Should the Mortage Debt Relief Act Get Extended? [VIDEO]
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation, should this get extended? Will it hurt homeowner in negative equity situations if it does not get extended? Could it stall our struggling economy? Anton Stetner the Founder of the Real Estate Solutions Group discusses the Mortgage Debt relief act and how that affects short sales, foreclosures and REOs.
Should the Mortage Debt Relief Act Get Extended? Video:
Hey guys, what’s going on? Anton Stetner here with the Real Estate
Solutions Group. I want to talk today about the extension of the Mortgage
Debt Forgiveness Act. Should we do it? Should we not do it? What does it
really mean for short sales, home owners, and our economy?
OK, so let’s just talk about it before. What happened in 2007 was, during
the Bush administration, they stuck out or made some very specific tax
credits, that are coming to an end. Another thing that they did that’s
ending right here in the end of 2012, too, is they cut a bunch of spending
out of the government budget. You’ve heard about the fiscal cliff. The
fiscal cliff is what’s coming next. And along with that fiscal cliff,
there’s also the expiration of some Bush era tax credits. One of them is
the Mortgage Debt Forgiveness Act.
What does that really mean? The government, earlier this year, did a study,
where they looked at a bunch of short sales. And there was approximately
$10.4 billion worth of debt that was forgiven. What that means is that the
average forgiveness for the span of short sales that they looked at was
around 76,000 bucks. OK. Who cares? Here’s what it means, though. What does
it mean? That means if you’re an average homeowner in a middle class tax
bracket of, let’s just say, 25%, that was $19,000 that would just magically
pop onto your tax return. So what would happen is the forgiveness would
show up as shadow income, and you would get taxed on it. The average
person, to suddenly just arrive at an extra $19,000 in taxes, is quite
honestly, just devastational.
So, should we extend it or should we not? Let’s talk about it some more. If
we extend it one year, what does that mean? That means it’s going to cost
us approximately $1.3 billion as tax payers. Now, personally, I believe we
should extend it. The reason for that is, I believe real estate makes up
such a large percentage of the market, that not extending it could hamper,
stall, or maybe even kill a really fragile, and slowly growing economy
right now. Another thing that this means is that if they don’t extend it,
this may hamper the settlement that just happened. We had the Robinson
settlement, that $25 billion settlement that happened between the large,
big banks for alleged foreclosure practices. But the moral of the story is,
that’s supposed to go help people with principal forgiveness and short
sales. Both of those are taxable events, by this. If we take the ability to
write off the cancellation of debt off of their taxes, it’s going to
persuade the banks less to do these things and less homeowners to accept
What does it mean for our real estate market if they do not extend it? If
they do not extend it, let’s think about that. If I have the choice between
a short sale and a REO, I’m most likely going to choose the short sale
because if I let my property go to foreclosure in REO, I could probably
still be 1099’d for the difference. If I do a short sale, at least, I’m
controlling what’s happening with it as much as humanly possible. So it’s a
known outcome, it’s a known quantity. So I believe it would cause short
sales to rise, and I think it would cause the REO inventory to fall even
Hey, I’m Anton Stetner with the Real Estate Solutions Group. Please leave
me your thoughts and comments about whether or not we should extend this,
whether we shouldn’t extend it. What do you feel it does for homeowners?
Leave those below. Subscribe above, and we’ll update you more as we go.
Thanks a lot.
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