U.S. Senator Debbie Stabenow today introduced the Homeowners and Military Families Tax Fairness Act that would ensure homeowners who were wrongfully foreclosed upon would not face a tax increase as the result of a settlement reached earlier this year. The settlement with the nation's five largest mortgage banks led to the banks offering families compensation to make up for unlawfully foreclosing on them. Under current law, this settlement relief would be considered regular income for families, forcing homeowners to pay additional taxes after already enduring a wrongful foreclosure.
"It is bad enough that so many families were taken advantage of and were wrongfully foreclosed on," said Stabenow. "But to add insult to injury, the IRS would require these homeowners to pay hundreds or thousands of dollars in additional income tax as a result of their settlement. That's wrong, and this bill would fix that."
Stabenow's bill would also prevent the banks involved in the agreement from being able to write settlements offered to active duty U.S. servicemembers off of their taxes. Under current law, men and women in uniform have special protection against foreclosure to ensure that their families are not evicted while they are fighting for their country. Stabenow's bill ensures that banks aren't able to get a tax break in the cases where they settled with military families on whom they wrongfully foreclosed.
"Protections are rightfully in place to keep military families from being evicted while one or both parents are serving our country," Stabenow said. "Banks who mistreated veterans should certainly not be allowed to take a tax break for doing so."
Earlier this year, the Federal Government and 49 State Attorneys General reached a $25 billion settlement with the nation's five largest mortgage servicers to provide funds to victims of mortgage loan servicing and foreclosure abuses. Among the abusive practices pointed out in the settlement were robo-signing of affidavits, deceptive practices in loan modifications, and misconduct in the foreclosure process-ultimately resulting in banks allegedly foreclosing on homeowners unlawfully. In addition to supporting victims of unfair foreclosure practices, the settlement will provide enhanced loan modifications and support housing counseling and state-level foreclosure prevention programs. More information on the settlement can be found at www.nationalmortgagesettlement.com.
Senator Stabenow's Homeowners and Military Families Tax Fairness Act would exempt this settlement relief from being counted as income, and ensure that no extra taxes are imposed on homeowners who were the victims of fraud or other abuses. Stabenow's bill would also extend the private mortgage insurance deduction, which helps enable first-time and low- and moderate-income borrowers to purchase homes.
In March, Stabenow introduced similar legislation called the Mortgage Relief Act that would ensure that underwater homeowners, who owe more on their mortgages than their homes are now worth, would not be burdened with additional income tax if a part of their mortgage loan is forgiven. The IRS formerly considered any loan forgiveness provided to homeowners as income, meaning families already under water would pay thousands of dollars in income tax for phantom income that isn't actual money a family is earning. Stabenow wrote and passed legislation to fix this problem in 2007, but the legislation will expire this year if Congress does not act.