California Governor Gave a Huge Tax Break to Californians by Signing Bill into Law

NO MORE STATE TAX ON FORGIVEN DEBT

Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification. Enacted into law yesterday, Senate Bill 401 generally aligns California's tax treatment of mortgage debt relief income with federal law. For debt forgiven on a loan secured by a "qualified principal residence," borrowers will now be exempt from both federal and state income tax consequences. The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.

"Qualified principal residence" indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence. It includes both first and second trust deeds. It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

The tax breaks apply to debts discharged from 2009 through 2012. Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.

Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions. Most notably, taxpayers who are bankrupt are exempt from debt relief income tax. Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.

For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board's Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service's Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage. The full text of Senate Bill 401 is available at www.leginfo.ca.gov.

Housing Crisis Fueled by Inflated Home Appraisal: Who are Perpetrators and Victims? The Wild West of The Housing Boom Years, Devastation and Impact.

Housing Crisis Fueled by Inflated Home Appraisal: Who are the Perpetrators and Victims?
The Wild West of The Housing Boom Years, Devastation and Impact.

Many industry insiders just knew that it was just a matter of time. What goes up will have to come crashing down. Indeed, soaring home prices were just setting the stage for this country's greatest housing meltdown. Many onlookers could see that the high home sales were just a game. They were not fair deal. It was clear that the real estate industry was starting to crumble from the inside. Rogue appraisers, real estate agents and bad real estate brokers were running the show. They were making money left and right on the ignorance of unsuspecting homeowners, buyers and sellers. The bankers, mortgage companies and real estate investors appeared ready to make money along the way. Very few people raised their little fingers. Business was good. Since 2005, many potential buyers have been kept out of the market. They were priced out by speculators who flew in and flew out of hot deals and markets all over California. Those who were not too greedy amassed a fortune. Then, they moved this money to other shores or diversified.

Many appraisers were being pressured by all sides to inflate home values. They sometimes quoted prices only aimed at supporting loans that are more than the buyers can truly afford. According to former acting director at the Federal agency charged with monitoring the appraisal industry, Marc Weinberg, the system was completely broken. Since the height of the housing boom (which was fake or based solely on borrowed money), many violations could have constituted the red flags. According to a recent AP investigation, there were complaints that were lodged at the agency, but the lack of agents prevented it from investigating. Since the complaints were uninvestigated for many years, many of the appraisers who were accused of inflating prices continued to commit fraud in the industry.

What are the causes of the current housing crisis? Many will say greed, easy money-making tricks with no regards to the future

Here is a list of some of the perpetrators and victims: They were lenders who allowed people with spotty credit to buy homes with little or no money down, mortgage brokers who focused on selling loans without regard to the borrowers' ability to repay and investment bankers who bought and sold risky mortgage-backed securities. Failure to be able to monitor the real estate appraisals also contributed to the problems we are seeing now. Foreclosures are rampant and continue to destroy communities.

How does the process work? Once an appraiser receives an order from a real estate agent, lender, or mortgage broker to inspect a property, he or she is supposed to use some measurable tools of the trade. He will use the physical inspection of the home and comparable sales in the area to develop an estimated value for the property. What happens when the values of the other properties are not real? The figure the appraisers get will be used by banks to set the home's value as collateral for the mortgage loan. That is why it makes sense for the appraisers to come up with a value free of any outside pressure. In many cases, the appraisers were influenced by owners, buyers and sellers and the rest of the players to produce a number. They know that they are supposed to generate a value free of any outside pressure. Such was not the case in many of the cases investigated by AP. Some appraisers did complain to federal and state agencies about the fraudulent inflation of property values. Oftentimes, appraisers would put each other down in front of the buyers.