Homeowner Legislative Update

Homeowner Tax Proposal Abandoned – updated 6/1/14

The proponents of a bill that would have imposed a new tax on homeowners has declared defeat and has abandoned the bill for the year, vowing to try again next year. The bill would have created a tax that would be imposed on homeowners who need to record certain documents with their counties This $75 per document tax would have been imposed on a variety of documents, which would include, for example, documents related to refinancing properties, taking properties in and out of trusts, making lot line adjustments, obtaining constructions loans and upon the death of a spouse. The tax also would have applied to foreclosures (the owner would be responsible, not the lender) and filing mechanics liens. For instance, it’s not untypical in a refinance, for six documents to be subject to the new tax, resulting in a tax of $552, in addition to current recording fees. If a spouse dies, up to five documents need to be recorded, creating a tax of $440 on top of existing recording fees.

The California Association of REALTORS® is opposing this bill.

 

IRS Further Clarifies Stance on Forgiven Debt in a Short Sale – updated 6/1/14

Last fall, the IRS and the state Franchise Tax Board issued letters stating that California families who have sold their home in a short sale are not subject to either state or federal income tax on the forgiven debt. Recently, the IRS, claiming that its original letter had been “too broad,” issued another letter to clarify that under some circumstances (e.g., cash out equity lines)  the debt forgiven in a short sale is still taxable. Homeowners who have sold their home in a short sale are strongly urged to consult with a tax professional to determine what, if any, tax they owe.

In a short sale, homeowners sell their homes for less than what is owed. If a lender agrees to the sale, the lender is forgiving a certain amount of the loan principal. Before these clarifications, requested by Senator Barbara Boxer and Board of Equalization Member George Runner on behalf of the California Association of REALTORS®, it was not entirely clear that homeowners wouldn’t lose their homes and then be faced with a large tax bill as well. Homeowners with questions about taxes and short sales should contact their tax professionals.

Mortgages to Remain More Affordable – updated 6/1/14

The Federal Housing Finance Agency (FHFA), the federal agency that sets the maximum mortgage loan limit for what are called “conforming” loans, typically the most common and often the most reasonably priced loans. “Conforming” loans are those loans that meet certain federal guidelines and therefore enjoy the benefit of lower interest rates. The vast majority of mortgage loans – over 64% of mortgage loans obtained nationally – are “conforming” loans.

Late last year, the previous Acting Director of FHFA had indicated that the agency would be substantially reducing the loan limits, forcing many home buyers to obtain loans with higher interest rates. The National Association of REALTORS® and the California Association of REALTORS® both aggressively fought the proposal.

In the last few weeks, Melvin Watts, the new Director of FHFA, has announced that the agency will not be reducing the loan limits, helping make homeownership accessible to more families.

Legislature Proposes Limits on Going out of Business – updated 6/1/14

Existing law prevents local governments from forcing rental property owners to continue in the rental business. SB 1439, a bill proposed by Sen. Mark Leno of San Francisco, would require that a rental property owner have owned the property for five years before the property can be converted to another use. For instance, if a homeowner owned an apartment building and needed to move aging parents into a unit, they would be unable to do so unless they had owned the property for at least five years. SB 1439 does not take into account individual families’ financial or personal circumstances. SB 1439 was recently passed by the state Senate and now will be considered by the Assembly. The California Association of REALTORS® is fighting this attack on private property rights.