Millions of Americans exhaled a collective sigh of relief when the Mortgage (Debt) Forgiveness Relief Act. The Act was extended for another year and applied retroactively from December 2013 through December 2014.
The Mortgage Forgiveness Debt Relief Act provides a critical exemption to taxable income that banks attribute to borrowers after a successful foreclosure settlement (i.e – a short sale, deed-in-lieu of foreclosure, consent Final Judgment of Foreclosure with waiver of deficiency or a loan modification). This federal law is what has enabled millions of homeowners to enter into a settlement with the bank on their delinquent mortgage without a major tax penalty. This Federal Law was enacted incentivize home owners to avoid the lengthy foreclosure process. If this law did not exist, the home owner would be liable for the taxes on the amount forgiven on the loan. For example, if the homeowner owed the bank $200,000 and completed a Deed-in-Lieu of Foreclosure (or short sale) on their home valued at only $150,000, then the original homeowner would have to pay income tax on the $50,000 difference, as if it had been received as regular income. Mortgage lenders and Bank almost always generate and mail out a 1099 form to the Borrower outlining the amount of the “debt forgiveness” income resulting from the “successful” short sale, loan modification, deed-in-lieu of foreclosure or Consent In Rem Judgment with Deficiency Waiver. The attorneys at the Neustein Law Group (www.stopforeclosurelawyer.com) are very pleased to share this excellent news to our homeowner clients who we helped execute a short sale, deed-in-lieu, loan modification or consented to a final judgment with waiver of deficiency. Unfortunately, Congress has not yet extended the Mortgage (Debt) Forgiveness Relief Act to include 2015. We will keep you posted.