.

Here's why:
My job, as I see it, is to represent the interests of the person I am working for throughout all phases of the transaction, especially the negotiation phase. When an agent represents both sides, he has access to confidential information on both sides of the negotiation, and cannot, in my opinion, do a proper job representing the interests of the two parties involved. The agent ends up representing his own interests, in practical terms.

I think of it like a boxing match. Each boxer has a trainer in his corner to guide him between rounds. If each boxer was represented by the same trainer, and he gave advice to each boxer between rounds, which one is getting the best advice? Which one is the trainer really trying to help win? The trainer benefits no matter who wins.  Does he really care if the advice he renders is good advice?

It is for these reasons that I have chosen to not practice dual agency. It may cut down on my income opportunities a bit, but I believe I will make up for it with repeat business from clients that know they got the most honest, dedicated level of service possible.

ActiveRain Blog:  Posted by Rich Schiffer, REALTOR, e-PRO on 10/05/2006

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Amen, Thank you -- Rich for words of Wisdom!

One the most important questions you can ask an agent:  "Do you ever pratice Dual Agency?"

Run for the door if the answer is yes.

Professionally, I find the concept of dual agency as completely indefensible and should be eliminated along with the perverse ways to otherwise skirt the issue and thread the needle with transaction brokerage, designated agents, and disclosed dual agency.

There is no way that you can deliver a true informed consent from a Seller that is no longer going to have full fiduciary level of representation when somebody in the office is now going to be representing the buyer.

Just like the Veterinarian's Office; Cats go in one door and Dogs go in another:

Step 1. Need for only an Exclusive Buyer's Broker to represent the Buyer  Make sure that the agent / broker that represents you gives you the highest level of representation possible, full fiduciary duty to only represent your interests as a Buyer and not the Seller. Engage an agent that will pledge in writing to exclusively represent only your interests. Say NO to: dual agents, designated agents, transaction agents and seller's agents. SELLER FUNDS PAYMENT FOR THE BUYER AGENT TO REPRESENT THE BUYER: The Seller usually in 95% of the deals will fund the fees (just a normal real estate commission) to pay for this Exclusive Buyer's Broker to only represent the Buyer.

 Step 2. Need for only an Exclusive Seller's Broker to represent the Seller  Make sure that the agent / broker that represents you gives you the highest level of representation possible, full fiduciary duty to only represent your interests as a Seller. Engage an agent that will pledge in writing to exclusively represent only your interests.