A federal tax benefit for homeowners supported by Delaware Attorney General Beau Biden and 42 of his colleagues - which was close to expiring - has been extended, Biden said recently.
In November, Biden and 42 other state attorneys general urged Congress to take action to preserve a tax benefit critical to the recovery of the housing market that was set to expire Dec. 31. The tax benefit helps taxpayers who have had mortgage debt forgiven after a foreclosure or short sale or through a loan modification due to financial hardship by allowing the forgiven debt to be excluded from the taxpayers’ taxable income. The American Tax Relief Act of 2012 - passed by Congress and signed into law by President Barack Obama - preserves that tax benefit.
When the attorneys general wrote congressional leaders in November to support the extension, they pointed out that the tax benefit will multiply financial benefits for homeowners under the terms of the National Mortgage Foreclosure Settlement. The settlement, agreed to in February 2012 by 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 national settlement, which my office worked hard to secure, has provided real relief for homeowners who are struggling because of the housing crisis,” Biden said. “Protecting homeowners who received this mortgage relief from paying additional taxes is good for families, the housing market and our economy.”
The settlement’s benefits are already being felt by hundreds of Delaware families. As of Sept. 30, 2012, the latest date for which data is available, 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 September report, the most frequent benefits to Delaware homeowners were the forgiveness of debt upon a short sale (192), forgiveness of second mortgages (127) and refinancing of underwater mortgages (122).
Also, as of last September, another 225 Delaware homeowners were 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.