Free money for mortgage delinquents

By | May 6, 2007

I just sent this letter to Senators Kennedy and Kerry and Congressman Michael Capuano:

It has come to my attention that Congress is currently considering the “Mortgage Cancellation Tax Relief Act of 2007” (HR 1876). This bill, if enacted into law, would amend the Tax Code to exclude debt forgiveness on a primary residence’s mortgage from the definition of “income.”

I am writing to urge you to oppose this bill.

The IRS Offer In Compromise program allows taxpayers facing tax liabilities they cannot pay to negotiate reductions. Furthermore, the IRS allows long-term payment plans for taxpayers facing tax liabilities they cannot pay immediately. These options are reasonable and sufficient aid for taxpayers facing tax liabilities resulting from mortgage debt forgiveness.

The Offer In Compromise and payment plan programs have safeguards to ensure that the taxpayers who take advantage of them are truly in need. It is far more appropriate to apply such safeguards on a case-by-case basis than to forgive tax debt across the board for all taxpayers who receive mortgage debt forgiveness.

If passed, this bill will introduce yet a loophole into the Tax Code which will undoubtedly be taken advantage of by scam artists and fraudsters, placing an increased burden on the IRS and other Federal agencies to detect, investigate and prosecute such fraud.

Supporters of this bill claim that mortgage debt forgiveness is not “real income.” In fact, the debt being forgiven is money that was given to the debtor to help pay for his/her house, and as such it is in fact real income which should be taxed. Every dollar of income tax that is forgiven must be paid by other taxpayers like me, added to the national debt or taken away from other deserving Federal programs.

Congress’s time would be better spent passing legislation prohibiting predatory lending practices that strand taxpayers with mortgages they cannot pay.


Jonathan Kamens

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11 thoughts on “Free money for mortgage delinquents

  1. Anita Baldwin

    You are reasonable in your thoughts. Too bad reasonable and responsible citizens get left holding the bag.

  2. joe kelly

    The offer in compromise works well when you have $100,000 plus in taxes to pay and the option of giving $4000 to the lawyers at Ronnie Deutch or JK Harris to file one for you seems cheap.- but most of the people we are talking about here earn $50K a yr or less and and will be facing a $5K to $10K tax bill. They aren’t going to be able to afford the legal expertise required to properly file an offer in compromise (have you ever actually seen one?) nor deal with the draconian wage garnishment scenarios the IRS imposes if they screw up once on payments. Perhaps there should be a ceiling imposed for tax foregiveness – but otherwise you are just creating a party for the lawyers.

  3. jik Post author

    And NO Bankrupcy was not the way to go.

    Why not? Your circumstances seem to make you a perfect candidate for bankruptcy protection.

    Why do you think that some special law is needed to help you when the existing bankruptcy law and IRS Offer-In-Compromise program are sufficient?

    Seems to me that it’s reasonable to expect people to take advantage of the safeguards that are already in place to protect them before passing special laws giving them additional safeguards that cost taxpayers more money.

  4. kathy

    I think it should pass. I am one of those in short sale. And NO Bankrupcy was not the way to go. My house is the only thing I owed. I lived in my home for 10 years, never missed a payment. Then in june 2006 my husband died from a cancer due to exposure to agent orange in vietnam. I lost his income, sold our cars (all paid for) and bought a little old used car. that helped with some of the medical cost. OH, forgot to tell ya, my husband had lost a 28 1/2 year job due to the fact they didn’t need the employee’s here anymore because it was cheaper to make the lights in China. And with the loss of that job, loss of medical, life ins, you name it. So I had a ton of bills, and to young to receive his SSA. l
    Like my husband, to date, I have not found a job. I have no real job skills. I worked part time babysitting. I was stupid for being a stay at home mom, no one wants to hire a person with no work skills. I could not afford my house anymore, didn’t want to just walk away and leave the bank holding the ball. That was my debt and I wanted to try and take care of it. I put house up for sale in Nov.2006, and by Aug. 2007, NOT ONE OFFER, only 2 people came by. Our city of 11000 people had 98 foreclosures as of Aug, and apx aother 200 in default. No jobs, no help, I have not seen a Dr in 7 years, so you can’t say that it is all folks getting in over there heads. Bad Things happen to good people too. I can not afford any tax payments. I can’t even afford food for a whole month. I am now homeless, so how in the world do you think that it would be tax loop-hole?? I know there are others who are lossing there homes who just had some bad luck like me. And for those who think they are so good that this could not happen them, YOU ARE SO WRONG!!! And you may be the next in line of lossing a job, or have major medical bills, or both………think before you pass judgement.

  5. jik Post author

    The previous comment is filled with scare-mongering crystal-ball economics. It also ignores the crucial point of my letter, i.e., that we don’t need a new law granting across-the-board tax amnesty when we already have the IRS OIC program.

    I’m not an economist, but one thing I know is that economists have proven to be rather bad at predicting with unanimity and accuracy what’s going to happen in real-world economies. I do not think that worst-case-scenario your-guess-is-as-good-as-mine predictions are sufficient justification for the government to give away free money to people who were irresponsible with their finances, at the expense of people who weren’t.

    The foreclosure crisis we’re facing right now isn’t the government’s fault, and it isn’t the fault of taxpayers who didn’t get in over their heads. It’s the fault of the predatory mortgage lenders who gave loans to people who couldn’t afford them, and who are now looking to the government to help bail them out. Let them bail themselves out; I fail to see why the US government should do it.

    Finally, it is worth noting that the email address provided with the previous comment indicated that it came from a “mortgage banker.” Mortgage bankers have more to gain from this bill than anyone. If you think they’re an unbiased source of information about what will happen to the economy if this bill is not passed, then boy, have I got a bridge to sell you!

  6. James

    There are going to be upwards of 2 million homes lost to foreclosure in the next 18 – 24 months. That horse has already left the barn! The short sale process is a responsible answer to help mitigate most of these situations. The shortale helps both the foreclosing bank and the defaulting homeowner. The bank usually will save money and stem losses that it would realize by foreclosing and the homeowner avoids the stain of a foreclosure on their credit report. However, due to an archaic tax code many people who might or should opt for a shortsale will instead just take the foreclosure instead. In case you did not know… a foreclosure does not equal a mortgage-debt cancellation tax liability AND in most states there is also no deficiency balance that the lender can collect after foreclosure. IF most of these 2 million homes actually go to foreclosure YOU will be paying for this mess in the form of higher interest rates for years to come. The investors, most of them foreigners, who buy our debt, our bonds, and our mortgage backed securities will demand higher rates of return because Americans demonstrated en masse that they cannot pay their house payments on time. Now, let’s assume that homeowners utilize the short sale process and this Tax Relief Bill is not passed… once the tax debt is realized by the homeowner and the IRS is collecting on these 2 million+ tax debtors, what effect do you think that will have on household consumption, GDP, and economic growth??? . The transfer of debt from mortgage to income tax will surely push the general economy into recession. Then what happens to the value of YOUR stock portfolio? Maybe the combination of higher interest rates and a national recession will eventually make YOUR ivory tower collapse. Either way YOU are going to pay unless the Tax Relief Bill gets passed. So ignore Jonathan Kamens ill-informed blog and realize that nothing ever came from 2 million+ households losing their homes and then forcing them to pay taxes on that loss… except maybe a revolution!

  7. jik Post author

    That’s what bankruptcy is for.

    If they aren’t eligible for bankruptcy, then there’s no reason why they should be entitled to have the government (i.e., my tax dollars) bail them out for their own financial mismanagement.

  8. mary

    i think it should be passed, many people have fallen in situations thats beyond their controlled and needs to be bailed sometimes

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