The Mortgage Debt Relief Act of 2007 will expire on December 31, 2012. If you currently owe more on your home than it’s worth, you’re facing the possibility of losing your home to foreclosure or you’re thinking about a short sale as a possible solution to your personal Phoenix housing crisis, it’s crucial that you keep reading. There’s still time for the Mortgage Debt Relief Act of 2007 to help you – if you act fast.

What the Mortgage Debt Relief Act of 2007 Does

Under normal circumstances, homeowners who lose their home to foreclosure or short sell their home (a way of selling a home with lender approval for less than the current mortgage balance) could owe their lender a ton of money. For instance, if my home goes back to the lender in a foreclosure, that lender will eventually sell the property. If I owe them $250,000 at the time of foreclosure and they sell it for $150,000, that lender could demand that I pay them the difference – in this case, $100,000. The Mortgage Debt Relief Act of 2007 would let me deduct the taxes that would ordinarily be due for that forgiven debt (the IRS ALWAYS wants their pound of flesh for “income”, and they get to define that word).

How Mortgage Debt Relief Act of 2007 Expiration Impacts Underwater Phoenix Homeowners

With the expiration of the Mortgage Debt Relief Act of 2007, underwater homeowners (or those facing foreclosure or thinking about a short sale) would be on the hook for paying taxes on any deficiency balance existing when one of these situations takes place.

Act Now! Use the Mortgage Debt Relief Act of 2007 to Protect Your Financial Future

Let me give you specific situations that could apply to your current situation. Then you’ll have a clearer understanding of how the Mortgage Debt Relief Act of 2007 can still help you… if you hurry:

  • You owe your lender more than your home is worth – Millions of homeowners have seen the value of their homes drop like a rock. If you’re one of them, the Mortgage Debt Relief Act of 2007 could help. Selling your home outright is the immediate solution that comes to mind, although you'll have to go to the closing table with a pile of cash to make up the difference between the amount your home sells for and your outstanding mortgage balance. If you're delinquent on your mortgage loan or are wading through a sea of financial issues, a short sale or another foreclosure alternative could help you. (I’m not a lawyer, an accountant or a financial adviser. I’m also not telling you to walk away from your mortgage if you're able to pay. I'm simply telling you how the Mortgage Debt Relief Act of 2007 could potentially help you. You'll have to seek qualified guidance from a professional who can tell you the best solution for your specific situation)
  • The foreclosure process is in the works – Once you fail to make a single mortgage payment, you’re technically in default on the terms of your mortgage loan. If you’ve been unable to catch up, your lender will begin foreclosure proceedings. Because very few homeowners recover when this happens, your best bet could be to let the process play out, as long as the foreclosure completes before the end of 2012. If foreclosure is inevitable, the Mortgage Debt Relief Act of 2007 could enable you to benefit by letting it happen before December 31, 2012. (If the foreclosure process is already underway, or will be soon, read the next example for a way to avoid foreclosure and still take advantage of the Mortgage Debt Relief Act of 2007.)
  • You’re trying to negotiate a short sale – Short sales don’t happen overnight. There are lots of moving parts to successful short sales, and they typically take 4-6 months – or more – to complete. If you’re working with a Phoenix short sale agent to sell your home short, there’s still time to take advantage of the Mortgage Debt Relief Act of 2007. You just can’t wait until the last minute or your chance to avoid tax liability could slip away like a thief in the night.

The Mortgage Debt Relief Act of 2007 has done a lot of good, and has helped many Phoenix homeowners face very personal, always painful housing crises. It's important that you not let this opportunity slip away. Are you currently working with a Phoenix short sale or foreclosure agent? If so, it's crucial that you hold their feet to the fire to make sure you don't lose the chance to avoid tax liability! If not, I recommend you get started right away. Time is growing short... and December 31, 2012, the curtain will close on the Mortgage Debt Relief Act of 2007.