Atlanta Property Manager Shares Information About Mortgage Forgiveness

As a real estate agent helping people with their investment homes, I get a lot of questions about mortgage forgiveness and what happens to people who are underwater in their homes. Kim Kline, a local attorney here in Atlanta shared with me the article below which may provide some insight into the issue. 

Quite frankly, I think there is going to be a cottage industry that will emerge in about 3-5 years for debt collectors to pursue people for the bad debt on mortgages.  Mortgage companies who “took it in the shorts” with foreclosures and short sales will start hiring debt collectors to make good on the deficits we are seeing. We are already seeing where second mortgage holders are pursuing individuals for their loans after foreclosure as an unsecured debt. 

For now, there is some relief, but I don’t expect that it will continue. See if your situation may qualify. Please read more below on mortgage forgiveness as share with us by Kim Kline & Associates. 

Mortgage Forgiveness 

If you owe a debt to an entity and they cancel or forgive that debt, the canceled amount may be taxable.  But in 2007, the Mortgage Debt Relief Act was passed to help homeowners avoid the double-edged sword of losing their house and having to pay taxes on the forgiven debt amount. The Act is in effect for mortgage debts cancelled from 2007 through 2012. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.   

Is Cancellation of Debt income always taxable? 

• Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
• Qualified principal residence indebtedness.
• Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
• Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
• Certain farm debts
• Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. 

Contact Kim Kline & Associates or your accountant for more information regarding the Mortgage Debt Relief Act – http://www.kimklinelaw.com/home.html

3 Responses to “Atlanta Property Manager Shares Information About Mortgage Forgiveness”

1. Self Storage Says:
   March 22nd, 2010 at 3:24 pm

   Well, some people are going to be really happy to read this. It really wouldn’t be fair if debts discharged through bankruptcy were taxable… I mean, why in the heck would people even file if they knew that they were still going to owe a ton of money?

2. Adam Says:
   April 8th, 2010 at 1:43 pm

   This is a great blog post I think this article also supports this point. http://hubpages.com/hub/How-You-Can-Ensure-Trouble-Free

3. Designer Purses Says:
   April 9th, 2010 at 1:30 am

   I have to say, every time I come to sspmblog.solidsourcepm.com there is another fascinating post up to read. A friend of mine was telling me about this topic a few weeks ago, so I think I’ll e-mail them the url here and see what they say.

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