Prior to 2013, Californians who received a principle reduction in their home loan also were allowed some tax relief from the federal Mortgage Debt Relief Act of 2007. The expiration of that law means homeowners are now required to pay taxes on the amount of debt forgiven.
The recent housing market collapse was one of the worst in California’s history. Thousands of homeowners struggling to provide for their families, and many struggling to find employment, lost their homes to foreclosure. Many sold short or received some loan modification assistance. When the housing market collapse occurred, it hurt not only the individual homeowners, but also the entire economy of the state.
An unnecessary and severe tax burden
Sen. Anthony Cannella wants to protect loan modification recipients from being penalized on their state income taxes by passing SB-339 Sen. Cannella is representative for the 12th California Senate District. His district includes parts of Merced, Stanislaus, Madera and San Benito counties. Passage of SB-339 will prevent these homeowners from being forced into a higher tax bracket. It will aid the homeowners who are still working to get their heads above water financially and will benefit the overall economy.
In an opinion column for the Merced Sun-Star, Sen. Cannella says, “I believe taxing these hardworking, responsible homeowners who are making every effort possible to stay in their homes is counterproductive. Why should we punish people who are trying to make ends meet?” He goes on to say, “For many Californians there really is ‘no place like home,’ and this legislation will ensure homeowners still recovering from the housing market downturn can remain in their homes and continue to pay their mortgages without being penalized for doing the right thing. And for the betterment of the entire state economy, this is simply the right thing to do.”
Assemblyman Adam Gray is the principal co-author of SB-339. The California Bankers Association also supports it and is one of the biggest state banking trade associations in the nation.
Many are still struggling as housing market recovers
More than seven million homes have fallen into foreclosure since 2007. There are alternatives and Money Tips that can help. Loan modification programs like the Home Affordable Refinance Program (HAMP) and Home Affordable Refinancing Program (HARP) are helping thousands of Americans stay in their homes and avoid foreclosure. Homeowners who purchased their homes with Fannie Mae, Freddie Mac, FHA, or VA loans may be eligible for a loan modification.
Since it began in 2009, HAMP has provided permanent loan modification to more than 1.3 million borrowers. Unfortunately, about 350,000 have defaulted on those loans and have either been evicted or are facing the possibility of foreclosure and eviction. While the one million homeowners who remain on the HAMP program are evidence of the good that these loan modification programs can do for individuals and the overall economy, the almost 30 percent failure rate of the program shows that more can and needs to be done.
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