Will The 2007 Mortgage Debt Relief Act be Extended?

Will the landmark 2007 Mortgage Debt Relief Act be extended beyond its current Dec. 31, 2012 date?

Under curent U.S. tax law law, a homeowner with an underwater mortgage who goes through a short sale (or foreclosure) has part of his debt forgiven by a bank will in most cases not owe any added income tax. ( See your accountant or CPA)

This forgiven debt had been treated as a ‘gift’ from the bank.

As a gift, that money is income and taxable by the IRS when the homeowner fills out his yearly income taxes. However, the 2007 Act (effective through Dec. 31, 2012) allows most former owners to walk away without owing any added income tax. Obviously, this is a major benefit to underwater owners or anyone who has gone through the process of losing their home.

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HREU is happy to report that a bipartisan bill introduced late last week by U.S. Senators Debbie Stabenow (D-MI) and Dean Heller (R-NV) – the Mortgage Relief Act – would extend that rule past Dec. 31 if approved by both the House and Senate and signed by President Obama. Senators Robert Menendez (D-NJ), Sherrod Brown (D-OH) and Jeff Merkley (D-OR) cosponsored the legislation.

Stabenow championed the original Mortgage Relief Act of 2007 designed to fix the problem that now expires at the end of 2012. Stabenow and Heller’s new bill will extend this tax protection for underwater homeowners through 2015.

Approximately, 20 to 25 percent of American homeowners are currently underwater on their mortgages.

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  1. Has anyone worked with Seterus? I was working on a short sale, the Loss Mitigation Specialist, told me to open escrow, before an approval was granted. We did, the buyer has incured the expense of an appraisal, I turned on the water at $177.00 and I received an email from her yesterday that the postponement was denied and they Foreclosed!

    • lisa c says:

      some judicial states – you can process and close after the sheriff’s sale just do it before the judge reviews the foreclosure documents and turns it over to the bank – if the bank bought it back. If a 3rd party buys it you may be able to work with them officially.

      Talk with the manager over the person you spoke to and next time make sure the atty’s are notified of the stoppage. I call them and tell them to call their guy at the bank to make sure they know it’s being stopped. day of close or otherwise…

  2. Bill says:

    This is a no brainer- as long as no tries to sneak some other off the wall law in on his bill.