Not all Sunsets Are Beautiful...
When the Foreclosure Crisis
began in this country, millions of homeowners who found
themselves in danger of losing their homes were looking
for a dignified solution that could help them walk away
without jeopardizing their future. The banks, which
also found themselves facing the prospect of having
to take back millions of homes they werent prepared
for, eagerly sought foreclosure alternatives.
These alternatives included
options like loan modifications, debt forgiveness, and
short sales among others. Almost every option had one
thing in common: Banks agreed to release homeowners
from at least some of the debt they owed. For the banks,
they almost always got more money out of an option like
a short sale than they would have in a foreclosure.
For the homeowners, they could walk away without having
a foreclosure on their credit.
This, however, brought
about a new problem. Typically, when a bank forgives
any or all of a debt, the amount of the debt that is
forgiven is reported to the IRS as income.
This income carries with it a tax liability. For homeowners
who were already in dire financial circumstances, suddenly
having to pay these taxes (sometimes called phantom
taxes) was often more than they could handle.
They were essentially trading one unmanageable debt
In 2007, Congress addressed
this issue by passing the Mortgage Debt Relief Act.
This act removed the tax responsibility on mortgage
debt. Originally set to expire in 2010, it has since
been extended twice and has become one of the most successful
relief programs since the beginning of the housing crisis.
It was always intended
to be a temporary solution. Barring an act of congress
extending the act, the Mortgage Debt Relief Act will
sunset at the end of 2012. For distressed homeowners,
this means that time is running out for you to take
advantage of this program.
There is a bill in Congress
that would extend the act, but it is unclear whether
or not it will pass. What is clear is that waiting to
see if the act gets extended could end up costing you
dearly. This report is designed to answer the most common
questions about the Mortgage Debt Relief Act. The important
thing to remember is that you must act quickly to take
advantage of this program that has already saved millions
of homeowners thousands of dollars.