Foreclosure Relief – WA Department of Revenue Reverses Stance
January 14th, 2009 by Mark FlandersAnother sign of the times appeared yesterday when Washington State’s Department of Revenue reversed it’s position on how and when it collects the Real Estate Excise Tax (REET) in real estate transactions involving a Short Sale.
A Short Sale is the name for a Real Estate transaction where a seller, heading into Foreclosure, agrees to sell his/her home for less than the amount of money owed on the property. Short Sales are complicated transactions which must involve not only the Seller and the new Buyer, but the mortgage holder as well. In a Short Sale, the mortgage holder must also agree to accept a sale price that may be significantly below the amount owed on the property.
The difference between the amount owed and the amount generated by the sale, known as a deficiency balance, is sometimes “forgiven” (the seller is not required to pay the lender), and most times not forgiven (the seller still owes money after the sale to the original lender).
To add injustice to injury, before yesterday, the WA DOR imposed the Real Estate Excise Tax on the deficiency balance as well as the sale price. In other words, not only did someone lose their home while continuing to pay a mortgage lender, but the State of Washington taxed the homeowner on the amount of money still owed to the lender. (The IRS does something similar to this, but that is another story)
This practice changed yesterday when the Department of Revenue issued it’s reversal of previous policy in the Short Sales – Letter to Stakeholders. This letter explains that the DOR will no longer require Escrow Agents to collect the Real Estate Excise Tax on deficiency balances. It goes further to provide contact information for sellers who were charged the tax in the past.
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Ouch! A lot of people I know will not be happy to read these news.