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(Toledo News Now) -
With more than 33 percent of Lucas County mortgages underwater, U.S. Sen. Sherrod Brown is calling for immediate Congressional action to reverse a tax increase imposed on struggling homeowners that began Jan. 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 - sticking already struggling homeowners with tax bills that may be unaffordable.
"With housing markets beginning to recover, we must continue to provide the resources necessary to protect home ownership 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. Since 33 percent of Lucas County homeowners are underwater on their mortgage, this is especially important for those living in greater Toledo."
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, the National Mortgage Settlement, the Independent Foreclosure Review, 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.
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 Friday was Christopher Hall, president-elect of the Ohio Association of Realtors and Megan Meyer Foos, CEO of the Toledo Board of Realtors.
"The Mortgage Cancellation Tax Relief Act was a real lifeline to drowning homeowners," Hall said. "Pulling that lifeline away just because the waters are receding slightly seems a cruel gesture to the very people who need that lifeline. Congress needs to approve the authorization, both quickly and retroactively. Let's keep the progress going forward in the housing industry."
"While the Lucas County housing market is starting to bounce back from the difficulties caused by the economic downturn, home sales were up 6 percent, the average sales price was up 20 percent and total volume was up 28 percent over 2012. We continue to face many challenges on the path toward recovery," Meyer Foos said. "Over the past year, nearly 23 percent of the homes in Ohio have been distressed short-sale or foreclosure. Further, nearly 19 percent of Ohioans currently owe more on their mortgage than the home is worth. We're hopeful that Congress will approve the reauthorization of the Mortgage Forgiveness provision in order to protect homeowners in Lucas County and across the nation from facing a tax bill after an economic loss on what, for most, is their most valuable asset."
Also joining Brown were Toledo residents, Sharon and Jerry Nyitray, who hosted the press conference at their house Friday morning. After job changes and medical costs forced them to modify their mortgage and now proceed to a short sale, the Nyitrays are significantly at risk of seeing their taxes increase, but would benefit from Brown's legislation.
"I would like to say that if this extension does not pass, I am not sure how we will survive financially," Sharon Nyitray said. "After 34 years of marriage and working, and my husband working two jobs while we raised three children, it sure doesn't seem fair."
Brown continues to work for Ohio homeowners, trying 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. He 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 and 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.