CUNA, along with banking, mortgage and real estate trade associations, is pressing Senate and House leadership to extend the Mortgage Forgiveness Debt Relief Act before it expires at the end of the year.
The act, signed into law in December 2007, provides tax relief to borrowers by waiving taxes normally due on amounts forgiven by lenders when a mortgage is modified, or home is lost in foreclosure or sold in a short sale. If the law is not extended, homeowners would have to report the amount as taxable income, a requirement that CUNA said would make it more difficult and expensive for homeowners to accept short sales and modification offers.
The Dec. 14 letter, cosigned by the National Association of REALTORS, American Bankers Association, Mortgage Bankers Association and others, urged Senate Majority Leader Harry Reid (D-Nev.), Senate Minority Leader Mitch McConnell (R-Ky.), Speaker of the House John Boehner (R-Ohio) and House Minority Leader Nancy Pelosi (D-Calif.) to "ensure renewal of the Act before the end of this year in order to help as many underwater homeowners as possible." S. 2250, which would extend the law, was introduced by Sen. Debbie Ann Stabenow (D-Mich.) in March 2012, but it has not emerged from the Finance Committee since. The bill has 19 bipartisan co-sponsors.
The amount allowed to be forgiven is limited to $2 million and only includes primary residences. Several states also passed laws that forgive state income taxes owed on forgiven mortgage debt; however, many of those also expire at year-end. For example, in California the Conformity Act of 2010 forgives state tax liability on mortgage debt only through Jan. 1, 2013.