Forty-one state attorneys general have signed a letter appealing to the U.S. Senate and House of Representatives to extend the Mortgage Debt Relief of 2007 past its current expiration date of of December 31.
The letter states that allowing it to expire would weaken the National Mortgage Settlement Act passed earlier this year, which prevents homeowners from having to pay taxes on debt that lenders agreed to forgive as a result of home foreclosures, short sales or loan modifications.
“Requiring a homeowner to pay income taxes on forgiven or canceled mortgage debt would make the National Mortgage Settlement much less effective,” the letter asserts.
Nevada's Attorney General Catherine Masto stated that the act is set to expire at a time when homeowners are receiving benefits from the national mortgage settlement, which obligates the nation's five largest mortgage servicers to pay $20 billion in credited relief to consumers. One of the stipulations of the act is that the relief must be provided before March 2015.
The settlement was announced in February between 49 state attorneys general with Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial. Oklahoma’s attorney general chose not to sign the settlement or the letter.
Masto further said, “I urge Congress to extend this critical tax exclusion so that families are not stuck with an unexpected tax bill or deterred from participating in this historic settlement.”
In addition, the letter states that Congress’ failure to extend the bill could result in tax increases up to $1.3 billion, according to the Congressional Budget Office.
Joseph Smith, the settlement monitor, reported that as of September 12, the servicers have provided $13.1 billion in relief from short sales, averaging approximately $115,672 per borrower. Also, 21,833 borrowers received a first lien reduction modification and $2.55 billion in relief, averaging $116,929 per borrower.