State AGs call for homeowner tax relief extension

Forty-one state attorneys general are calling on lawmakers to extend tax relief to distressed homeowners, Housing Wire reported.

The Mortgage Debt Relief Act, which is set to expire on December 31, relieves distressed home owners of the tax burden following a foreclosure, short sale, or loan modification.

The state attorneys general have joined other industries and groups in calling for an extension. State AGs and the nation’s five largest lenders earlier this year reached a $25 billion settlement to provide home owner relief – including loan modifications and more short sales – stemming from past foreclosure processing errors.

“Failure to extend this tax relief would hurt the very families we set out to help in the national foreclosure settlement,” said Lisa Madigan, attorney general in Illinois. “We need to do everything we can to encourage – not deter – struggling homeowners to seek help to stay in their homes.”

The state attorneys general sent a letter to the U.S. House and Senate requesting an extension and noting that if the $25 billion national settlement expires, home owners could face up to $1.3 billion in tax increases over two years.

“Unless Congress acts, any debt relief to be provided in 2013 under the national mortgage settlement, as well as other mortgage debt relief programs, will likely be considered taxable income,” said Attorney General Catherine Cortez Masto of Nevada.