Mortgage Debt Relief Act Expires

Laying Down the Law

Charles, Christopher updated
By Christopher J. Charles, Esq.


Perhaps a sign of the real estate recovery, six years after the market crash, the 2007 Mortgage Debt Relief Act (the “Act”) has finally expired. Although the Act had already been extended twice[1], many remained hopeful – including Attorney General Tom Horne and the Attorney Generals from 41 other states – that Congress would extend the Act for another year.[2]

The Act provided a windfall for borrowers who experienced a short sale, loan modification, or foreclosure of their principal residence by exempting any mortgage debt forgiveness from their taxable income. The goal was to spare down-on-their luck homeowners insult from injury.

As discussed in the June 2013 edition of the Arizona Real Estate Journal, “How to Minimize or Eliminate Tax Liability Regarding Mortgage Debt Forgiveness, the end of the Act will have minimal impact in Arizona. Most borrowers are protected from mortgage debt forgiveness tax by the “non-recourse” exception, the insolvency exemption, or can claim a capital loss if the property was an investment property.

For an in depth look at strategies to minimize or eliminate tax liability for mortgage debt forgiveness, you can download a free mortgage debt forgiveness tax manual or you can watch my free seminar on this topic on my webpage under the “Current Events” tab at

Still rumors abound that the Act will be extended yet again, retroactively to the end of last year. Many believed that the Act’s extension would be included as legislation within the colossal $1.1 trillion spending budget that was passed by both houses last week. But no such luck.

As of the date of this article, there are at least three bills pending in Congress to extend the Act: H.R. 2788 (seeks to extend the Act for another year); H.R. 2994 (seeks to extend the Act for two more years); and S.1187 (seeks to extend the Act for two more years). All three of the bills would have an effective date of December 31, 2013, effectively preventing the Act from ever expiring.
Relying on Congress to act is rarely a prudent strategy. A better approach is to “hope for the best but plan for the worst.” If you or someone you know would like to discuss legal strategies to “plan for the worst,” please call our office today to schedule an appointment.


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Christopher Charles is an experienced real estate lawyer and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS® (the “AAR”). He has an “AV Preeminent” rating by the Martindale-Hubbell Peer Review Ratings system, which connotes the highest possible rating in both legal ability and ethical standards.


He is a Partner with the law firm Davis Miles McGuire Gardner, PLLC where he serves as the chair of the Real Estate Practice Group. Mr. Charles is an Arbitrator and Mediator for the AAR regarding real estate disputes; he serves on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions.


Mr. Charles is a licensed real estate instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. For a list of upcoming speaking engagements, please visit He can be reached at


Christopher’s company website:


[1] The Act was originally scheduled to expire in 2010 but was extended through 2010. Seeing no sign of recovery, Congress extended the Act through the end of 2012 and then extended it yet again through the end of 2013.


[2] On December 19, 2013, the Attorney Generals from 42 states wrote an open letter to Senator Harry Reid and other members of the House and Senate urging them to extend the Act for another year. The Attorney Generals argue that the housing “recovery is still slow and uncertain” and that the expiration of the Act will undermine any housing recovery.