In a national survey of its current clients actively considering or navigating through the foreclosure process, YouWalkAway.com, a foreclosure assistance company, revealed that 34% of those surveyed said the looming Mortgage Debt Relief Act expiration date of Dec. 31 contributed to their decision to strategically default on their mortgage.
“The survey results are not surprising; YouWalkAway.com saw a number of homeowners reach out to us in early and mid 2011, due to the impending 2012 deadline,” said Jon Maddux, CEO of the Carlsbad, Calif.-based firm. “Many were prompted to begin the foreclosure process in 2011, in order to ensure their foreclosure is complete by the end of 2012.”
The Mortgage Debt Relief Act of 2007 was created to relieve former homeowners of their obligation to pay taxes on the difference between their loan amount and the amount their property fetches through short sale or at foreclosure auction.
The foreclosure process takes, on average, one year from start to finish, the firm said. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
Additional results of the survey indicate that of the respondents planning to strategically default, at least 74% would qualify for relief under the Mortgage Debt Relief Act of 2007.
Earlier this year, H.R. 4290 was introduced to extend the Mortgage Forgiveness Debt Relief Act. The legislation was originally set to expire in December 2009 but was extended in October 2009 to the end of this year.
“Although not extending the Mortgage Forgiveness Debt Relief Act may slow strategic defaults temporarily, the housing recovery will slow and eventually the economy as a whole will suffer. If this act does not pass, we as a country will feel the effects years down the road.” Maddux said. “Most strategic short sales will stop immediately, because of the homeowner’s fear of a getting hit with a huge tax bill.”