Foreclosure of principal residence and DOI income.

• Author: Young, Patrick L.
• Position: Discharge of income

Certain taxpayers who have financial difficulties due to the current downturn in the economy may be eligible to request forbearance from foreclosure on their residence (Section 4022 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, RL. 116-136). To be eligible, the mortgage must be a federally backed mortgage loan:

* Insured by the Federal Housing Administration under Title II of the National Housing Act;

* Insured under Section 255 of the National Housing Act;

* Guaranteed under Section 184 or 184A of the Housing and Community Development Act of 1992;

* Guaranteed or insured by the Department of Veterans Affairs;

* Guaranteed, insured, or made by the Department of Agriculture; or

* Purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.

Borrowers must be experiencing a financial hardship due, directly or indirecdy, to the COVID-19 emergency. Borrowers must submit a request to their servicer and affirm that they are adversely affected by the COVID-19 emergency. The forbearance shall last for 180 days and may be extended an additional 180 days, although the borrower may request a shortened period. During forbearance, no additional fees, penalties, or interest may be charged beyond the interest that would have been charged if the borrower made all payments in a timely manner. In addition, unless the property was vacant or abandoned, the mortgage servicer could not instigate foreclosure proceedings from March 18,2020, through May 17,2020.

Excluding income from debt discharge

Taxpayers can exclude from gross income a discharge (in whole or in part) of qualified principal residence indebtedness before Jan. 1,2021 (Sec. 108(a)(l)(E)(i)).The exclusion will also apply to certain discharges in 2021 if the indebtedness is discharged subject to an arrangement that is entered into and evidenced in writing prior to Jan. 1, 2021 (Sec. 108(a)(l)(E)(ii)). Indebtedness is subject to an arrangement that is entered into and evidenced in writing prior to Jan 1,2021, if (1) before that date, the mortgage servicer sends the borrower-homeowner a notice outlining terms and conditions of modifications; (2) the borrower-homeowner satisfies the conditions; and (3) the borrower-homeowner and servicer enter into a permanent modification of the mortgage loan on or after Jan. 1,2021 (Notice 2016-72).

The exclusion applies where taxpayers restructure their acquisition debt on a principal...