The Mortgage Forgiveness Debt Relief Act of 2007 was a huge help for struggling homeowners who wanted to make a fresh start. When the law expired, it was renewed for a year, but expired again at the end of 2013. Just last week the House of Representatives passed a new extension of the Act, but time is running very short for the Senate to confirm.
The aim of any well-negotiated short sale is for a homeowner to be able to exit from a losing investment, their underwater home, with no outstanding mortgage debt. The key to this is to negotiate a deficiency waiver with your lender. In this blog post we will discuss the deficiency balance: what it is, and what you can do to avoid ever having to pay it.
Well, today's the day. The Mortgage Forgiveness Debt Relief Act has expired. This is the law that had allowed homeowners to avoid paying income tax on the forgiven debt from a short sale.
In 96% of the short sales we negotiate, the lenders forgive the borrower of ever having to repay a significant portion of their mortgage debt. On average, the debt forgiven is $84,000 - which is good news for the borrower. However, the IRS treats forgiven debt as income, and many sellers are worried that they may have to pay income tax on money they never actually received.