Eliminating the Foreclosure Tax

With tax season upon us, I wanted to share with you an important legislative victory that will eliminate a tax liability for many Michigan homeowners facing foreclosure.

We all know of friends or family members who have lost their jobs. Savings might be able to get you through a couple of mortgage payments, but what then? There are a few options. You could sell your home, potentially for less than you paid for it. You can work with the bank to refinance your mortgage and possibly lower your payment. Or in the worst case scenario, the bank may foreclose.

What used to happen next may shock you. The IRS would come knocking on your door.

For example, if a family had purchased a home for $100,000 and is met with a tragedy – the death of a spouse, catastrophic health costs or job loss – and is unable to make their mortgage payments, the bank may foreclose on the home. The bank may only be able to sell the home for $80,000 and forgive the remaining $20,000 debt for which the individual is responsible. Before my bill passed, the IRS treated this $20,000 as taxable income.

That’s why I authored legislation to eliminate this IRS rule retroactively to January 1, 2007. My bill had broad, bipartisan support in both chambers of Congress, and late last year, the President signed the bill into law. This law ensures that families facing foreclosure on their homes aren’t faced with an additional tax burden which just added insult to injury!

Currently, Michigan ranks third in foreclosures with over 136,000 foreclosure filings last year alone. That fact, coupled with a decrease in home values across our state, means numerous Michigan families were being unfairly taxed by the IRS.

I’m glad I was able to lead the fight to stop this additional tax burden. However, this is only a first step. I also helped lead the effort to pass the FHA Modernization Act, which will expand access to Federal Housing Administration loans, help seniors stay in their homes and improve FHA oversight programs.

Although I believe Congressional action is a must, it is equally important that we work with local communities to help homeowners in trouble. Late last year, as Chair of the Majority Steering and Outreach Committee, I brought together leaders and representatives of housing and lending organizations from across the country in order to start a real dialogue between banks and homeowners.

Through that effort, I helped secure a commitment from lenders to provide funding for a hotline to provide assistance to families facing foreclosure. If you find yourself facing foreclosure, I urge you to call 1-888-995-4673.

This is a very tough time for Michigan families. I am proud of the victories we have had, but we have much more work to do. I will continue to do everything I can to help prevent families from having to face the loss of their home, and I am laser-focused on doing all I can to help create good-paying jobs in Michigan.