When Can 2250 Save Millions? Senate Bill 2250!
By John Voket, RISMedia Consumer Confidant
I will start this segment with a question—when can 2250 save consumers millions? Answer: when it's proposed U.S. Senate Bill 2250, which is before the Senate Committee on Finance right now.
The action would save consumers who have experienced a principal debt forgiveness in a foreclosure settlement, or who get out from under the threat of foreclosure, by completing a "short sale," from having to pay taxes on the amount of money that is forgiven.
In the case of foreclosures, it could be hundreds of thousands, tens of thousands for most short sales that would be taxed as income if an already extended. That's because the Mortgage Forgiveness Debt Relief Act, expires at the end of the year.
After that, any mortgage debt forgiveness provided to a borrower will count as gross income for tax purposes.
According to a text of the action on govtrack.us, the many co-sponsors of the bill are seeking a further extension to existing protections originally enacted following the housing crisis of 2008, to the end of 2015.
According to Davis Dayen on Salon.com, the tax issue could significantly disrupt a still-fragile housing market and rob homeowners of the tools to pull themselves out of mortgage debt. It also represents a final indignity for homeowners who have been abused by the fraudulent mortgage practices of leading banks for years.
Just when they think they get relief from their troubles, they get hit with a massive tax bill they cannot pay, Dayen observed. Sen. Jeff Merkley, D-OR, who supports extending the law, said it has the effect of "pulling people up with one hand, and hitting them in the face and knocking them over the cliff with the other."
But there is a higher than average expectation some sort of extension will occur in the coming days or weeks.
Carrie Johnson, senior policy counsel for the nonprofit Center for Responsible Lending, told Kenneth Harney of the Washington Post that allowing an expiration "would be inconsistent" with other ongoing efforts. Those efforts include Fannie Mae's and Freddie Mac's new short-sale program, the $25 billion "robo-signing" settlement with major banks and private loan modification programs run by lenders, all of which encourage principal cancellations.
With several bills pending in the House and one in the Senate that would extend the program for another year or two, lobbyists say there is a slightly better-than-even chance Congress will extend the debt forgiveness provisions, unless the entire fiscal cliff negotiations implode.