Chapter 1 of the Foreclosure ATG deals with tax consequences when a property is disposed of through a short sale, foreclosure, abandonments and deed in lieu of foreclosure. A lot of taxpayers do not know that even if they lose their property through one of the above channels, the lender is still legally empowered to pursue collection of outstanding deficiency.
In 2009, the US Government stepped in to assist distressed homeowners when the economy took a downward turn that saw many of them lose their source of income and their homes. Programs like the Making Home Affordable Program did help to stabilize the housing market and to prevent many homeowners from losing their homes.
Since then, both State and Federal governments have filed many lawsuits against lending institutions for unfair or fraudulent practices. This has seen mortgage lenders implement a number of changes to protect themselves against such lawsuits.
One such change is the 2007 Mortgage Forgiveness Debt Relief Act of 2007. This Act which was highly publicized act allows taxpayers who qualify to exclude debt discharged as income from a borrower’s principal residence. This Act led to the IRC §108(a)(1)(E) being added to the Internal Revenue Code.
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