HARTFORD, CT - Attorney General George Jepsen praised Wednesday congressional efforts that extended tax relief for another year to consumers who have mortgage debt canceled or forgiven because of financial hardship or a decline in housing values.
“Mortgage modification and debt relief programs are providing real relief to homeowners in Connecticut and across the country who are fighting to keep their homes or trying to get back on their feet,” Attorney General Jepsen said. “This critical action by Congress means that the very families who can least afford it are not stuck with an unexpected tax bill.”
Jepsen led a national effort by state Attorneys General to extend the exclusion, which had been set to expire on Dec. 31. With Florida Attorney General Pamela Bondi, Jepsen co-authored a letter which was signed in support by 40 other Attorneys General and sent to congressional leaders in November.
The American Taxpayer Relief Act of 2012, which Congress passed and President Obama signed into law on Tuesday, Jan. 1, extended favorable tax treatment for borrowers who have mortgage debt cancelled through principal reduction or as a result of short sale or other debt forgiveness.
Under this provision, up to $2 million of forgiven debt is eligible to be excluded from income ($1 million if married filing separately) through tax year 2013. The exclusion only applies to mortgage debt forgiven on primary residences, not second homes. The exclusion was created in the Mortgage Debt Relief Act of 2007 and extended through 2012 by the Emergency Economic Stabilization Act of 2008.
Jepsen helped to negotiate the $25 billion national settlement agreement with the nation’s five largest loan servicing companies, which provides $17 billion in debt reduction and other relief to homeowners. Bank of America, CitiMortgage, Inc., Ally Financial, Inc., J.P. Morgan Chase Bank and Wells Fargo agreed to the settlement with 49 states and the federal government last February. It took effect in April.
As a result of that settlement, nearly 3,000 Connecticut borrowers have received approximately $185 million in debt relief through Sept. 30. The total does not include approved refinancing in process for several hundred homes, as well as an additional $72 million in loan modifications that will help nearly 700 Connecticut homeowners.
Those numbers are expected to increase when the national monitor overseeing compliance with the settlement issues the next report in February.
Assistant Attorneys General Matthew Budzik, department head, and Joseph Chambers, Finance, assisted the Attorney General with this effort.