Short sales in which homeowners fell behind on mortgage payments but were not in foreclosure leaped 22% in 2012, according to a report released by RealtyTrac. CNNMoney reported that by comparison short sales driven by people current on payments rose 17%.

Short sales homes, which are sold at a price less than what it owed to the bank, forced the bank to absorb the loss. The homeowner then escapes his looming unaffordable mortgage.

Due to a bailout-era law known as the Mortgage Debt Forgiveness Act, homeowners are not forced to pay tax on the unpaid portion of the debt.

However, this law is set to expire on Dec. 31 and, if it is not extended, unpaid mortgage debt will be considered taxable income.  RealtyTrac reported that the average amount of forgiven debt in a short sale is, on average, $95,000. The tax on that could hit $33,250 or higher, depending on the outcome of the fiscal cliff.

Because this law may expire at the end of the year, real estate agents are currently pushing to complete short sales before the possible expiration date, RealtyTrac speculates.

With the deadline quickly approaching, short sale numbers could jump even higher in the current quarter.

In its January issue, HousingWire will break down the short sale predictions for 2013 as predicted by RealtyTrac research. To subscribe, click here.

To read the entire CNNMoney article, click here.

mhopkins@housingwire.com

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