Until the Mortgage Debt Forgiveness relief act was created in 2007, a person who short sold his home had to pay the IRS income tax and the mortgage debt forgiven in a short sale or mortgage term work out on his home. Clearly that made short selling and certain modifications impossible for many.
If distressed homeowners had to pay tax on the phantom income from mortgage debt forgiveness, many may have no choice but to go into foreclosure.
The Mortgage Debt Forgiveness act was created so that homeowners and banks and affected communities could utilize alternatives and avoid the negative impact of a foreclosure. But congress allowed the act to expire at the end of 2013…
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