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Do you have mortgage debt that is too high for your income? Have you been struggling with mortgage payments and are looking to get some relief? If so, the Mortgage Forgiveness Debt Relief Act might be just what you’re looking for. The Mortgage Forgiveness Debt Relief Act was established in 2007 as a part of the American Recovery and Reinvestment Act. This article will discuss everything from how it works to whether or not homeowners qualify.

What is the Mortgage Forgiveness Debt Relief Act of 2007?

The Mortgage Forgiveness Debt Relief Act of 2007 is a law that can help provide mortgage debt relief for homeowners with mortgage balances that are too high for their incomes. The act was established in 2007 as part of the American Recovery and Reinvestment Act. This means that if you are struggling to meet your mortgage payments because they’re too high relative to your income or have negative equity on your property, you might be eligible to receive help with your mortgage payments. The 2007 act was initially meant to expire in 2017 but was extended in 2019 to go through December 31, 2020.

Consolidated Appropriations Act of 2021

After the 2019 extension, Congress extended it again through the Consolidated Appropriations Act of 2021, which will be in effect through 2025. The extension allows an exclusion that applies to canceled mortgage debt of up to $750,000; or $375,000 if married and filing separately.

While debt forgiveness can help provide some relief, it’s important to consider a few drawbacks. First, it’s not free—you’ll be subject to fees. Second, it could also have a long-lasting negative impact on your credit score and ability to finance future purchases. Read more about different types of debt forgiveness in this blog post: Debt Forgiveness Explained.

Meaning of “Cancellation of Debt”

Cancellation of debt is when the mortgage lender agrees to cancel all or part of your mortgage debt. They can also provide you with a settlement, which is an amount that’s less than the total mortgage balance and will not require any monthly payments from you for some period.

What you need to know about the Mortgage Forgiveness Debt Relief Act

The main thing to know about the Mortgage Forgiveness Debt Relief Act is that mortgage lenders cannot collect any debt forgiven by the borrower’s mortgage lender. This only applies to federal tax-deductible mortgage debts incurred before December 31, 2007, and have been forgiven after 2008.

How does it work?

This act works by enacting a mortgage discharge provision that is in place to protect mortgage lenders from the tax implications of debt cancellation. This means they do not have to pay taxes on any mortgage balance forgiven by their borrowers, and it also applies retroactively back to 2007.

Who qualifies for the Mortgage Forgiveness Debt Relief Act?

To qualify for this type of debt relief, you must have mortgage debt incurred before December 31, 2007, and mortgage loans are forgiven after 2008.

The implications of this relief act on homeowners and their mortgages

The main implication of this act on homeowners and mortgages is that mortgage lenders are not required to pay taxes on debt relief covered by the Mortgage Forgiveness Debt Relief Act. The reason for this is because mortgage lenders, and more importantly mortgage investors, are immune from tax consequences if the mortgage debt was incurred before December 31, 2007.

The laws also apply retroactively back to 2007. This means that mortgage borrowers who have qualified for relief may be eligible for a refund of taxes paid on forgiven mortgage debt in previous years.

What are some pros and cons to the mortgage forgiveness debt relief act?

The main advantage of this act is that it protects mortgage lenders and mortgage investors from paying taxes on mortgage debt that was forgiven. Mortgage borrowers can also get refunds of the past years’ tax payments, which is another major advantage.

The main disadvantage of this act is that it does not allow for refinancing or modification of mortgages to help homeowners avoid foreclosure. It merely provides relief to the borrowers who are already mortgage debt holders.

Tips for getting help from the government with your mortgage payments or refinancing

If you’re looking to get mortgage help from the government, you should first contact your mortgage company to see if they offer any programs—some homeowners have found that their mortgage lender provides options such as a short sale or deed instead of foreclosure with minimal hassle. If your mortgage company does not offer these services, there are other organizations for homeowners seeking relief.

How Can CreditAssociates Help?

While CreditAssociates does not offer direct relief relating to mortgage payments, we can help you reduce your unsecured debt, like credit cards or personal loans, through our debt settlement programs. These programs could help reduce your outstanding debts by as much by half or more and resolve your debt in as little as 24 months. Get your free consultation from one of our certified debt relief professionals today. 

Common Questions about the Mortgage Forgiveness Debt Relief Act:

Is it possible to get mortgage forgiveness debt relief without filing bankruptcy or foreclosure proceedings?

Yes, mortgage forgiveness debt relief is possible without filing for bankruptcy or foreclosure proceedings. This can be done through a short sale with minimal hassle and certain types of deed in place of foreclosure agreements that mortgage companies offer to qualified homeowners.

Is the Mortgage Forgiveness Debt Relief Act still in effect?

While the Mortgage Forgiveness Debt Relief Act is not in effect in its original form, it has been extended in the Consolidated Appropriations Act of 2021. This act will be in place through 2025.

How do you qualify for the Mortgage Forgiveness Debt Relief Act?

To qualify for mortgage forgiveness debt relief, a homeowner must have made regular mortgage payments on the property in question for at least five years. The mortgage may not be more than $500,000, and it has to be your primary residence with no non-mortgage liens against the property or equity of 20% or less.

Is cancellation of debt bad?

In general, cancellation of debt is a positive thing as it can provide relief to homeowners. This relief can provide you with freedom from mortgage payments and a fresh start. It is important to note that in some cases, cancelled debt can be considered taxable by the IRS

Can a creditor collect on a canceled debt?

When it comes to canceled debt, a creditor can collect on the mortgage when they own it. This is determined by your state’s laws and can vary from one to another.

Can the government pay off my mortgage?

While there are government programs available to help you with your mortgage payments, such as mortgage assistance programs and refinancing, the government cannot just pay off your mortgage for you. 

Is canceled debt considered income?

According to IRS tax rules, canceled debt could be considered income that is taxable if the mortgage was forgiven in a year you were employed. This may vary from one state to another.