January 1st hailed the expiration of the Mortgage Forgiveness Debt Relief Act that was created by Congress back in 2007, to assist homeowners who were struggling due to the loss of their homes. The relief act allowed homeowners behind in their mortgage to take a deal from the bank, whether reducing the loan principal or forgiving the remaining balance of the mortgage after a short sale, and not have to pay taxes on the amount of debt forgiven, which traditionally the IRS considers a taxable income.
Having the Relief Act in place contributed to the ongoing recovery of the housing market, however since the recovery is still ongoing; reinstituting the tax may harm or even halt the market recovery some experts believe. There are still an estimated 7.1 million homes with mortgages still in the negative, and 1.2 million in some stage of foreclosure. It is believed that by allowing the act to expire would cause many struggling homeowners to just stay in default until foreclosure or simply walk away from the property. Either choice could affect the market as foreclosures and vacant houses tend to drive the values down in the surrounding neighborhood.
Distinctive Properties, Inc.