On January 1, 2013, as part of the so-called fiscal cliff negotiations, Congress passed an extension of the Mortgage Forgiveness Debt Relief Act. This extension of this act, which has saved homeowners more than $1 billion dollars in taxes, is great news for struggling homeowners nationwide, and for the agents that represent them.
The extension is now only awaiting President Obama’s signature.
The Mortgage Forgiveness Debt Relief Act was originally passed in 2007 to aid the millions of homeowners who suddenly found themselves in danger of losing their homes to foreclosure following the housing market crash.
Under the Mortgage Forgiveness Debt Relief Act, debt forgiven in a short sale, foreclosure, or loan modification, is exempt from federal taxes on primary residences. For homeowners facing foreclosure, this exemption saves them from paying thousands, or even tens of thousands, in taxes on top of losing their homes.
Now for another year, homeowners can take advantage of this exemption and avoid foreclosure without the fear of an impossible tax liability.
And with banks recognizing the significance of short sales as an effective loss mitigation tool, they’re ramping up for business. Short sales will be the key loss mitigation tool used by mortgage servicers in 2013.