Delaware Attorney General Beau Biden and 40 of his colleagues have told Congressional leaders that extending a key tax-relief provision will further help homeowners who are benefiting from the terms of a national mortgage settlement.
The National Mortgage Foreclosure Settlement, reached earlier this year between state and federal governments and the nation’s five largest mortgage servicing banks, requires the banks to provide $17 billion in relief to homeowners in several ways. One such way is by forgiving mortgage debt or modifying the terms of a mortgage to make it more affordable.
The attorneys general sent a letter to Congressional leaders, including the chairs and ranking members of the tax-writing committees, to encourage them to extend tax relief for consumers who have had mortgage debt forgiven because of a financial hardship or a decline in housing value.
Specifically, the provision included in the Mortgage Debt Relief Act of 2007 states that mortgage debt that is forgiven after a foreclosure or short sale or through a loan modification provided to a homeowner in financial hardship may be excluded from a taxpayer’s calculation of taxable income. Unless Congress acts, the provision will expire December 31. An extension is included in the Family and Business Tax Certainty Act of 2012 that recently won bipartisan approval in the Senate Finance Committee.
“The settlement provides real relief for homeowners who have been hit hard by the housing crisis,” Biden said. “Extending the tax relief that these homeowners receive will make the settlement’s benefits even stronger and will help support the recovery of our housing market and our economy.”
The settlement’s benefits are already being felt by hundreds of Delaware families. Biden announced that as of Sept. 30, 628 homeowners in Delaware already received direct benefits that total $35.2 million, according to a report released by the independent monitor overseeing the banks’ compliance with the national settlement.
Under the terms secured by Biden and the other attorneys general, the banks are required to reduce principal on mortgage loans, extinguish second lien mortgage loans, waive deficiencies in short sales, and provide refinancing to so-called “underwater” homeowners who, despite being current on their mortgages, are unable to refinance because they owe more than their homes are worth. According to the monitor’s report, the most frequent benefits to Delaware homeowners were the forgiveness of debt upon a short-sale, forgiveness of second mortgages, and refinancing of underwater mortgages.
Additionally, another 225 Delaware homeowners are in the pipeline to benefit from the settlement. These homeowners have either already been offered mortgage modifications and are deciding whether to accept the terms, or have accepted the terms and are in a trial period.