As lawmakers focus on the "fiscal cliff," time is running out for an extension of the Mortgage Forgiveness Debt Relief Act of 2007, which allows homeowners to avoid owing taxes on principal forgiven in a foreclosure, short sale or write-down. Lawmakers might extend the tax break once fiscal issues are resolved, says Elise Brooks Perkins, communications director for The Financial Services Roundtable. "But the lag time will have a chilling effect on homeowners considering a short sale," she said.

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