Warning: file_get_contents() [function.file-get-contents]: php_network_getaddresses: getaddrinfo failed: Name or service not known in /home/debt/public_html/wp-content/themes/debt/functions/phone-number-switching.php on line 69

Warning: file_get_contents(http://pld.eolamedia.com/get_campaign/1) [function.file-get-contents]: failed to open stream: php_network_getaddresses: getaddrinfo failed: Name or service not known in /home/debt/public_html/wp-content/themes/debt/functions/phone-number-switching.php on line 69
Mortgage Debt Relief Act Set to Expire | Debt.org

Mortgage Debt Relief Act Set to Expire

Homeowners confronting the challenges of foreclosure or the short sale of their homes may soon be facing yet another hardship — income tax on money they will never see.

For many years under U.S. law, people who were underwater on their mortgage, meaning they owed more than the property was worth, were taxed on the amount forgiven by the bank or credit union during a short sale. The difference between the debt owed and what was accepted as fair market value was considered income and therefore reported and taxable.

Nearly five years ago, in an effort to provide relief to people in over their heads with mortgage debt during a struggling housing market and tough economy, Congress passed the Mortgage Debt Relief Act of 2007. Under the act, homeowners have been able to exclude up to $2 million of debt forgiven on a principal residence ($1 million for a married person filing separate). This act, which benefited the millions of people in debt, is due to expire at the end of this year.

Financial Loss

Unless Congress intervenes, those homeowners already facing financial loss will be required to pay federal income tax on any portion of the debt forgiven during a short sale, foreclosure or restructure of a mortgage.

For example, if the relief act is not extended, beginning in 2013, a homeowner who settles a home with a $250,000 mortgage for $200,000 will be required to pay taxes on the $50,000 debt difference as if it were income, even though that money never actually exchanged hands.

Both legislators and real estate agents argue that the housing market has not recovered adequately enough to allow the act to expire. Bills have been introduced in both the House and Senate to extend the tax break another year or two, and the National Association of Realtors (NAR) has been lobbying Congress with the same goal.

The loss for homeowners already confronting financial difficulties could be devastating, say Realtors familiar with the short sale market. This could be distressing for those homeowners already facing large amounts of loss due to underwater mortgages. Depending on the tax bracket the homeowner falls under and the amount of debt forgiven, a person could owe anywhere from $10,000 to $100,000 in additional taxes.

Avoiding Foreclosure

Since foreclosures remain on a credit report for many years and significantly influence credit scores, short sales became very popular for people who owed considerably more than the property was worth. During a short sale, the lender agrees to release the homeowner from the mortgage for less than is owed and the property is sold to a third party. The process keeps homes out of foreclosure, and can save a lender 25 percent to 35 percent by eliminating multiple fees for inspections and attorneys.

According to the National Association of Realtors, as much as 14 percent of all monthly home sales activity since 2008 have been short sales — at least 1.6 million. Housing analysts anticipate, if the act is not renewed, that short sales will fall in the new year and many more homes will end up reaching foreclosure status.

Not only will this potentially harm the real estate market, but more homes could possibly sit empty and lose additional value.  Eventually, an influx of foreclosed homes will reduce the value of surrounding homes and negatively influence the overall sales market.

In debt? We can help!

  • Amount
  • Type
  • Contact

How much do you owe?

What can we help you with today?

Related Articles

JPMorgan Fined for Illegal Lending Practices

JPMorgan Accepts $13 Billion Fine For Lending Practices

JPMorgan Chase Bank agreed to pay a $13 billion fine to the U.S. government for its role in the disastrous mortgage lending practices that landed more than 15 million American homeowners underwater. The announcement was made by Eric Schneiderman, the ...

Continue Reading
FDA finances nursing home mortgages

FHA Steps in to Help Nursing Homes by Backing Mortgages

Attempts by nursing home operators to stay relevant and profitable in the constantly changing world of health care, received a boost from the Federal Housing Administration (FHA) last year. The FHA stepped up to insure 458 mortgage loans worth roughly $3 ...

Continue Reading
New mortgage rules protect consumers

New Rules Protect Consumers from Overzealous Mortgage Lenders

A new federal regulation puts the onus on lenders to take meaningful steps to ensure a person can afford a home loan, before they actually give them one. The “ability-to-repay” rule was issued by the Consumer Financial Protection Bureau (CFPB) to help ...

Continue Reading
Bank of America settlement

Bank of America to Pay $10B to Fannie Mae to Settle Claims

The first week of 2013 has not been a happy new year for some of the nation’s largest banks, particularly Bank of America. On Monday, Bank of America agreed to pay $10 billion to Fannie Mae to clear up claims made on troubled mortgages, mainly associated ...

Continue Reading
Fix-and-flip houses

FHA Extends Program that Allows Quick ‘Flips’ of Properties

As the nation continues to wrestle with high unemployment rates and a recuperating real estate market, the Federal Housing Administration (FHA) decided to continue one of its popular programs. The FHA extended its temporary waiver allowing loans on quick ...

Continue Reading
Housing market

Housing Market Expected to Rebound in 2013

With just a few weeks remaining until the end of the year, millions of Americans are seeking ways to make 2013 better, especially from a financial perspective. From making new real estate investments, refinancing mortgages, entering into reverse mortgages or ...

Continue Reading
FHFA

Obama Eyeing New Leader for Federal Housing Finance Agency

Facing increased scrutiny from housing advocates and community groups, President Barack Obama is being asked once again to sidestep political protocol to replace Ed DeMarco, the acting head of the Federal Housing Finance Agency (FHFA). Obama is being asked ...

Continue Reading
Housing market rebounds

Foreclosures on Hold for Holidays as Housing Market Slowly Recovers

With an improving economy and programs aimed at helping homeowners stay current with their mortgages, housing-market analysts say that 2012 will prove to be a turnaround year for homeowners and the country. In addition, mortgage giants Freddie Mac and Fannie ...

Continue Reading
Get Help Now

Overwhelmed with debt? You have options for lower monthly payments!

x