Sometimes a homeowner sells his property at a price lower than is owed on the mortgage. It can happen that the lender will decide to declare the debt fully paid and accept the lower price.

This is often called a “short sale” because the lender is “short” of the full amount owed.Prior to Thursday, the IRS treated the forgiven mortgage debt as taxable income. This added thousands of dollars to a foreclosed homeowner’s tax liability.

As an example, a homeowner owes $62,500 on a mortgage. He sells the home for $62, 500 and the tax liability is $12,500. Because of the passage of the bill the homeowner will not have to pay these taxes.

On the other hand, there may be $650 million dollars lost to the IRS. The bill does limit tax breaks for selling vacation and/or second homes. These limits will affect homeowners.

Be sure to arrange to speak to your financial advisor if you believe that the Mortgage Forgiveness Debt Relief Act of 2007 will affect you.

The National Association of Realtors measures the number of pending homes nationwide on a monthly basis. They do this by tracking when there is a status change from an active listing to a pending sale via the Multiple Listing Service. This is called the Pending Home Sales Index.

The NAR assumes that 75%-80% of all homes pending will close within 60 days while the remaining will close within 120 days. Thus it is considered a prediction of future home sales.

But, although using the Pending Home Sales report as a crystal ball may be its intended use, it may not its best use. This is because of the index’s methodology: 1. It doesn’t measure new construction homes 2. It doesn’t track For Sale By Owner properties 3. Its sample set covers just 20 percent of MLS transactions

In addition, in a tough mortgage climate such as the one we’re in now, a greater percentage of pending sales will fail to close at all because of lack of financing.The Pending Home Sales Index still has its place, however — it’s a terrific look at the buy-side demand for homes.

When the Pending Home Sales Index is rising, we can infer that more buyers are in the market for homes and this is a signal of market strength. After all, pending sales can’t happen unless there are buyers out there. And with more buyers competing for homes, home prices tend to rise.

For example, in June 2008, the 2nd time in three months - the PHSI posted a large increase even though economists expected a loss. The Pending Home Sales Index’s rise indicates that the overall market is experiencing a revival for that quarter.

Now, again, the uptick doesn’t mean that the pending sales will necessarily close, but it does tell us that more home buyers are finding “now” to be a good time to buy real estate.That sort of insight is what make the Pending Home Sales Index worth tracking. When buyer demand is rising, the real estate market isn’t usually far behind.