A foreclosure agency, YouWalkAway.com ,released a survey obtained from its clients and showed 78% of those who answered claimed they were walking away from their primary residence. As a minimum, 74% of all respondents would be qualified for tax break through the Mortgage Debt Relief Act of 2007.
The Mortgage Debt Relief Act allows forgiven debt through a short sale, loan modification, or foreclosure to be excluded as taxable income.
This Mortgage Debt Relief Act of 2007 was due to expired on December 31, 2012, however, Congress extended the act for another year to 12/31/2013.
“This extension hasn’t been well publicized but it is important to homeowners and realtors nationwide. Had this law not been extended, it could have brought a drastic halt to short sales and had a devastating effect on underwater homeowners,” said Chad Ruyle, YouWalkAway.com co-founder.
The one-year extension is not likely to encourage a new wave of foreclosures in early 2013.
Instead, the prediction is that the 12-month extension will encourage people who are behind on payments to find alternative options other than foreclosure such as a Short Sale or loan modification. This is because options such as Short Sale and loan modifications are much better alternatives than Foreclosures due to the fact that the lender can still come back with a deficiency judgment in the case of the Foreclosure but not Short Sale nor loan modifications. However, if the homeowner can no longer afford the mortgage and seemed hopeless of ever catching up, loan modification is no longer an option and leaving Short Sale as the only option. This is what leads to the prediction of the rise of Short Sale in 2013 as a result of the extension of the Mortgage Debt Relief Act for another year.