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The Mortgage Debt Relief Act |
By Peter Marsden
 In late 2007, President George Bush signed the mortgage debt relief act to assit American homeowners. This act was designed to help homeowners who are failing to deal with the housing slump being faced in the United States. Lots of people have been drawn into financial difficulties by the subprime mortgage practices in the late 20th Century. Basically banks and other financial institutions were lending money to people above their means to repay the interest. The crunch came in 2006-07 when housing prices fell and securities backed by subprime mortgages became worthless.
Falling House Values
For many months prior to the signing of the act, house selling values in the U.S. had fallen dramatically. Many American lomeloanershomeowners were in a terrible situation: they owed much more on their homeshomes then they could hope to sell them for. A large percentage of those homeowners also had adjustable rate mortgages. This meant that their are monthly mortgage re-payments were escalating much faster than they were able to pay for them.
Additional Tax Burden
It is bad enough having to sell
your family homehome when you don't want to, furthemore at a loss, and then having to carry a burden of tax liability. Before President Bush signed the new Mortgage Debt Relief Act, if a homeowner would have to pay additional taxes if they were to refinance their mortgage loan, or make a "short sale" to get out of the debt position.
Short Sales
A short sale is what can occur when a borrower gives a homeowner permission to sell their home for less than what they owe on it. In this arrangement, the lender will usually agree to waive their loss, which is the difference between the two prices. For example, a homeowner might still owe $120,000 on their mortgage loan, but their home was now only worth $85,000. In a short sale the lender would allow them to sell the property for the market price of $85,000. The lender would then simply write off the $35,000 difference. The lender's pain is eased by writing that off as tax loss. But, for the motgagee, there is further pain. The inland revenue service would normally expect the homeowner to pay taxes on that $35,000 difference.
Debt Relief Act
The mortgage debt relief act allows homeowners to escape taxes on a short sale loss. They also do not have to pay taxes that are normally incurred by re-motgaging their homes. For the next several years homeowners do not have to pay tax on any debt waiver that is related to their homes.
Public Benefit
These are simple steps can be of great assistance to motgagees that find themselves in dire need. Additional steps will hopefully help restore the slumped housing market, and helping both homeowners and lenders.
Peter Marsden has provided information about Stopping Foreclosure on his blog: http://stopforeclosure.reviewratings.net/
Other articles include tips on how to work with your lender.
Foreclosure
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