Just when you think a government program might actually do some good…
Here I am today reporting about the upcoming Home Affordable Foreclosure Alternative programfrom the Treasury Department that goes into effect April 5th.
The program is designed to help troubled borrowers who don't qualify for loan modifications.
It offers financial incentives to banks and borrowers to expedite short sales (when the banks allows the home to be soled for less than the value of the loan) and deeds in lieu of foreclosure (when the borrower agrees to give the house back to the bank without going through the foreclosure process).
Well when housing crashed, and short sales and the idea of principal write down on loans gained momentum, we quickly learned of a snafu at the IRS.
Unfortunately any loan forgiveness would be counted as taxable income.
That would cost beleaguered borrowers thousands of dollars after losing their homes! But no worries, Congress to the rescue; it quickly passed the Mortgage Forgiveness Debt Relief Act of 2007, which keeps homeowners from being liable for the canceled debt.
That law is in effect through 2012.
California did the same thing, except that its law expired at the end of 2008, so any Californian who got mortgage debt forgiveness in 2009 is potentially on the hook for a big bad state tax bill.