There are so many comforting and well-known phrases based on a homestead – home sweet home, home is where the heart is, there’s no place like home – the list goes on. Why? Because home is a safe place, at least it should be.
When the Central Valley experienced one of the worst housing market collapses in California’s history, however, home suddenly wasn’t such a safe place to be anymore.
For thousands of homeowners, the collapse caused their American dream – homeownership – to quickly turn to nightmares. Far too many people, responsible people with jobs, families and other obligations, lost their homes. Others were forced to short-sell or refinance. The collapse hurt not only these homeowners, but also our entire Central Valley.
While we continue to slowly rebound from the devastating effects of California’s housing market collapse, under current law the individuals who received home loan modifications are required to report the amount of debt forgiven by a lender due to a principal reduction as taxable income.
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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?
Previously, California law provided homeowners who received a principal reduction the same tax relief provided by the federal Mortgage Debt Relief Act of 2007. Since the state law expired in 2013, California homeowners will owe state income tax on the amount of forgiven debt. According to the California Monitor, an agency that tracks progress on the national mortgage settlement for the state attorney general’s office, the state’s three largest servicers provided more than 84,000 Californians principal reductions, forgiving more than $9 billion in mortgage debt from April 2012 through August 2013.
That’s why I introduced Senate Bill 339, legislation that will make state law conform to federal law while providing tax relief for homeowners who received home loan modifications in 2013.
The bill is sponsored by the California Bankers Association, one of the largest state banking trade associations in the country, and has received bipartisan support with Assemblyman Adam Gray, D-Merced, as principal co-author. For the counties of the 12th Senate District, SB 339 will provide much needed tax relief for 3,500 mortgages that have received modifications from the state’s three largest servicers, reflecting nearly $400 million in principal reductions.
SB 339 will prevent thousands of Californians from being forced into a higher tax bracket because of forgiven mortgage debt, debt forgiven and agreed upon by a lender during the loan modification process.
I believe these binding agreements should protect the borrowers from being penalized on their state income taxes.
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.