Here’s a double whammy that is still confronting a legion of homeowners across the United States, notwithstanding the rising fortunes of many individuals and families that have regained some economic traction in the years following the so-called Great Recession.
The first prong of misfortune that reportedly plagues high numbers of homeowners is that they are imperiled by what a recent media article calls “serious negative equity.” One estimate that both defines that problem and puts it into perspective notes that about seven million mortgagees sadly owe at least 25 percent more on their home than its estimated worth.
Put another way: They are underwater in that, despite the payments they have made to their lender, their home value continues to sink or has already fallen so low that they can’t hit a break-even point.
And here’s that second bit of bad news: Many of those homeowners are unable to continue making timely payments even on homes that are already underwater.
In such a situation, what can be done?
Some debtors have renegotiated with their banks for modified loans or sold their homes for an amount beneath what they owe, with their lender forgiving the balance due.
That’s helpful, right?
Historically, it hasn’t been in the sense that forgiven mortgage debt has been deemed taxable income by the Internal Revenue Service. The bottom line is that persons already suffering from negative equity and without money to make timely loan payments have also been subjected to a punitive tax exaction.
Although Congress did enact legislation to stop that, the debt foregiveness that issued was only temporary, expiring at the end of last year.
A new bipartisan bill to extend forgiveness beyond 2014 was recently introduced in the U.S. Senate.
Further protection is clearly needed, as evidenced by statistics showing that high numbers of homeowners in metropolitan areas across the country continue to suffer from serious negative equity.