As part of the last-minute deal for Congress to avoid the fiscal cliff, the Mortgage Forgiveness Debt Relief Act was extended through 2013. The Act, created in 2007 would have expired on December 31st of 2012. The law allows homeowners who sell their homes as short sales or who have done mortgage modifications to avoid paying taxes on forgiven mortgage debt.
For example a couple has owned their home for 6 years but the husband loses his job due to illness and medical bills are rising. The family does a short sale rather than lose the home to foreclosure. The sellers owe $250,000 on the home but can only get $210,000 due to the slow market. Without this act, the $40,000 deficit could be counted as income to the family and they would have to pay taxes on it. That would be very hard on most families already facing financial difficulties. It could prevent many from attempting a short sale and allowing the home to go to foreclosure.
With the act extended many homeowners can still exercise the short sale option. Many believe that without this extension the already struggling home market could have faced another dip. Anyone who is behind on their mortgage and is facing foreclosure and is considering a short sale, should take advantage of this program before the law runs out. For any questions please feel free to contact me through my website.