Expired:  Mortgage Debt Relief Act

Metaphorically speaking, if someone takes their foot off your throat . . . are you better off?

I suppose.

expiredBut, I wouldn’t say that you’re well off — just that your pain has been relieved.*

What’s the distinction?

Up until last year (2012 in Minnesota), homeowners whose mortgage was reduced in the course of a short sale didn’t have to pay federal income taxes on the forgiven debt.

Unless Congress acts to extend the exemption . . . now they will.

Owing Less = Benefit = Income(?)

It all sort of strikes me as a variation on the practice of ticketing broken down cars abandoned by the side of the road.

If the owner didn’t have the money to keep the car in good repair or even pay for a tow . . . where are they going to get the money to pay the fine?

Similarly, underwater homeowners who do a short sale walk away literally empty-handed (never mind equity); diminished housing prospects, at least temporarily; and damaged credit (although not as damaged as in a foreclosure).

Walloping them at tax time just seems like gratuitous punishment.

Adding Insult to (Financial) Injury

Perhaps more importantly, it contributes to a stagnant housing market with depressed inventory.

That’s because, without the now-expired tax relief, short sales are once-again prohibitively expensive for millions of homeowners nationally, effectively locking them in place.

See also, “The Mystery of the Missing Housing Inventory.”

*William Faulkner has a famous line about “pain’s surcease” being equal to if not better than any pleasure.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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