No More Phantom Income from Real Estate Short Sales

Thursday may mark a dramatic increase in real estate short sales due to H.R. 3848 being signed as law by President Bush.

For the next three years mortgage debt forgiven by lenders when troubled borrowers negotiate real estate short sales or mortgage workouts on their primary residence that involve forgiveness of part of their debt will no longer be counted as phantom income by the IRS.

This will must likely lead to a tremendous growth in real estate short sales but what will it do to prices?

Already in certain parts of the country even with the phantom income, some agents are reporting that real estate short sales account for as much as 30% of all current activity in parts of California.

With this new law, there is no down-side to doing a short sale so many more owners will seek this as an option.

Maybe now, mortgage lenders will be more prone to accepting real estate short sales as it helps keep foreclosures off the books which keeps wall street happy.

Question is, will this help stabalize the free falling market or simply speed up competition of "must sale" homes and push prices down faster?