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November 28, 2012

AG joins call for extension of homeowner tax break

By James McCarthy

Maine Attorney General William Schneider and 42 of his counterparts across the country have asked congressional leaders to extend a key tax-relief provision they say is needed to further help homeowners benefiting from a national mortgage settlement reached earlier this year with five major mortgage servicing banks.

Under the terms of the National Mortgage Settlement signed in February, five of the nation's largest banks — Ally, Bank of America, Chase, Citi and Wells — agreed to provide $17 billion in debt reduction and other relief to homeowners. Under the 2007 federal Mortgage Debt Relief Act, mortgage debt that is forgiven after a foreclosure or short sale ... to a homeowner in financial hardship may be excluded from a taxpayer's calculation of taxable income.

That exclusion, which only applies to primary homes, is due to expire on Dec. 31.

The Nov. 20 letter signed by the attorneys general raises concern that if Congress allows that tax exclusion to expire, "all of the remaining debt relief to be provided in 2013 under the National Mortgage Settlement, as well as other mortgage debt relief programs, will likely be considered taxable income." Failure to extend the tax exclusion will result in $1.3 billion "in tax increases on the very families who can least afford it," the letter concludes.

In Maine, according to a Nov. 19 report filed by settlement monitor Joseph Smith of the Office of Mortgage Settlement Oversight, as many as 544 borrowers have received almost $25.7 million in relief and benefits from the five major banks that signed the settlement. Relief for another 184 Maine borrowers is "in process," according to the state.

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