Oh Boy! Here we go again. If Congress doesn’t extend the Mortgage Forgiveness Debt Relief Act by December 31, 2012, homeowners are in trouble again.
This won’t be good because more “underwater” homeowners will elect foreclosure rather than a short sale according to Travis Olsen, co-president of Loan Resolution Corp.
There are approximately 55,000 homes per month being sold via REO (reported by Corelogic) which is a decline from last year (2011) of 70,000. When homeowners choose foreclosure that means the REO sales will increase. The real estate market will be in a decline again.
What does this mean to distressed homeowners?
Simply this! If the Mortgage Forgiveness Debt Relief Act is not extended, many homeowners will pay federal taxes on an unearned debt. (Example: A foreclosed home and mortgage debt of $300,000 sold for $250,000 = $50,000 difference). Homeowners would be taxed on $50,000. Therefore, someone in a 25% tax bracket could be taxed $12,500. Wow, something is wrong with this picture!
Many homeowners that modified their home loans would also be caught in this fiasco.
Heretofore, short sales represented a win-win situation for both homeowner and lender. The lender does not incur as much loss as a foreclosure and the debt is wiped from their books. The homeowner is relieved of decimated credit and a debt that he/she cannot pay.
In addition, home values will be greatly impacted and vacant homes that create blight would be on the rise again.
This has got to STOP! Our leaders need to stop the arguments and get busy.
What’s your opinion? What do you think we or they should do?