The Mortgage Debt Forgiveness Act
The debt forgiveness act is about to expire
Many people in the process of a short sale are hoping that the debt forgiveness act which is set to expire December 31, 2012 gets extended by congress. The debt forgiveness act allows one to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a short sale. The Law was enacted in 2007, and prior to this law you would get a 1099c from your lender for the forgiven debt of which you had to treat as income and pay taxes on it. The mortgage debt relief act of 2007 stopped this but if its not extended many people may cancel their short sale and decide to let the house go to foreclosure , since the benefits of a short sale are weakened . This could flood the market with foreclosures, cause prices to drop again , and weaken our economy. I hope our politicians in Washington do the right thing and extend the mortgage debt forgiveness act.