Oct. 17, 2007 - The Government To The Rescue

You may or may not know this, but if you should happen to lose your home for any reason and you come up short of what you owe your lender, you will be taxed on the amount of the debt that was forgiven. You can go over that sentence again if you wish, but you read it right the first time. The current tax code is written as such that if a lender forgives a portion of your mortgage debt they have to supply the IRS with a Form 1099 telling the tax man how much they let you off the hook for.

Believe you me, in these trying times there are plenty of people in trouble. The news media is talking about it every day. Adjustable rate mortgages resetting, homes mortgaged to the hilt with equity loans and lines of credit, one hundred percent financing with interest only loans that can't be refinanced due to property value fluctuations and on and on and on. To people in these situation, this "Phantom Tax" is a real slap in the face.

These situations came about in several ways. Some of it was every day bad occurrences like job loss, divorce, illness, etc. Some of it was bad guidance from bad Real Estate Agents. Some of it was fast talking mumbo jumbo from get it done at any cost lenders. Mostly it was just financially under educated people who wanted what they wanted and they wanted it now. Damn the torpedoes.

I regress, however, because what I am really talking about here is The Mortgage Cancellation Tax Relief Act, H. R. 3648. This piece of legislation will effectively wipe out the "Phantom Tax". That's a good thing too, because a person who couldn't pay their mortgage and just got their lenders hooks out of them sure doesn't need the IRS replacing their burden.

So if you or someone near and dear to you is staring into the face of foreclosure I suggest you cozy on up to your elected officials and remind them to get H. R. 3648 onto the Presidents desk for his signature so that the "Phantom Tax" will disappear from the IRS Tax Code. Then call a good, reputable REALTOR® (not the one who gave you bad advice in the first place) and get this thing nipped in the bud.