Recent laws may allow for the late mortgage payment help you have been looking for and provide the debt relief solutions you need to change your financial situation. New legislation that eliminates the tax implications of foreclosures and short sales.
Are you one of the countless victims of a struggling economy and now find yourself facing foreclosure? Increased job losses, rising interest rates, and a decline in the real estate market have left many homeowners in a financial crisis.
Decreases in property values and reduced equity are making it difficult to secure refinancing or consolidation debt loan mortgages and many people are being forced to sell their homes for less than what they still owe.
To bring some stability to this subprime mortgage crisis, the government passed the Mortgage Forgiveness Debt Relief Act of 2007. The main focus of this new law is to help homeowners who have delinquent mortgages transition through the sale or foreclosure of their property without having to face any additional tax implications.
Prior to this Act, if a homeowner or mortgage lender were to negotiate a short sale, or sell a house for less than the actual mortgage, the difference would be considered income to the debtor and liable to be taxed.
This forced borrowers into a very unfortunate situation: The bank forecloses, sells the home for less than the amount owing, and the remaining portion of debt is forgiven. This forgiveness, or canceled amount, is now regarded as the debtor’s income.
Therefore, not only would families lose their homes, but they would also be left with an additional tax bill, which could be quite substantial depending on the amount still owing and the actual sale price of their property.
The Mortgage Forgiveness Debt Relief Act now allows sellers to exclude income attributed to the restructuring, short sale, or foreclosure of their principal residence. Not only does this provide relief of any tax implications, but homeowners now have more flexibility, making it possible for them to sell their home for less than they owe and avoid having a foreclosure on their record.
This law also increases the incentive for borrowers and lenders to work together and work out refinancing solutions that will be mutually beneficial.
Government-Backed Loans
As of August, 2009, new legislation now provides a way for struggling homeowners to avoid foreclosure by acquiring a government-backed modified mortgage. Although there are exceptions, in most cases debtors are able to receive 85% of the current home value, making it necessary to receive the consent of the original lenders to discharge or forgive any remaining balances.
The Home Affordable Modification Program (FHA-HAMP) offers FHA-backed refinance packages at lower interest rates, making it possible for many people to improve their financial situation and still keep their homes.
Summary
New laws and legislation, including the Mortgage Forgiveness Debt Relief Act, may allow you to receive government help with mortgage delinquency and offer a way to regain some financial security in a troubled economy.