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Bailout

: Calculated Risk

Afternoon Reading: Taxes on Short Sales, More Delinquencies, TARP Fraud

By Anonymous

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Carolyn Said at the San Francisco Chronicle writes: Short sale tax shortchanges ex-homeowners (ht picosec)

California legislators last week passed a bill that ... mirrors a federal law that excludes "forgiven debt" on a principal residence from being considered taxable income. It covers short sales, foreclosures, deeds in lieu of foreclosure and loan modifications that reduce the principal due.
However, Gov. Arnold Schwarzenegger, who has until March 23 to sign the bill, indicated that he is likely to veto it based on an unrelated provision regarding tax fraud.
...
When the foreclosure crisis started, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007 so foreclosed homeowners would not be liable for their canceled debt. It is in force through 2012. California had a similar law, but it expired at the end of 2008, leaving Californians who lost their homes in 2009 potentially liable for big state tax bills.
...
Tax experts advise people who lost their homes in 2009 to file for an extension in hopes that California will rectify matters.

It is important to remember the Federal exemption only applies to "money used to purchase, build or fix up a home". That exemption makes sense - and California will probably fix the current tax law.

However the exemption doesn't apply to those who used the Home ATM for toys or trips ... that debt forgiveness is taxable by both the federal government and the state.

From Diana Olick at CNBC: Loans Going Bad Faster Than the Fixes

Lender Processing Services put out its Mortgage Monitor report today, and the numbers are really staggering.
Loans delinquent/in foreclosure process: 7.5 million
REO/Post-sale foreclosure: 1 million
Loans that were current 1/1/09 and 60+ days delinquent 1/1/10: 2.5 million
That last one is interesting, because it shows how much faster loans are going bad than are being modified.
...
Tomorrow on CNBC we're going to devote a full day to the current state of the housing market, from what has failed to what is promising on the horizon.

From Reuters: Ex-NY bank president first accused of TARP fraud

The former president of New York's privately held Park Avenue Bank was arrested and charged on Monday ... A 10-count criminal complaint accused Charles Antonucci of devising "an elaborate round-trip loan transaction" that he told others was his own $6.5 million investment in the bank, misleading state bank regulators and the U.S. Federal Deposit Insurance Corporation (FDIC).
...
"Antonucci is the first person ever to be charged with attempting to defraud the TARP and we expect he will not be the last," Manhattan U.S. Attorney Preet Bharara said at a news conference.

Full post as published by Calculated Risk on March 15, 2010 (boomark / email).