Support for extending the Mortgage Debt Relief Act for underwater homeowners…

I receive the daily DS News newsletter emails, and I find almost daily something that I’m interested in reading and that does affect my clients, prospects and friends/family. In today’s newsletter there is an article discussing the Mortgage Debt Relief Act (MDRA) which was enacted in 2007, a little item I talk to lots of short sale clients about especially this year since it’s set to expire at the end of 2012.

A simple way of describe what it does is that it allows a homeowner to not have to pay tax on forgiven debt. Example: a short sale occurs and a homeowner is allowed to have $100,000 of mortgage debt forgiven by their lender. In a normal situation prior to the MDRA, this would be a taxable event. Meaning, if the homeowner is in the 28% tax bracket, up to $28,000 of tax would be due to the IRS. ($100,000 x .28 tax rate)

In the article, there is a notation that President Obama has planned for extending the MDRA within the Nation’s budget through 2014. Given how many homes are still potentially going to be foreclosed upon between now and then, let’s hope they don’t take away a much needed tax break from these homeowners who are already experiencing some difficult financial matters. If they don’t allow it, then there may be quite a surge this summer of short sales coming on market that may overwhelm lenders yet again. Thankfully many of them are in Equator and streamlining processes, but with Fannie and Freddie now saying they’ll make faster decisions on the loans they own, they may get more than they asked for this year.

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