The Mortgage Forgiveness Debt Relief Act of 2007 alleviates stressed and delinquent homeowners from having to pay taxes on any portion of their mortgage debts forgiven by mortgage lenders through short sales, loan modifications or principal forgiveness. This act is set to expire on 12/31/2012.
The homeowner advocates and mortgage lenders have sent similar letters to the Senate Committee on Finance and the House Ways and Means Committee, pointing out that the act is supported across party lines and is “critical to helping homeowners and communities struggling with the ongoing foreclosure crisis.”
So far, the senators on the chambers Finance Committee has passed a package on August 2 which includes a one-year extension of the Mortgage Forgiveness Debt Relief Act as well as allowable mortgage insurance write-offs and energy efficiency tax credit. However, this bill has not been presented to the full Senate or the House.
Without the act, homeowners who have done Short Sales and loan modification would need to pay income tax on the amount of debt forgiven, making it “more difficult and expensive for these homeowners, who are already financially struggling, to accept short sales and many loan modification offers,” according to the 97 institutions that make up the Financial Services Roundtable and the nonprofit Center for Responsible Lending whose primary focus is to fight predatory lending practices.
Even though the housing market is beginning to show signs of upward trend with rising sales volume and prices, these 2 groups still have concerns that the expiring of the Mortgage Forgiveness Debt Relief Act will slow down the recovery of the housing market.
In the letters sent to the Senate and House by Lenders and Homeonwer Advocates, it states “Our tax policy should not result in bad housing policy that will prolong a foreclosure crisis that has already gone on for too long.”
We here at Oyezz Real Estate understands the impact of this Act to our clients. Majority of our Short Sale clients benefited from this Act since the inception of it in 2007. Not having to pay taxes on a house that they did not net any profit from was a huge relief on our financially distressed clients. We will continue to advocate the extension of this Act on the behalf of all struggling homeowners.