Am I protected under the Mortgage Debt Relief Act?

Asked by Buy Phoenix, Phoenix, AZ Tue Jan 8, 2013

I bought a home in Phoenix - all purchase money loan. We could not sell the property so we rented it and bought another home. Now we can't keep up with the rental home. Can I short sell the property and still be protected under the Mortgage Debt Relief Act?

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James Wehner, Agent, Scottsdale, AZ
Thu Apr 17, 2014
Great question...... for you CPA and real estate attorney. As licensed real estate agents, we are not able to provide legal advise.
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Ron Thomas, Agent, Fresno, CA
Tue Jan 8, 2013
GOOGLE; :mortgageforgivenessdebtreliefactof2007
you will see that you are not out of the woods, and neither is the Realtor who had the rental property.
If you choose to not declare, (file the forms with the IRS) and they audit you......

This is aside from the fact that Arizona is a Non-Recourse State, and you may be in the same situation here, with it being Income property, (if the Lender decides to go after you).
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The Urban Te…, Agent, Phoenix, AZ
Tue Jan 8, 2013
Don't you love it when real estate agents give tax advise. I especially like it when someone gives advise and then tells you not to listen to it.

Contact a qualified tax professional to get an answer to this question.
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Sonny Shriva…, Agent, Surprise, AZ
Tue Jan 8, 2013
Tax forgiveness under the Mortgage Debt Relief Act only applies to primary, owner-occupied residences. However, because you have depreciation and write-offs on a rental property, a good accountant may be able to get your tax debt down to ZERO even if you don't qualify under the Debt Relief Act.

Please do not take any advice anyone is giving here, nobody here is a tax advisor or an accountant. Contact an accountant and let them guide you. That is the only way.
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Jason Webb, Agent, Glendale, AZ
Tue Jan 8, 2013
Short answer, most likely not, if it is classified rental property. The Act only covers primary residence.

If it is a rental property, the business loss can off set the debt write off that has to be claimed as income. You need to talk to a tax professional who can review your financials to determine if the write off is something to be concerned about. If you are comparing short sale to foreclosure, short sale is usually less write off for the bank and less that might be taxable to you.

Another consideration is the anti-deficiency laws. Are you going to be on the hook to the lender for the loss. Arizona law may protect you. If you do a short sale, you want to make sure you are protected in the lenders approval of short sale. You need to talk to a real estate attorney regarding the deficiency and potential liability in either a short sale or foreclosure. Should be able to get a flat fee consultation with a real estate attorney that will include reviewing any short sale approval letters.
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Sean Heideman, Agent, Phoenix, AZ
Tue Jan 8, 2013
As a real estate investor myself that has short sold one of my upside down rental properties, I did not have to worry about paying taxes on the difference between the mortgage and the sales price. I keep detailed records of all the expense and income from the rental and I had a loss each year. Therefore, my losses cancelled out any taxes I would have owed the IRS. If you have a loss on your rental property, then you should be able to use those losses to offset any IRS taxes. If you dont have your accounting records in order, then I can refer you to a tax accountant that can help you with your financials.

I have help a lot of investors similar to yourself short sell their rental properties. I started doing short sales doing the real estate boom so I have a lot more experience than most Realtors. Most real estate agents did not start doing short sales until real estate prices started falling. I would be more than happy to assist you with short selling your rental property as well. Please give me a call at the number below to discuss the short sale process in greater details.


Sean Heideman, Broker / Owner
Position Realty
Office: 480-213-5251
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David Rider, , Phoenix, AZ
Tue Jan 8, 2013
Just as important as the MDRA is the question of how a Short Sale or Foreclosure will affect you in the future.

With either a SS/FC you will be limited to purchasing a home as a primary residence only. You will not be able to get an "Second Home" or "Investment" property through normal conventional channels for 7 years. However, with a SS you can purchase at 4 years w/10% down or 3 years with FHA.

Some lenders will state you can buy again in 2 years but that requires a documented "Hardship" such as death or medical.

VA will let you buy in 2 years.

Hope that helps.
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Doug McVinua, Agent, Gilbert, AZ
Tue Jan 8, 2013
It is very possible that the answer is yes you would be covered, we have some great resources for you to utilize.

What is wrong with the rental? Do you have a bad tenant or is it costing you too much each month?

Lots of options we could consider to help you out of this situation. Most of which cost you nothing!
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Gerri Ogilvie…, Agent, Apache Junction, AZ
Tue Jan 8, 2013
Hi Buy Phoenix,

No real estate agent is qualified to answer this question for you... in fact we would be doing you a disservice by trying. Every individual situation is different. Please consult with an attorney who specializes in real estate laws (anti-deficiency analysis in particular). Know your options and how each choice will affect you before taking any action - it will be money very well spent and could likely save you time, cost, and headaches later on.

I can share a list of well regarded attorneys who specialize in this complex field - many will do an initial consultation at no charge, or for very little cost. Feel free to contact me at

Gerri Bara, REALTOR & SFR (Short Sale & Foreclosure Resource)
West USA Realty
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Ariane Gonza…, Agent, Glendale, AZ
Tue Jan 8, 2013
I have helped many sellers like yourself successfully short sale, I always recommend to seek legal consel with both an attorney and Tax CPA, Let me know how my Short Sale Team can help.
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Susan Talari…, Agent, Scottsdale, AZ
Tue Jan 8, 2013
You can qualify for a short sale provided you can show financial hardship. It is up to the discretion of the lender if they will grant you a short sale status. As for the Mortgage Debt Relief Act, it has been extended for another 60 days and SHOULD be extended but there is no guarantee at this time.

It is best to consult with your accountant and legal counsel on the Mortgage Debt Relief Act.
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Debora Nicho…, Agent, Phoenix, AZ
Tue Jan 8, 2013
That really is a question for tax person/accountant. But there is a real good possibility that the answer would be yes. I would be happy to discuss this further if you wanter to contact me privately.

Deb Nichols
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Jennie Miller…, Agent, Phoenix, AZ
Tue Jan 8, 2013
You can certainly short sale the home. I have handled hundreds of short sales and would be happy to walk through some options with you. Feel free to contact me via my profile and we can discuss this at length.
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