Foreclosures Could Rise if Congress Doesn't Act

Residential Foreclosures have been dropping dramatically over the past two years, but without help from Congress they could begin to rise again. In 2007, Congress passed the Mortgage Debt Relief Act, a tax exemption for mortgage debt forgiveness. That exemption expired at the end of 2013 and has yet to be extended.

Eliminating this tax break would be a big blow to short sales and principal forgiveness and will make those forms of mortgage borrower assistance/relief a lot less attractive to distressed homeowners and those facing foreclosure.

The recent foreclosure crisis was one of the most dire episodes in U.S. housing history, but it could have been even worse had the banks not forgiven billions of dollars in mortgage debt. Much of which was mandated by legal settlements with the federal government and state attorneys general. Since 2007, banks have approved approximately 2.8 million short sales, according to Black Knight Financial Services. A short sale is when the home is sold for less than the amount of the mortgage.

There is support in Congress for an extension, as well as among state attorneys general and housing advocates. Several bills are being considered that could extend the tax relief through 2015 or 2016, but with the much broader move to overhaul the entire tax code, they appear to be getting lost in the shuffle.

It is difficult to put an exact number on principal reduction mortgage modifications, however, we've yet to see one. That said, through short sales billions of dollars were expunged on paper and not taxed as income, as they would have been prior to 2007. These foreclosure alternatives helped and continue to help bring down the number of homes being lost today.

Loans in the foreclosures process are down nearly 28% from just a year ago, according to Black Knight, but the pipeline, while no longer growing, is still large. More than 3 million borrowers are behind on their mortgage payments, and 1.24 million are in the foreclosure process. Many of those delinquent borrowers could avoid foreclosure through a short sale or principal reduction loan modification.

At our real estate office in Columbus, OH we offer private consultations at no cost to educate troubled borrowers on their options, options that may be shrinking.

If Congress fails to extend the Mortgage Debt Relief Act this is certain to prolong housing recovery. We know these folks can't afford their houses, they are forced to demonstrate financial hardship, so if they don't have the money to keep a roof over their head, how are they going to be able to pay the IRS?

A client whom we have been working on a short sale with for six months was recently approved last week, about five weeks too late to qualify for the tax exemption. Her home sold for $125,000 less than the amount he owed on the mortgage. Depending on his tax rate, she could owe Uncle Sam about $30,000. That is money she does not have.

"I'm nervous, I'll be honest with you. There have been some long nights these last three years, just having to figure out what's going to happen, and now if this debt relief act isn't extended, I'm really nervous now. I've stayed up late at night—I can't sleep at night, it's been a lot of stress."

Even banks and investors could get hurt if borrowers can no longer afford short sales. Short sales have helped to clear much of the distress properties from the housing market in an efficient manner, especially in states where the foreclosure process requires a judge. Those states have huge backlogs of delinquent loans.

"With fewer short sales, you're going to see longer liquidation timelines, so you're going to see more full foreclosures and REOs [bank repossessions]," said Sean Nelson of Fitch Ratings. "With longer timelines, you have more costs associated with liquidation of the properties. More costs translates to lower recoveries for investors.

If you’re facing foreclosure you’re facing some very important decisions. We want you know you’re  not alone and we are here to help with any questions you may have to assist you in making the best decisions for your situation. There is no charge for this service and we are happy to help! We offer confidential and professional real estate advice.

The Opland Group  Specializes in  Real Estate Sales, Luxury Home Sales, Short Sales  in;    Bexley    Columbus    Delaware    Downtown    Dublin    Gahanna    Grandview Heights    Granville    Grove City    Groveport    Hilliard   Lewis Center    New Albany    Pickerington    Polaris    Powell      Upper Arlington    Westerville    Worthington