California Senate Leadership seeks to punish homeowners and REALTORS® for opposing $75 recording tax

LOS ANGELES (May 23) – This morning the Senate Appropriations Committee approved Senate Bill 30 (R. Calderon), which would extend existing provisions of state law protecting homeowners from having to pay income tax on a "short sale."  SB 30 is sponsored by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
However, in a surprise amendment, SB 30 was linked by the committee to another bill that REALTORS®, as well the county recorders, assessors and title industry, oppose.  That measure, Senate Bill 391 (DeSaulnier), would establish a $75 per document recording tax to fund an affordable housing trust fund.  C.A.R. is opposing SB 391 because it unfairly adds to the cost of recording real estate documents.  The amendment holds SB 30 hostage to the passage of SB 391.
"Families that are forced to make the difficult decision to sell their home as a short sale are already in financial trouble.  And, that financial trouble may be due to a serious illness and/or loss of employment.  They simply can’t afford to pay an additional tax on money they’ve never actually received," stated C.A.R. President Don Faught.  "I'm outraged -- as should the voters of California -- that the Senate leadership would approve linking the fate of SB 30 to that of SB 391, effectively holding California property owners hostage."
Short sales have become an increasingly important alternative to foreclosure for homeowners "underwater" on their mortgage.  Without special protection, federal and state law would view the debt forgiven by a lender in a short sale as income and, as a result, that “income” would be taxed.  In recent years, state and federal law has been amended to keep this “phantom” income from being taxed, but California protections have not been extended.  Consequently, C.A.R. is sponsoring SB 30.
While SB 391 does not apply to sale transactions, the measure applies anytime a home/property owner records a document (e.g., refinancing, transferring into or out of a trust, liens, quit claim deeds, etc.).  C.A.R. is an aggressive advocate for affordable housing, but believes it is bad policy to fund affordable housing at the expense of home/property owners who need to record real estate documents.  The amendment to SB 30 attempts to extort support for the new tax on homeowners in SB 391.

Fewer Borrowers Are Falling Behind!

In March, for the first time since 2008, the number of U.S. mortgages that were behind on their payments or in foreclosure  fell below the 5 million mark , according to a report released Tuesday.

The number of loans in the foreclosure process fell to just below 1.69 million in March, the lowest level in nearly four years, according to Lender Processing Services. That was down by almost 20% from one year ago. Overall, around 3.4% of all U.S. mortgages were in foreclosure at the end of March, down from 4.2% a year ago.
Foreclosures have been falling because fewer borrowers are falling behind on their payments and because banks have been more aggressive about modifying loans or approving short sales, where properties are sold before the bank completes foreclosure.
Another almost 3.31 million loans were behind on their payments in March, with around 1.47 million of those that had missed at least three payments. The level of delinquent loans was down by 3% from a year ago, with around 6.6% of all borrowers in some stage of delinquency, excluding those in foreclosure.
Delinquencies tend to fall in March because homeowners use year-end bonuses and tax refunds to help catch up on their mortgages.
Before the housing crisis, around 5% of borrowers were delinquent on their mortgages and another 1% of loans were in foreclosure. The latest data show that while delinquencies and foreclosures are moving in the right direction, it’s probably going to take a few more years before delinquencies and foreclosures get back to pre-crisis levels.

By Nick Timiraos

Follow Nick @NickTimiraos

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Great News!!!!!!

The Mortgage Forgiveness Debt Relief Act has been extended for another year.  The measure will continue to exempt from taxation mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale, loan modification (including any principal reduction) or foreclosure.  
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Good news for homeowners facing foreclosure!!

Fannie Mae and Freddie Mac announced Monday that they will suspend all repossessions from Dec. 17  until Jan. 2, 2013.

"The holidays are a chance to be with loved ones, and we want to relieve some stress at this time of year," said Terry Edwards, Executive Vice President of Credit Portfolio Management, Fannie Mae.

Bank of America said it will also suspend foreclosure evictions both for loans it owns and for those it services for investors during the holiday. Still waiting for JPMorgan Chase, Wells Fargo and Citibank to announce their holiday intentions.

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Bank Of America Makes Short Sales A little Faster

Bank Of America recently announced it will begin to use additional methods to determine property values in an attempt to streamline the short sale process and reduce cycle time.  As of mid-October, different valuation methods that do not require access to the property will be implemented on some transactions.  This will reduce the time frame for the valuation stage from several weeks to a few days.

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End Is Nigh For Certain Tax Exemptions

Currently, any debt forgiven by a lender in a short sale, loan modification, or foreclosure is
exempt from federal taxation. However, that exemption is scheduled to expire Jan. 1, 2013.    Borrowers will have to count mortgage relief from lenders as income on their federal tax returns, if the exemption is allowed to expire. That means, for example, a borrower
would have to pay taxes on a $100,000 reduction in principal owed on a loan, or a
$20,000 write-off in the amount owed after a short sale.

 An extension of the tax exemption – established under the Mortgage Forgiveness Debt
Relief Act of 2007 – is a strong possibility. But given that Congress will have to grapple
with serious fiscal issues after the November elections, there is no guarantee the
exemption will emerge from those negotiations intact.

 The Debt Relief Act exemption applies only to canceled mortgage debt used to buy,
build, or improve a primary residence, not a second home. The maximum exemption is
$2 million.

 Reinstating the tax would undercut the the effect of the National Mortgage Settlement
reached earlier this year in the federal government’s investigation into banks’
mishandling of foreclosure documents.

 Under the terms of the settlement, five of the biggest mortgage lenders must put some
$17 billion toward debt relief that enables borrowers to stay in their homes. Smaller
portions are reserved for short sales and refinancing.

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