California legislature holds short sale clients hostage
- Theresa Grant
- May 28, 2013
- 3 min read
As the housing economy starts to rebound in California, it would appear that some members of our legislature doesn’t understand that there are still hundreds of thousands of homeowners in some kind of economic distress throughout the State and there’s no “rebound” for their income to miraculously save the day. On top of that, California is the host of San Bernardino County, one of the top Counties across the entire United States that was hit the hardest for foreclosures since 2007. Apparently the legislature is believing the media’s hype about an “exciting real estate recovery nationwide” instead of understanding that real estate is local, and bound to local employment, local schools, local services — which means local neighborhood values, not nationwide values.
SB30 extends current state law that prohibits short sale sellers from paying income tax on the forgiven debt incurred. In other words, if you owe $100,000 on your home, and you have an approved short sale at $75,000, the difference of $25,000 is forgiven debt which translates by law to income; you gained $25,000 that you don’t have to pay back and, therefore, should pay taxes on it. If SB30 does not pass then short sale sellers will be in an even further crippling spiral of debt, adding more injury to our economy. If you don’t have the money to pay your mortgage, where is the money going to miraculously come from to pay taxes on money you never received? It’s a transfer on paper, it’s not “real money”.
The bill itself isn’t the issue – it’s that in a last-ditch move, some politicians that we’ve actually elected to represent us have tacked on SB391 as a link to SB30. SB391 requires additional real estate taxes whenever a property changes title or a loan is secured on a property – quitclaim deeds to clear up title issues, for example, if you own a property and you marry and add a spouse to the deed, or if you refinance an existing mortgage. You will be taxed again, and again, and again, on property you already own and pay taxes on, if you do anything to the title or financing of the property.
Let’s get this straight. You want to link a bill that requires sellers to pay MORE real estate taxes in the form of new legislation, to the extension of an existing bill that already negates taxes for short sale sellers.
“Families that are forced to make the difficult decision to sell their home as a short sale are already in financial trouble. And, that financial trouble may be due to a serious illness and/or loss of employment. They simply can’t afford to pay an additional tax on money they’ve never actually received,” stated C.A.R. President Don Faught. “I’m outraged — as should the voters of California — that the Senate leadership would approve linking the fate of SB 30 to that of SB 391, effectively holding California property owners hostage.”
Here’s how it works: The population of an area determines how much revenue you get for taxes. If your population goes down, your existing tax base shrinks, which means you either need to lure people back to the tax base or you raise taxes, driving away more of your tax base.
Meanwhile, in this obvious move to grab more money from the existing property owners, the legislature holds the very real economic future of existing and future short sale sellers hostage. What would be more advantageous – short sale and (in theory) pay taxes on money you never had to begin with, and have a short-term credit impact, or go to foreclosure and walk away without paying a dime and have a longer term credit impact? Would you stay in California? Would you BUY in California? Which is financially more healthy not only for the individual but also for the State?
If ever a bunch of politicians wanted to make California even less hospitable for homeownership and helping the economy recover, this is a great start.
Whether or not you think an additional tax for real estate transactions is a good thing, it should not be tied to a bill that is so desperately needed to help give financial relief to those who need to do a short sale. This is a sucker-punch. It’s not good business, it’s not good politics, it’s not good ethics, and it surely is not good stewardship for California.
Contact your representative today and tell him or her to get this situation unraveled and back on track. To find out who your State representative is, go to http://findyourrep.legislature.ca.gov/ .
To read more about the impact of SB30 and SB391, see Amendment holds SB 30 hostage to passage of SB 391 .
Theresa Grant is a certified SFR through the National Association of Realtors, and is trusted by 21 banks and financial institutions with their Real Estate Owned inventory. She is also individually certified as a Short Sale Preferred Agent (or equivalent) with Chase, Citi, Wells Fargo, and Bank of America. Theresa can be reached at (909) 336-7933.
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