Extending the Mortgage Debt Forgiveness/Relief Act past 2012?

[At_Peace_in_NorCal]

Any thoughts on whether or not this act will be extended this year past 12/31? It's such a risk to jump on the Hamster Wheel to have it backfire if the Act is not extended.

[jfmiller]

I am interested in finding out this information myself, i have checked all over the net and as for now theres no information that this will be extended, which makes me wonder if people will be dumping their homes before the end of the year. Congress may decide to extend it but probably as a last ditch election ploy towards the end of this year.

[Evan Bedard]

This is one thing many of us are wondering about... But I have a strong feeling jmiller is correct that they will throw this out there right before election time to make it look good for their pr..

[At_Peace_in_NorCal]

Read this article this morning. Politics holding us all captive...as usual...
I would love to get a petition going to send to Larson and McDermott backing their bill.

If Congress doesn't act, distressed homeowners could take another hit - Tuesday, Feb. 28, 2012 | 2 a.m. - Las Vegas Sun

[Evan Bedard]

It would be unethical if the program was not extended, even though the housing crisis has been going on for five years now, it is not anywhere near being out of trouble.. If it is not extended it will take a severe impact on those who lose their properties in 2013...

[At_Peace_in_NorCal]

So I'm wondering what folks are planning to do if the Act is not extended? It's not like we can afford tens of thousands of dollars in taxes when at some point we receive the 1099c on the COD. No one would ever be able to purchase another home if forced to pay that much in taxes.

I'm considering just not paying and trying to work out an Offer in Compromise at some point. I am also reading that if you don't pay the IRS could issue a lien on your property. LOL, that's funny.

Thoughts from the community? Oh and how is the principal calculated exactly? Is it the amount we owed when we stopped paying? Or does it continue to accrue with each missed payment? So in essence my principal could increase by 54K if we are in the home 18 months but not paying? Tack that onto the amount we owe and then figure what the bank could sell the house for and then base the tax on the difference?

So in our case we now owe 978 + 15K in late payments = 993K - around 800K if the house sold today = 193K difference of taxable COD? = around 64K (33 percent tax) in taxes due? Am I remotely close to to how you calculate it?

Thanks all.

AP

[At_Peace_in_NorCal]

Charles Rangel Introduces Mortgage Tax Relief Extender Bill: Accounting Today

[Evan Bedard]

Charles Rangel Introduces Mortgage Tax Relief Extender Bill: Accounting Today

Thanks for sharing this article, I personally believe the act will more than likely be extended before the year is complete especially with the housing market still in great distress..

[At_Peace_in_NorCal]

Thanks for sharing this article, I personally believe the act will more than likely be extended before the year is complete especially with the housing market still in great distress..

Lots of us are praying you are right Evan!

[Evan Bedard]

Lots of us are praying you are right Evan!

This is a huge topic that many people in the community have been discussing this year. I do not see any reason why they would not extend the act at least another 1-2 years..

[At_Peace_in_NorCal]

This is a huge topic that many people in the community have been discussing this year. I do not see any reason why they would not extend the act at least another 1-2 years..

Well the naysayers are saying it may not get extended because that would cause less money to the IRS. Dumb. Contributing to the deficit, etc. Again, dumb.

The sheer fact that this was ever allowed to pass is amazing to me. I simply cannot imagine who in their right mind said it would be OK to tax people who lost their homes on money they never even had in the first place. That is what seems like a crime to me.

How can COD be seen as income and taxed as such? I never had the money, saw the money, used the money...so wrong. The entire thing (law, bill, whatever it is) needs to be trashed and not just temporarily extended.

Our govt is so nuts.

[jayguy0710]

Well the naysayers are saying it may not get extended because that would cause less money to the IRS. Dumb. Contributing to the deficit, etc. Again, dumb.

The sheer fact that this was ever allowed to pass is amazing to me. I simply cannot imagine who in their right mind said it would be OK to tax people who lost their homes on money they never even had in the first place. That is what seems like a crime to me.

How can COD be seen as income and taxed as such? I never had the money, saw the money, used the money...so wrong. The entire thing (law, bill, whatever it is) needs to be trashed and not just temporarily extended.

Our govt is so nuts.

As a counter argument, strictly from a tax policy standpoint: you did very much receive that money - you may not have received the cash in hand, but you received it then turned around and purchased a home with that money. You received the benefit of that money. The concept of "phantom" income (income you are taxed on yet never received any cash for) is a confusing one but not a new concept. What is new is the fact that the real estate market plummeted and so now this tax law effects a whole lot more people than it did before.

It's really no different than a cancellation of debt on a credit card. Borrower spends $10,000 buying vacations, toys, clothes, household goods, etc. The borrower never received a $10,000 check or cash in hand, but the borrower absolutely received the benefit of that money. And if the borrower were to not pay it back, the credit card issuer would correctly send the borrower a 1099-C.

From the IRS' perspective, whether you were given $10,000 cash or whether you received $10,000 worth of benefit by not paying back $10,000 ... those are one in the same: income. I have long professed here that an extension of the MFDRA is far from a guarantee, even though it would be politically unpopular to not extend it. Unpopular tax law gets passed all the time, especially laws that are set to expire - they expire "silently" and sometimes go unnoticed.

For what it's worth, I'd like to see it get extended myself, but wanted to provide some "devils advocate" commentary.

[At_Peace_in_NorCal]

Had to post this. Such BS. Would love others' thoughts...
FHFA's DeMarco on Mortgage Debt Forgiveness - The Washington Post

[jayguy0710]

Had to post this. Such BS. Would love others' thoughts...
FHFA's DeMarco on Mortgage Debt Forgiveness - The Washington Post

What exactly about the conversation did you think was BS? They discussed a variety of topics and issues, which one(s) did you disagree with?

I fall into the "it's a business decision" camp - the taxpayers shouldn't be obligated to come rescue me from my mortgage woes. Nor should the bank for that matter. Under that same ideology: I shouldn't feel obligated to do anything outside of the contract that both the bank and I signed. It's a business decision: they loaned $X at Y% interest payable over Z number of years. The penalty for not paying was spelled out in the contract and both parties agreed to it.

Viewing it like that may sound shrewd, but that isn't the worst thing I've been called. It makes the decision cut and dry, and simple. Something like a "hardship" can vary wildly: what is a hardship for one borrower isn't a hardship for another. It's tough to put qualitative data like what is a hardship into a quantitative (okay we'll set payments to X% of your monthly income) setting. If you can pay, great. If you cannot, okay.

For what it's worth, I'm not saying it's not in the banks best interest to create modification programs, etc. - it probably is on some level. But to ask taxpayers to pay for it isn't a good decision. I don't view walking away from a mortgage as a direct assault on the American taxpayer - the political leader(s) that ever, ever, thought it was a good idea to allow taxpayer money to be in the mortgage business is to blame for any taxpayer gripes.

I reread all that and my thoughts are a little jumbled, but hopefully my point comes through.

[At_Peace_in_NorCal]

Congressman Reed Introduces Bill to Extend Tax Relief for Struggling Homeowners; Mortgage Cancellation Tax Relief Act would extend tax relief for mortgage debt forgiveness | Congressman Tom Reed Charles Rangel Introduces Mortgage Tax Relief Extender Bill: Accounting Today

[At_Peace_in_NorCal]

Mortgage Tax Relief Bill May Be Extended ? Southern California Real Estate - Broadpoint Properties

[MargaretC]

I still don't understand what I would be taxed on in a foreclosure. is it what the house sells for subtracted from what I owe?

Thanks!

[At_Peace_in_NorCal]

I still don't understand what I would be taxed on in a foreclosure. is it what the house sells for subtracted from what I owe?



Thanks!

OK, so this confused me too for a long time. I even had it explained by a foreclosure specialist CPA and it was still confusing. So basically your bank will send you a 1099c form after the home is sold for the difference between what you owe and what the home is sold for. That's called cancellation of debt. (The amount of debt that was "cancelled" by the bank. That is what you will pay tax on. It's taxed at your normal tax rate. (In my case 28 percent). So feasibly it could be quite substantial if you are way under water.

The Act that expires at the end of the year forgives this cancellation of debt. (COD) so your would not have to pay if the FC happened this year. Also read: The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

Keep in mind the title needs to be transferred to the new owner by the end of the year for the debt to be forgiven. (Unless the act is extended of course.) Hope that helps!

[At_Peace_in_NorCal]

What exactly about the conversation did you think was BS? They discussed a variety of topics and issues, which one(s) did you disagree with?

I fall into the "it's a business decision" camp - the taxpayers shouldn't be obligated to come rescue me from my mortgage woes. Nor should the bank for that matter. Under that same ideology: I shouldn't feel obligated to do anything outside of the contract that both the bank and I signed. It's a business decision: they loaned $X at Y% interest payable over Z number of years. The penalty for not paying was spelled out in the contract and both parties agreed to it.

Viewing it like that may sound shrewd, but that isn't the worst thing I've been called. It makes the decision cut and dry, and simple. Something like a "hardship" can vary wildly: what is a hardship for one borrower isn't a hardship for another. It's tough to put qualitative data like what is a hardship into a quantitative (okay we'll set payments to X% of your monthly income) setting. If you can pay, great. If you cannot, okay.

For what it's worth, I'm not saying it's not in the banks best interest to create modification programs, etc. - it probably is on some level. But to ask taxpayers to pay for it isn't a good decision. I don't view walking away from a mortgage as a direct assault on the American taxpayer - the political leader(s) that ever, ever, thought it was a good idea to allow taxpayer money to be in the mortgage business is to blame for any taxpayer gripes.

I reread all that and my thoughts are a little jumbled, but hopefully my point comes through.

The BS I was referring to was simply the resistance to doing principal reductions for the majority of the loans. It was clear he just doesn't want to do it and doesn't really care about the argument for it.

[jayguy0710]

The BS I was referring to was simply the resistance to doing principal reductions for the majority of the loans. It was clear he just doesn't want to do it and doesn't really care about the argument for it.

I see. Unfortunately, principal write-downs carry the same issues that modifications do: who gets one, who doesn't? Do certain people get certain % write-downs, and other people get less or more % write-downs. What criteria do you use for determining who gets one, and if they do, for what amount of %?

Fortunately for Californian's like you and I, we're pretty well protected under the states anti-deficiency laws. But it's not perfect. I "feel bad" for those who refinanced solely to reduce their rate (did NOT take cash out, using their home as an ATM) and now have recourse loans, and could be hit with the tax consequences unless an extension of the MFDRA is passed.

[DogsandtheCity]

I have heard Obama will be putting a freeze on foreclosures now until the election. Has anyone heard about this ? Or is it just a rumor ? I sure would love it to be true as I have a trustee sale date on my rental property in June 2012..
Is it still true while in the process of doing a loan mod on principle residence with Wells Fargo Fargo, the foreclosure process stops ?
I love the "HAMSTER WHEEL THREAD"..I have learned so much from this site !! Thank you all for your updated information & tips !!

[littleb]

Just saying, our loan is 452,000, a similar model sold for 327,000 (BofA stated the value as 378,000-ha ha), we lose the house and they say the difference is our income (right). Assuming that is based on what they sell it for. We get to pay taxes on an extra $122,000. I guess they will have to put us in jail. There is no way we would ever be able to pay this. How ridiculous is that. So what happened to the $100,000 I put down, or the $15-17,000 for landscaping when I moved in. Oh yes, and let's not forget the $60,000 I had to refinance (with good old Countrywide) to pay the taxes because we had used retirement money. Oh, silly us, what were we thinking, I assumed real estate would be a good investment, and we should have been able to get most of it back.

[Br&Ta]

My fingers are crossed as well that the relief act is extended at least another few years. We are going to miss our first payment this September, and possibly paying taxes on the difference is my biggest worry.

[Rillion]

So it appears a one year extension of the Mortgage Debt Relief Act was included in the "fiscal cliff" deal. Mortgage Debt Relief Act: Law extended for another year - South Florida Sun-Sentinel.com

Calculated Risk: Tax Bill: Cancelled Mortgage Debt Relief extended for one year in Senate Bill

[Evan Bedard]

Thanks for sharing Rillion, yes it seems we will have another year of protection under the Mortgage Debt Relief Act:-)

[janland]

Thanks for sharing Rillion, yes it seems we will have another year of protection under the Mortgage Debt Relief Act:-)

UNDERWATER: I just did a loan mod with Chase $504,000. I think it's good.. with a principal reduction over 3 yrs: $143,000. I have a Union Bank HELOC 2nd $206,000 haven't paid since March 2010. They have been patient during the Chase loan mod- now they are calling me frequently and leaving messages. Is there anything out there in current times/changes in laws that would assist me in getting rid of this 2nd? I have followed the forum about no contact- but now I'm afraid.. any ideas?? I'm a calif borrower and still underwater. thanks guys