The Mortgage Debt Forgiveness Act is about to expire. This act has spurred the use of short sales, where underwater homeowners can sell their home for less than they owe and not be taxed on the forgiven amount. There have been many, including the National Association of Realtors, who fear that if this act is not renewed, many homeowners will forego the short sale process and just allow the property to foreclose.
This act, theoretically, has cost the government a great deal of revenue. With the budget shortfall and the approaching “fiscal cliff”, there are those who fear that this act will not be renewed.
I find it unlikely, however, that the mortgage forgiveness act will not be renewed. While there are those who believe that renewing this act will cost the government billions, I suspect those billions might be hard to collect. Generally homeowners are going through the short sale process because they can’t afford their home– which means it’s unlikely they have the cash to pay that tax bill.
I also feel it unlikely to fail to pass because it is such a “hot button” politically. There is not a lot of support for allowing the act to expire, but there are many groups (The National Association of Realtors being among the most vocal.) who believe the act should be extended.
Whether it is an accurate assumption or not, there is a widespread believe that housing is the key to a broad economic recovery, and failing to extend this act could bring about another downturn in housing. Politicians won’t risk it. [Thanks to L for the links!]