Lawmakers' failure to extend the Mortgage
Forgiveness Debt Relief Act by year-end will kill any momentum surrounding
the short sales process, real estate
economists say.
Several banking and real estate
organizations sent a warning letter about the expiring act and the immediate
need for an extension to Senate leaders
Wednesday.
Short sales in the past year have
become an attractive escape route for banks and borrowers when a homeowner
simply cannot repay a home loan.
But if the
mortgage debt relief act is allowed to expire on Dec. 31 without an extension,
distressed borrowers could end up paying taxes on mortgage debts forgiven
through principal reductions or short sales. The current law allows borrowers to
avoid tax liabilities for the extinction or sale of mortgage
debt.
"If Congress fails to act, the
possibility of receiving a tax bill would make it more difficult and expensive
for these struggling homeowners to accept short sales and many loan modification
offers," the associations wrote in a letter to the
Senate.
Doug Duncan, chief economist for
Fannie Mae, said turning debt forgiveness from a nontaxable
event to a taxable one could "encourage lenders to ramp up short sales in this
(current) period."
He added, "Then after Dec. 31, it may create an
incentive for the homeowner to simply let the process go to foreclosure because
in a foreclosure proceeding it is not a taxable event," Duncan told
HousingWire.
Organizations signing the letter
included the American Bankers Association, the American
Land Title Association, the Mortgage Bankers
Association, the National Association of Home Builders
and the National Association of Realtors.
Source:
Housingwire.com
Reported by By Kpanchuk
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