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Will the Mortgage Forgiveness Debt Relief Act be extended to 2014

Discussion in 'Debt Settlement' started by paradiddle, Sep 21, 2013.

  1. paradiddle

    paradiddle LoanSafe Member

    The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

    Will The Mortgage Forgiveness Debt Relief Act of 2007-2013 be extended thru 2014 ? I think this applies to short sales and debt settlement of 2nd mortgage etc.

    I know that you can apply insolvency to evade some or all taxable implications but we made need to start pestering our elected officials to extend this act. I was thinking about some of us who are in the middle of actions and tactics with 2nd 's and it may be spill over in to 2014.
  2. Evan Bedard

    Evan Bedard Call 1-800-779-4547 Loan Safe Mortgage

    We all hope the Act will be extended at least one more year, we are uncertain when and if this will happen, but here are the bills that would do so:

    H.R. 2788: Mortgage Forgiveness Tax Relief Act

    Introduced: Jul 23, 2013

    Sponsor: Rep. Joseph Heck [R-NV3]

    Status: Referred to Committee

    Mortgage Forgiveness Tax Relief Act - Amends the Internal Revenue Code to extend through 2015 the exclusion from gross income of income attributable to the discharge of indebtedness on a principal residence.

    H.R. 2994: Mortgage Forgiveness Tax Relief Act of 2013

    Introduced: Aug 02, 2013

    Sponsor: Rep. Tom Reed II [R-NY23]

    Status: Referred to Committee

    Status: This bill was assigned to a congressional committee on August 2, 2013, which will consider it before possibly sending it on to the House or Senate as a whole.

    Mortgage Forgiveness Tax Relief Act of 2013 - Amends the Internal Revenue Code to extend through 2014 the exclusion from gross income of income attributable to the discharge of indebtedness on a principal residence.
  3. goalcam

    goalcam LoanSafe Member

    This will help California sellers:

    Senator Boxer who represents California sent a letter to the IRS in August asking that if an anti-deficiency law that California enacted in 2011 would also relieve borrowers who sell their primary home for less than it was worth would also relieve those borrowers from paying taxes on that property. Boxer asked the IRS if it would treat non-recourse debt in a short sale the same way it treats non-recourse debt in a foreclosure.
    "Without such an interpretation, distressed borrowers may face the unfortunate incentive to go to foreclosure rather seek a short sale in order to avoid a large tax bill," Boxers' letter to the IRS says.
    The IRS responded to Boxer saying that California's anti-deficiency provision, which prevents a lender who has a deed of trust on a borrowers primary residence from claiming a deficiency or obtaining a deficiency judgement on a short sale "effectively limits the homeowners' liability to the amount the lender received on the sale of the principal residence, and the homeowner is not personally liable of the deficiency balance (the difference between the loan balance the sale price)," and that under California's anti-deficiency provision "the homeowner will not have cancellation of indebtedness income."
  4. TomEason

    TomEason LoanSafe Guide Staff Member


    Thanks for your post.

    Boxer's letter to the IRS shows just how ignorant she is about CA law; dumber than a box of rocks :notrust:
  5. goalcam

    goalcam LoanSafe Member

    Should note though that California's anti-deficiency clause doesn't apply if you refinanced prior to Jan 1, 2013.

  6. TomEason

    TomEason LoanSafe Guide Staff Member


    Thanks for your post.

    I disagree. CCP Section 580(b) clearly spells it out. And my opinion of Barbara Boxer hasn't changed :blink1:
  7. goalcam

    goalcam LoanSafe Member

    Hi Tom,

    Subsection (c) of CCP Section 580(b) is pretty clear...

    (c) No deficiency judgment shall lie in any event on any loan,
    refinance, or other credit transaction (collectively, a "credit
    transaction") which is used to refinance a purchase money loan, or
    subsequent refinances of a purchase money loan, except to the extent
    that in a credit transaction, the lender or creditor advances new
    principal (hereafter "new advance") which is not applied to any
    obligation owed or to be owed under the purchase money loan, or to
    fees, costs, or related expenses of the credit transaction. Any new
    credit transaction shall be deemed to be a purchase money loan except
    as to the principal amount of any new advance. For purposes of this
    section, any payment of principal shall be deemed to be applied first
    to the principal balance of the purchase money loan, and then to the
    principal balance of any new advance, and interest payments shall be
    applied to any interest due and owing. The provisions of this
    subdivision shall only apply to credit transactions that are executed
    on or after January 1, 2013.

  8. TomEason

    TomEason LoanSafe Guide Staff Member


    Thanks for your post. Your quote of subsection (c) isn't applicable to the question at hand, i.e. not what Boxer and the IRS were addressing.
  9. paradiddle

    paradiddle LoanSafe Member

    so any updates on which way the wind is blowing on the Mortgage Forgiveness Debt Relief Act ? I did my part and sent letters months ago to all my politicians and they all said it " may " be extended. I don't know if this is no longer a priority in Washington.

    My Senator Bill Nelson did tell me they are working on it but I have checked through gov track and it looks dead. It died once as senate bill S 2250 and was reintroduced as S 1187. Gov track actually ranks these bills and their chance of passing and they rank this one as 1 percent;. So I believe we have seen the last of this Forgiveness for Short sales and debt cancellation which includes 2nd mortgages and credit cards. The only thing I can think of is more letters to politicians from everyone. Also maybe some news coverage.

    I now have an offer from Chase on my 2nd of about 35 percent. Anyway I asked my "negotiator" about that Forgiveness Act and how it affects how much $$$ I give him. I think it will add at least $10k to my tax bill next year. That IRS bill you have to pay on time once you do a payoff.

    If I have a debt of $71K and give them 10 percent ($7100) I am still on the hook for tax on an additional $63.9K when I get that 1099 form. The negotiator was trying to tell me that he thinks the act will come back _ ha ha ha .... so think about this when you short sale or negotiate. It ain't coming back unless the squeaky wheel gets going again.
    Last edited: Feb 9, 2014
  10. TomEason

    TomEason LoanSafe Guide Staff Member


    Thanks for your post.

    Sorry but I don't have any up-to-date info on the bills to extend the MFDRA.

    If it were me, I wouldn't settle with Chase for 10 percent. You can do much better. I recommend you mail Chase a counteroffer at an amount that's less than your target amount. I recommend you have no further contact with Chase until they make another offer, then you can counteroffer.

    Since your 2[SUP]nd[/SUP] is underwater, Chase won’t FC. I recommend you seek to eventually settle by following the guide at post #1 of the following thread. Your patience is required as this will likely be a long process.

  11. paradiddle

    paradiddle LoanSafe Member

    I didn't want the thread to steer off course. The only way we can get any traction on the MFDRA is for all of us to contact all of our politicians. I even sent a letter to the Prez.

    As far as my own settlement. I agree that if I lowball and wait I would eventually get a better deal. How much better? I have to also look at the fact that I have been tracking sales in my area and it's in full recovery mode. Similar houses to mine are getting better money in the last 6-9 months. I fully believe that 2014 will be the last window of opportunity. I have followed the Strategy for Settling the 2nd and I was hoping I would see something before the end of 2013 because of the MFDRA. So I missed by 2 months. The difference between 10 percent and say 7 percent is about $2100 and I would probably have to deal with a collections agency all over again and we know the whole dragged out story. I can't risk missing the window for $2100. I can afford to pay that. To me it's like trying to slice a thin slice of pie even thinner. I wouldn't want to discourage anyone else in their program. Tom you have been a major help. I'm just saying this is my tipping point.
  12. buchanovich

    buchanovich LoanSafe Member

    Correct re: govtrack. I watch it as it directly impacts my decision. I doubt it will be renewed simply because of the attitudes exhibited by the House Republicans: block unemployment extension, extension of the act in question (languishing in committee) and flood insurance relief (something Sen. Nelson also tried to get going but the Republicans vowed to block). The reasoning for blocking the unemployment reflects similar reasoning for not renewing the "Act." Reps have said that Unemployment benefits keep people from seeking work; and, a financial writer and political strategist suggests that the "relief Act" benefits only people playing financial games and, that the refusal to renew, making forgiven debt taxable will "force people to stay in their homes and pay their mortgages."

    Another financial writer suggests that this act along with a few others will wait until after the Fall elections. Makes no real sense to do so for the needs of the NAtion but I believe she is correct. These clowns will use it as a political football and behind the scenes bargaining chip. It doesn't do any good for those who have to make decisions NOW or have short sales hanging over from 2013. I have suggested it may force more people into bankruptcy if their circumstances allow, rather than short sale. It's a decision one has to make before a transfer takes place because a transfer below the amount owed incurs a tax liability at that point. Yes, there is the "insolvency" route but, run the numbers and you'll find that your retirement account likely will preclude insolvency. The moderators of this forum as well as any attorney will tell you not to empty your savings to keep the house afloat. IRAs are exempt from most creditors but, IRS still includes them in the insolvency calculation.

    I agree this is it as far as getting rid of the house-monkey on one's back and a tax free way is slipping away, faster rather than slower.
    1 person likes this.
  13. vickimmommy

    vickimmommy LoanSafe Member

    I have been working with BOA on a mortgage modification for some time. I began a trial modification in the fall. The bank has now done the permanent modification which includes principal forgiveness . Although I didn't receive the final legal docs. by the end of the year, the bank states in the settlement that the mod. Is dated 12/1/13 even though my new payment schedule does not begin until May 1rst, I have been making the trial payments for 6 months. Since my mod. Is dated 12/1, will I be included under the debt forgiveness act? Thanks for your advice!
  14. TomEason

    TomEason LoanSafe Guide Staff Member


    Thanks for your post.

    Since your perm mod is dated 12/1/2013 you've made it under the wire; the Mortgage Forgiveness Debt Relief Act does apply.
  15. vickimmommy

    vickimmommy LoanSafe Member

    Thanks so much for the reply. You have just put my mind at ease. I have been worried sick about this! God Bless You!
    Last edited: Mar 16, 2014

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