Short Sale Home Owners: Please Help
I try to keep this blog non-political but this is something that is very important to me and I need your help.
The federal government enacted the Mortgage Debt Relief Act of 2007 effectively excusing borrowers from income tax on debt forgiven in a “short” sale. In late 2008, the federal government extended this relief until December 31, 2012. California conformed to the federal law for state tax purposes. On December 31, 2012, Congress passed budget solutions in an attempt to avoid the “fiscal cliff.” Included in this measure was an extension of the income debt forgiveness sunset date to December 31, 2013; however, California has NOT conformed to the new federal extension. C.A.R. is sponsoring SB 30, to extend this relief in California law to December 31, 2013, and make state law retroactive to January 1, 2013.
Unfortunately, Senate leadership, in an act of political gamesmanship, has linked the enactment of SB 30 to SB 391, an unrelated new recording tax. SB 391 does not have the support necessary to pass on its own merits, so they are holding distressed homeowners hostage to promote the tax increase. These are real families in real financial need who may well be forced into bankruptcy by an irresponsible legislature.
Here’s why SB 30 is critical to California:
- Distressed homeowners are faced with a no-win situation — either pay taxes on money they don’t get or let the home go to foreclosure. Distressed homeowners often only have two choices – closing a short sale or allowing their home to be foreclosed upon. If they fear state income tax liability on their short sale, they will opt for foreclosure instead in order to avoid state tax liability. Foreclosures are bad for communities, bad for homeowners and damage housing values more than short sales.
- Families deserve to know if they will be taxed. Homeowners currently in short sale negotiations can’t finalize these transactions without potentially incurring state tax liability. Sellers who are involved in short sales or contemplating a short sale need to know now that the debt forgiven is not going to be treated as income for state tax purposes.
- It’s the right thing to do. Families who have already been forced this year to make the difficult decision to sell their home as a short sale are already in financial trouble. They simply should not have tax liability on “phantom” income or debt forgiveness – money they’ve never actually received.
How you can help
Please contact Chairman Mike Gatto and ask him to support SB30. You can send a twitter message, check out www.twitter.com/CatherineValent for a sample that I tweeted. Send him a message via Facebook at www.facebook.com/mikegatto. The message will go into his Other Folder rather than his timeline but at least he will get the message. Call him at 800-969-3420 PIN 3043 and ask him to support SB30.
Doing the right thing only takes a few moments but can mean a lot to your fellow Californians. Thank you.