While Republicans and Democrats continue squabbling over the impending fiscal cliff, the Mortgage Forgiveness Debt Relief Act of 2007 is due to expire at the end of the year, which would cause homeowners to begin paying taxes on the part of their mortgage that is forgiven in a short sale, foreclosure or principal reduction. As an example, CNNMoney points out if a borrower owes $150,000 on a house and sells it for $100,000 at a foreclosure auction, they might owe taxes on the $50,000 that is forgiven. With over 50,000 borrowers losing their homes to foreclosure monthly, and short sales amounting to half a million each year, the dollars add up quickly. If a person is in bankruptcy or insolvent, the amount would be forgiven. Senate Finance Committee Chairman Max Baucus estimates the extension would cost the government $1.3 billion for one year. As MHProNews has learned, while some industry officials say it goes against loss mitigation efforts, some in Congress might see its expiration as a cost-cutting measure to trim the deficit.
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