Struggling homeowners have something big to worry about in the days ahead.
The Mortgage Debt Forgiveness Act passed by Congress in 2007 is set to expire soon. Its expiration would spell the end of a tax break that has been keeping troubled homeowners from paying thousands of dollars to the IRS because of forgiven mortgage debts.
Officially known as the Mortgage Forgiveness Debt Relief Act of 2007, the act was passed mainly to help out homeowners who have been plagued by foreclosure. If it were not for the act’s existence, IRS would have the right to collect taxes on these homeowners based on their forgiven mortgage debt. Homeowners with forgiven mortgage debts won’t be the only ones affected either. Those facing foreclosures and those benefiting from loans in which the principal amount has been reduced are also affected.
Currently, Congress is having trouble renewing the act. Democrats and Republicans are divided on the fiscal issue and have moved on to other fiscal cliff issues, with the intent of picking discussion on the relief act once more when other issues have been resolved. Forecasters fear that the act’s renewal will only be considered if it were to be attached to a bigger fiscal cliff arrangement.
By that time, it may, however, already be too late to provide much help for troubled homeowners. Many mortgage borrowers will suffer major financial hits, if the act doesn’t see renewal. The housing crisis is already dreary as it is. Over 50,000 homeowners face foreclosures every month. Short sale values are up to around half a million dollars a year, and about one million mortgage borrowers benefit from a decrease of debt thanks to principal reductions. Without the Mortgage Debt Forgiveness Act in place, the housing crisis could last longer, especially because of short sellers who won’t want to agree on house sales that end without debt forgiveness.
Despite this situation, Congress remains hesitant to pass a renewal of the act. According to Senator Max Baucus, who oversees the Senate Finance Committee, the endeavor of renewing the act would cost $1.3 billion for just a year’s worth of extension. The act was originally introduced to cover three years of extension and was renewed for another two.
PrimeLending offers refinancing advice for homeowners all over the US. If you have many questions about your current mortgage standing, we might be able to give you the answers and spare yourself from drowning in debt. Contact us today and speak with one of our experts.