YOUNGSTOWN, OH – Today, with nearly a quarter of Mahoning Valley mortgages underwater, U.S. Sen. Sherrod Brown (D-OH) called for immediate Congressional action to reverse a tax increase imposed on struggling homeowners that began January 1. Before the New Year, Senate Republicans refused to take up and pass legislation that would have relieved, for one year, the requirement for homeowners to pay taxes on mortgage debt forgiveness resulting from mortgage modifications, or short sales. Unless the plan Brown supports is passed, principal reductions that homeowners receive on their loans through mortgage modifications or short sales will be treated as income by the Internal Revenue Service (IRS)—sticking already struggling homeowners with tax bills that they may be unable to afford.
“With housing markets beginning to recover, we must continue to provide the resources necessary to protect homeownership and strengthen Ohio communities,” Brown said. “Following the holiday season, that includes Congress coming together to take immediate action to pass the Mortgage Forgiveness Tax Relief Act. This critical extension would provide tax relief to individuals who have gone through mortgage modifications or worked with their bank to sell their homes. This is especially important for Mahoning Valley homeowners since nearly a quarter are underwater on their mortgage.”
The Mortgage Forgiveness Tax Relief Act would extend relief originally passed in the Mortgage Forgiveness Debt Relief Act of 2007. The legislation allows homeowners to exclude from annual, reportable income the discharge of mortgage debt owed on their homes. Individuals who receive assistance through the Home Affordable Modification Program (HAMP), the National Mortgage Settlement, the Independent Foreclosure Review (IFR), Ohio’s Save the Dream Program, the recent settlement with Ocwen servicing, or other private agreements with financial institutions to save their home from foreclosure may now face additional tax consequences if the law is not extended.
A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. This often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process because it allows them to avoid foreclosure, which typically involves hefty fees for the bank and poorer credit report outcomes for the borrower(s).
In December 2013, Ohio Attorney General Mike DeWine joined 41 other State Attorney Generals in calling for passage of this critical piece of legislation, with Brown applauding their effort. Joining Brown in his call for action today was Thomas Williams, the former president of the Ohio Association of Realtors.
Brown was also joined by Mahoning Valley homeowner, Hattie Wilkins. After recently being laid off from Delphi, Wilkins fell behind on her mortgage and was forced to begin the foreclosure process. While her bank finally agreed to forgive the $35,000 she still owed, Wilkins now faces a tax increase unless Brown’s bill, the Mortgage Forgiveness Tax Relief Act, passes.
Brown continues to be a champion for Ohio homeowners, working to prevent the housing crisis from undermining economic recovery efforts. In December 2013, Brown held a news conference call to urge leaders in the U.S. Senate and U.S. House of Representatives to pass an extension of the Mortgage Forgiveness Tax Relief Act. Brown also released county-by-county information on the number of Ohio homeowners currently underwater on their mortgage and who potentially face tax penalties in 2014 since Congressional action was not taken.
In January 2013, Brown sent a letter to the Office of the Comptroller of the Currency (OCC) and the Federal Reserve calling on the regulators to ensure that adequate relief is provided to all homeowners who suffered abuses in the foreclosure process, particularly low-income and minority homeowners who may not have filed a claim in the initial IFR process. Brown also asked the OCC and Federal Reserve to continue their work to address abuses in the foreclosure process. Brown called for passage of the Foreclosure Fraud and Homeowner Abuse Prevention Act as well. This legislation would expand access to foreclosure prevention services, while increasing protections for homeowners and investors in mortgage-backed securities.