There is panic in the housing market over the upcoming expiration of important issues affecting homeowners nationwide. We’ve all heard of the “Fiscal Cliff”, but what we haven’t heard is the real estate and housing market has its own fiscal cliff that’s fast approaching.
The 2007 Mortgage Forgiveness Debt Relief Act (MFDRA) was a law enacted to help struggling homeowners and expires December 31, 2012. The MFDRA was passed to help the homeowner from having to pay taxes to the Internal Revenue Service (IRS) on top of losing their homes, or trying to restructure their loans.
When you owe a debt, and that debt is canceled or forgiven (sometimes referred to as “discharged”), that discharged amount may be taxable. The MFDRA of 2007 generally allows taxpayers to exclude the discharged amount on a homeowner’s principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiveness in connection with a foreclosure, qualifies for relief under the MFDRA.
Many homeowners are in the midst of trying to refinance their homes and/or have their lender write down their mortgages. If part of the loan is forgiven after December 31, 2012, the homeowner may have to pay taxes on the forgiven amount. Homeowners finally able to afford a new monthly payment, could be faced with a $25,000 or more tax bill they can’t afford.
It is widely considered by top economists that the housing market is the largest obstacle in economic recovery for the U.S. It is hoped that the MFDRA will be extended by Congress to help our struggling economy. An estimated 11 million homeowners would be hit with additional taxes from short sales, loan modifications and restructuring if the MFDRA is not extended.
The real estate industry has been hit hard and the expiration of the MFDRA isn’t the only issue threatening to harm the housing market.
Homeowners have long considered being able to deduct their mortgage interest a top incentive for owning a home. The government still hasn’t voted on whether to extend this deduction that also ends December 31, 2012.
Mortgage insurance is required for all Federal Housing Administration (FHA) and conventional mortgages. Mortgage insurance is currently tax deductible and also set to expire the end of 2012.
The Independent Foreclosure Review (IFR) was originally slated to end July 31, 2012, but was extended to December 31, 2012. The IFR was set up to determine whether a homeowner suffered financial injury and should receive compensation or another remedy due to errors and other problems incurred during their foreclosure process. Under this
process, the homeowner could file a complaint and participate in the program.
Another program called “Operation Twist” is also set to expire. Operation Twist program was initiated by the U.S. Federal Reserve in late 2011 and 2012 to help stimulate the economy. The Federal Reserve bought longer-term Treasuries and sold some shorter- dated ones already held in order to bring down long-term interest rates. The lower interest rates have made home loans less expensive for new homeowners. If the interest rates shoot up, the housing market will suffer again, just as it’s on the brink of recovery.
Meanwhile, the upcoming “cliff” and what will happen is driving the markets up and down with its uncertainty and causing this sense of panic throughout the real estate and housing market. Hopefully, decisions will be made soon.
Keith A. Gantenbein, Jr. is a Colorado foreclosure defense attorney located in Denver and servicing all of Colorado. He also handles bankruptcies, mortgage negotiations, lender liability, real estate, civil litigation, contracts and landlord/tenant. If you think you will be facing foreclosure, or are in the foreclosure process, or have had a wrongful foreclosure, contact Keith Gantenbein at (303) 618-2122 for a one-hour consultation where he will discuss your situation and go over all your options with you.