Congress has yet to act on the Mortgage Forgiveness Debt Relief Act, the expiration of which at the end of this year could leave distressed borrowers with an additional financial burden in 2014. The measure was designed to relieve underwater homeowners from paying income taxes when some of their mortgage debt is wiped out, such as on a short sale of their property.
"What you're looking at is people who have lost their house," remarked Marceline White of the Maryland Consumer Rights Coalition. "And then to have them hit with this [tax] just boggles the mind." Maryland legislators plan to renew a measure exempting residents from state taxes even if the federal law sunsets, but few other states have similar protections in place. There are three bills on Capitol Hill seeking extension of the federal law, but it is uncertain how much of a priority the issue will be in Congress next year. "We're far from out of the foreclosure crisis," White warned. "We hope that policymakers look at longer-term solutions."