In California, Sen. Anthony Cannella (R-Ceres) on Feb. 18 rolled out legislation designed to protect distressed homeowners from inflated tax bills as a result of mortgage workouts that erased some of their debt.
Before it expired last year, the state's homeowners previously received tax relief on principal reductions; but, now, they must report the difference between their old and new outstanding balance as taxable income. Without action by lawmakers, thousands of borrowers in the state who have already been slammed by the recession could be hit with bigger tax obligations. "SB339 will ensure that state law conforms to federal law, and families who have had their mortgage restructured will not be penalized," said Cannella, who is co-sponsoring the bill with Assemblyman Adam Gray (D-Merced).
The proposal has garnered support from both political parties as well as from the California Bankers Association.