H.R. 3648 the Mortgage Forgiveness Debt Relief Act was signed into law back on December 20, 2007. This bill was signed to relieve distressed homeowners from having to pay taxes on the amount of debt that was forgiven in a refinance or loan modification, or short sale. So why is this bill so important? Previously if a homeowner were to short sale their home and the bank agreed to accept $100,000 less than what was owed, the IRS would treat that $100,000 as income and tax the homeowner on that amount. This would also apply to loan modifications, refinances and a deed in lieu. Had this bill not been signed into law the housing market would’ve likely collapsed as all of the short sales would’ve instead become foreclosures. However, this bill is scheduled to expire on December 31, 2012.
President Obama about 6 months ago supported the idea of extending this bill into 2015 and the Mortgage Relief Act which was introduced back in March also includes an extension of this bill through 2015. So why hasn’t this topic been brought up recently? Does Obama still support an extension? What about Romney? The housing numbers are encouraging but if this bill is not extended that could be catastrophic to the housing market.
Being that short sales are currently averaging 90-120 days to complete, if this bill is not extended, then all homes that are currently being marketed as short sales and do not yet have a contract on their property will not be able to complete their transaction by the end of the year. I do not see any scenario in which this bill is not extended, but with the election only a few days away I’m pretty surprised the topic hasn’t even been discussed. I understand there are bigger issues that need to be resolved, but if either candidate is serious about turning around our economy I think it starts with extending H.R. 3648.