So far, Congress has been silent regarding the extension of the Mortgage Debt Forgiveness Act. Even though the Massachusetts Attorney General and 41 other AG’s across the country have urged for the Act to be extended. Despite bipartisan support of the Act, Congress has not moved it forward for 2014. For anyone facing foreclosures, short sales, or loan modifications, this Act is imperative.
If you are unfamiliar with the act, here is why it’s important to underwater homeowners. In the case of a short sale, if a lender forgives a portion of your note, that portion is now looked at by the IRS as taxable income. Now, if the forgiven debt is small, let’s say $20,000, which may not be a HUGE amount for a homeowner struggling to recover from hardship. But in our company, we’ve seen HUNDREDS upon THOUSANDS of dollars forgiven. So, let’s say, you owe $700,000 on a property and the lender takes a payoff of $450,000, then the IRS will look at that $250,000 difference as taxable income.
Now there are certain provisions you must meet, such as it must be owner-occupied and usually only on the first mortgage. Second mortgages can be considered if the second mortgage was purchase money, but not in the case of a HELOC (Home Equity Line of Credit).
We at Short Sale Mitigation, LLC, and AA Premier Properties, LLC (in NH) feel the act is highly important to the housing recovery, which we are deeply rooted in with our homeowners. Thankfully both New Hampshire and Massachusetts Attorney Generals are in support of the act. Unfortunately, we don’t see Congress moving quite as efficiently in their communication as we do with our homeowners.
We will certainly update you accordingly.