George W. Bush’s administration ended with one of the lowest economical drops in almost a century.  Toward the end of his term, he passed certain laws in attempt to improve our failing economy, but it is still too early to know if any of this has made a significant difference.  One major problem that has plagued our country is that of our mortgage industry.  In the past two years, thousands of people have been forced to foreclose their homes because of job-loss or simply because the soaring prices are too much to juggle for the average American. Can you blame them? Not really. 

Foreclosure, much like bankruptcy, is the final option for those who cannot afford to pay off their debts and loans.  True, it looks bad on your record, but it is a better option than continuing to accumulate more and more debt.  Most people who buy a home put down collateral and the rest is covered by a loan.  They are then required to pay off the loan on a monthly basis, with interest.  So, if the borrower is no longer able to pay his mortgage, the lender is obviously affected by this.  This is when foreclosure comes into play; the home is turned over to the lender who will usually auction off the house to recover their investment.  The lender is able to keep the collateral and what is acquired from the auction.

Unfortunately, even after the foreclosure is done, there are still many taxes owed.  For example, if the home-owners mortgage is $300,000 and they are forced to short-sale for $200,000 which means there is still $100,000 owed.  The $100,000 is filed as cancelation of indebtness income and you are not expected to pay it back.  However, the 100k is still taxed! If their mortgage tax rate is 30%, then the home-owner still owes $30,000!

But what happens to the home-owner? If money is still owed, how is it possible for them to pay it back?  Fortunately, laws have been created to protect them from mortgage taxation.  Most commonly used, is the insolvent case.  If the home-owners assets (such as money, value of home, etc.) are subtracted from their liabilities (such as their mortgage and any other loans or debts) and a negative number results, than you are insolvent and you are not required to pay the mortgage tax.

Also, there is the case of a non-recourse home.  When a house is bought it is either recourse or non-recourse.  It means that if a house is non-recourse and it goes into the foreclosure, the home-owner is only responsible to pay back the collateral, anything beyond that is the responsibility of the lender. Therefore, the mortgage tax is no longer owed.

Finally, is the new mortgage law that was recently instated by George W. Bush.  It is called the Forgiveness Debt Relief Act of 2007 (H.R. 3648.)  This law states that the mortgage tax on a foreclosed home will not be required to be paid back if the home is the primary residence of the home-owner and if the debt does NOT exceed $2 million. Also, this only covers mortgage debt discharged after 2007, anything before that is excluded from the law.  There is controversy surrounding this law because many say it makes little difference in the economy.  For the most part, most home-owners who find themselves in foreclosure will still use the insolvent law to remain tax-free.  The insolvent law offers the same amount (if not more) of the coverage of the new law.  However, every little counts when it comes to trying to remain out of debt!

Jackie B
http://www.articlesbase.com/politics-articles/the-new-mortgage-law-695292.html