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The Difference Between the Mortgage Forgiveness Debt Relief Act of 2007 and State Anti-Deficiency Laws
A week or so ago, I wrote a post detailing the Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA) because I'd read a number of posts where the authors confused the MFDRA with their state's anti-deficiency laws. That post was lost when AR timed out on me when I went to publish the post.
If you want to get the information from the horse's mouth (the IRS) here's a link to the IRS publication regarding the MFDRA. I'm summarizing it below.
The main difference between MFDRA is who is providing the protection. MFDRA is federal law and applies to your federal income taxes. Anti-deficiency laws vary state by state and protect the borrower from the lender holding them liable for the deficiency (the difference between the amount owed and the actual sale price) in a short sale or foreclosure.
What is the MFDRA 2007
As a response to the mortgage and credit crisis, Congress passed this Act in late December of 2007  It generally, permits a taxpayer to exclude the forgiveness of cancellation of certain debt from counting as ordinary income on their federal taxes if the property at issue is the taxpayer's principal residence. Cancellation or forgiveness of debt usually occurs ... more

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