Mortgage Debt Forgiveness Act Has an Uncertain Future
A few good things came out of the bursting of the housing bubble in 2007/08. It drew attention to irresponsible banking practices, launched the tiny house movement in Portland and across the nation, and prompted congress to step up for those who were about to lose their homes. The Mortgage Debt Forgiveness Act was part of congress’ attempt to help homeowners in distress.
What did this piece of legislation do? In a nutshell, it eliminated extra taxes placed on homeowners who sold their home through a short sale. It was intended to help the housing market get back on its feet by making it easier for people to sell their homes even if they were underwater on their mortgage. And it worked. Even though banks were losing money on homes they had financed, the houses were able to re-enter the market and homeowners walked away debt-free after a successful short sale.
The Mortgage Debt Forgiveness Act was created in 2007. It has been renewed twice since, then in early December 2014 (when it was due to expire) it was extended to cover homeowners until the end of the year. That means that all short sales made in the year 2014 are exempt from taxation on the amount forgiven from the loan.
It’s not clear whether Congress will renew the Act again for 2015, we might not find out again until the end of the year. The housing market has been steadily improving, especially in metro areas like Portland where jobs are starting to be generated again. However, there are still many foreclosed properties on the market, and short sales become a less attractive option for these properties when the seller knows that he or she will be paying taxes on the “income” created by the forgiven mortgage value. As an active local Portland Realtor associated with NAR and PMAR (Portland and National Association of Realtors) we are doing what we can to encourage congress to renew.
If Congress determines that the housing market will take too hard of a hit by having these taxes kick back in, it may extend the Mortgage Debt Forgiveness Act for another year. The Senate Finance Committee has already voted to revive the Act in the new year, and may attempt to push the legislation through as a package with other tax exemptions designed to help Americans get back on their feet.
Over five million homeowners nationwide are still underwater on their mortgages (National Association of Realtors), so a home owner in Portland in need of a short sale is not alone. Sometimes a short sale is the best decision regardless of whether or not you might have tax implications afterwards. These transactions are always complicated – taxes are just the tip of the iceberg. As a Certified Short Sale Agent in Portland, I have not only the experience but also the expertise to see your home sale through to the end. See my short sale services here. Call to find out more.