Not All Sunsets Are Beautiful

Mortgage Debt Relief Act is Sunsetting

When the Foreclosure Crisis began in this country, millions of homeowners searched for a solution that wouldn’t jeopardize their financial future. Banks also sought alternatives to foreclosing on millions of homes. Popular solutions included loan modifications, short sales and debt forgiveness.

Short sales brought relief to both underwater homeowners and their lenders. With the advent of short sales, homeowners had a way to sell a property which was worth less than the loan value and avoid a foreclosure. Banks were able to recoup more of the dollars owed to them than they would realize through a foreclosure. But there was a problem…

Phantom Taxes

When a bank forgives any or all of a debt, the amount of the forgiven indebtedness is reported to the IRS as income. Tax is owed on income. For homeowners already in dire circumstances, this additional–and often unexpected–tax on the forgiven debt was more than they could handle. They were trading one unmanageable debt for another.

The Mortgage Debt Relief Act of 2007

In 2007, Congress passed the Mortgage Debt Relief Act, which eliminated tax responsibility on some mortgage debt. Originally due to expire in 2010, it has already been extended twice. Always intended as a temporary solution, it is due to expire again at the end of 2012, barring an act of Congress to extend the Act. This means time may be running out if you intend to take advantage of this program.

Frequently Asked Questions

Does the Mortgage Debt Relief Act Apply to All Forgiven or Canceled Debt?

No. Only debt forgiven or canceled on a homeowner’s primary residence is protected under the Act.

How Much Debt Can be Forgiven?

The maximum debt exempt from taxes under the Mortgage Debt Relief Act is $2 million; $1 million if the borrower is married but filing separately at the time of the debt forgiveness.

Who Determines How Much Debt is Reported?

The lender is required to report any forgiven debt over $600.

When does the Mortgage Debt Relief Act Expire?

December 31, 2012, barring an extension from Congress.

One of the Most Important Things to Know

The sooner help is sought, the more options are available, and the greater chance of success.

CDPE - Certified Distressed Property ExpertAs a real estate professional who has earned the Certified Distressed Property Expert (CDPE) designation, my mission is to provide financially strapped homeowners with alternatives to foreclosure, help them steer clear of scams, and assist them in finding the solution that best meets their needs.

These are tough times, but more help is available than ever before. If you or someone you care about needs freedom from the frustration of a mortgage they can’t pay, contact me today and let’s get started.



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