Here is the press relase from one of the Senators that is sponsoring the Mortgage Relief Act that may provide some relief for homeowners that are in a short sale position and may owe the IRS taxes on debt relief.
U.S. Senator Debbie Stabenow (D-MI) today announced that President Bush will include the Mortgage Relief Act in his initiative to assist homeowners damaged by troubled mortgages. The Mortgage Relief Act, introduced in May by Senator Stabenow, would change current law that forces individuals to pay an income tax when they have had a part of their mortgage loan forgiven or have been forced to foreclose because of their inability to pay their mortgage. The bill is also sponsored by Senator Carl Levin (D-MI), George Voinovich (R-OH) and John Kerry (D-MA).
"People in Michigan and across America are suffering, and it is wrong to unfairly tax families when they are faced with the prospect of losing their home," said Stabenow. "I look forward to working with the President and my colleagues to prevent additional, unfair economic hardship in the lives of those who find themselves in truly unfortunate circumstances. We need to make it easier, not harder, for Americans to keep their homes. "
Declining home prices and rising foreclosure rates have left some families having to sell their homes for less than they paid for them, and sometimes for less than the outstanding debt. The IRS currently taxes any loan forgiveness as 'income'. The Mortgage Relief Act will relieve families of a tax burden when their lender forgives part of the mortgage on a principal residence.
Under current law there are a number of situations in which homeowners are unfairly taxed when trying to responsibly address their inability to meet their mortgage. For instance, if a family owns a home with a $100,000 mortgage and can't afford to make their payments the bank can step in and refinance the house at a lower value to better reflect the decreased market value. Under current law, if the bank values the home at $80,000 the family would have to pay taxes on the $20,000 difference between the new and the original mortgages.
In addition, the President's plan will urge Congress to reform current laws to make it easier for the Federal Housing Administration to offer aid to mortgage holders with subprime mortgages. His proposal will also include an increased effort to enforce predatory lending laws and strengthen lending practices.
From 2005 to 2006, the Detroit metropolitan area had the highest percentage of households in foreclosure in the 150 largest metropolitan areas, with an average of more than 10,000 foreclosures in each quarter. The foreclosures affected 1 out of every 21 households, nearly five times the national average. Over the first quarter of 2007, Michigan had over 29,000 foreclosures and Detroit was on pace to record 11,000 for that same time period. The Mortgage Relief Act, is companion legislation to H.R. 1876 introduced in the House by Rep. Rob Andrews (D-NJ) and Ron Lewis (R-KY).
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