California short sellers to pay tax on mortgage debt

Govenor Schwarzenegger last week vetoed a bill that would have prevented California homeowners who sold their homes via short sales or received loan modifications in 2009 from being taxed on the forgiven mortgage debt.  Schwarzenegger vetoed the bill, which would have aligned much of the state's tax code with that of the federal government's, because it contained an unrelated provision regarding tax refunds for the state's largest businesses.  Although the govenor vetoed this particular debt, and immediately called for the legislature to send him a bill to provide tax forgiveness prior to the April 15 tax-filing deadline.

C.A.R. currently is supporting two stand-alone measures, AB 1779 (Niello) and SB 14 (R. Calderon and L. Correa) of the Sixth Extraordinary Session, that would fully conform to the federal rule extending "phantom" income debt forgiveness through December 31, 2012.

Click here to read about it more.


HAMP adjustments may help struggling homeowners

The Obama Administration on Friday announced adjustments to the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) program to assist homeowners struggling to meet their mortgage obligations.  The program adjustments target three groups: unemployed homeowners who are unable to make their mortgage payments; underwater homeowners; and homeowners behind on their payments and seeking loan modifications.

Unemployed homeowners may qualify for three to six months of reduced payments while searching for new employment.  During this time, payments will be reduced to 31% of their current gross monthly income.To qualify, borrowers must, among other things, be living in their homes, have loan balances less that $729,750, provide verification of unemployment benefits, and request assistance within 90 days of delinquency on the mortgage.

Underwater homeowners- those who owe more than their home currently is worth- may be eligible for a new FHA refinance option that will allow those who are current on their mortgage payments to refinance their mortgages into new FHA- insured loans equal to no more than 115 percent of their home's current value.  The difference between the original loan balance and the new balance gradually will be forgiven if the homeowner remains current on payments for three years.

Homeowners seeking mortgage modifications under HAMP may be eligible for mortgage principle reductions.  Although lenders always have had the option to do so, many have chosen instead to reduce interest rates.  However, under the new guidelines, lenders reducing mortgage principle may receive higher financial incentives.  The incentives will be paid jointly by the private sector and the federal government through a $50 billion allocation from the Troubled Asset Relief Program (TARP) 

The program changes are expected to go into effect in the fall.  However, a measure to offer larger incentives to lenders who facilitate short sales or deeds-in-lieu of foreclosure, as well as assistance for unemployed homeowners, will be in place within a few weeks or months, according to the administration.

Click here to read about these new incentives.


Federal tax credit update.

Time is running out on the federal tax credits for first-time and repeat buyersFirst-time buyers who enter a binding contract by April 30 and close escrow before July 1- and meet the income limits- are eligible for the full $8,000 credit (maximum, or 10% of the sales price, ehcihever is less) on their federal tax returns.  The first-time home buyer credit applies to homes purchased for $800,000 or less, and does not require repayment if buyers live in the residence for three or more years.

Existing homeowners may be eligible for a tax credit (10% of the purchase price, not to exceed $6,500).  To be eligible for this credit, homeowners must have lived in their current home for five consecutive years out of the last eight years and must enter a contract to purchase a new or existing home by April 30, 2010.  Existing homeowners do not need to sell their current home to qualify for this credit, but must close escrow before by June 30, 2010.  For complete details on these credits, qualifications, income levels and income phase-outs, visit "Legal Q&As" at

Please note that "Tax Credits Set to Expire," an article which appeared in the March/April issue of "California Real Estate" magazine, is available in downloadable format here.

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