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Congress helps struggling homeowners by extending tax provisions

In a December post, readers of our blog received a brief-albeit it uncertain-answer to the question: can you avoid falling over the fiscal cliff with a short sale? The answer to this question hinged on whether Congress could come to a consensus on what to do with many of the tax laws that were set to expire at the end of 2012.

One of the many laws set to expire was a 2007 bill that gave debt relief on loan modifications, short sales and foreclosures. As we pointed out in our December post, the general fear was that if Congress didn't extend the law, then all unpaid debt still left on a loan would be considered taxable income.

Just hours into the New Year, Congress and the president came to a tentative agreement that would extend two important tax provisions-mortgage interest deduction and debt forgiveness on mortgages-a move many real estate experts say may boost the growth of the real estate market in 2013.

The new agreements between President Obama and Congress for 2013 will also allow borrowers to deduct the amount they pay for private mortgage insurance which could very well lead to a reduction in foreclosures and help support the slow rise in home prices over the next year.

Now that we appear to be out of the immediate danger from the expiration of these tax laws, the question still remains: what will happen to short sales without the threat of the fiscal cliff? The truth of the matter appears to be nothing. According to popular trends, shorts sales surged towards the end of the year and some financial experts point out that there is little reason to stop thanks to the streamlined procedures and the more aggressive stance banks are taking when it comes to foreclosures.

Although it's still not known how stable the real estate market will be in 2013, many point out that at least now it's more certain than it was at the end of 2012.

Source: CNBC News, "'Fiscal Cliff' Deal Favors Housing Recovery," Diana Olick, Jan. 2, 2013

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