by Brian Mahany
When the five largest lenders signed a deal with the states and agreed to “pay” $25 billion to help homeowners keep their houses, there was singing in the streets. The states’ attorney generals hailed the agreement as a stunning victory for homeowners. Banks seized the opportunity to try and buy back some goodwill from the American people. Now that the victory celebrations and group choruses of Kumbaya are finished, some folks have started reading the fine print.
You guessed, the deal isn’t nearly as sweet as our public officials claimed it to be. There are many problems with the agreement including what to do with people who were wrongfully foreclosed upon and already lost their homes. Also, the new agreement doesn’t require the banks to really pony up $25 billion. Only a small percentage of that figure will actually be paid out by banks.
The newest wrinkle concerns tax. Homeowners struggling to keep their home or using settlement proceeds to find shelter may soon get a tax bill from the IRS! I know that we sometimes sound cynical but payments to homeowners and loan forgiveness amounts are taxable. That’s right, under current law if your lender reduces the amount you owe, that “forgiveness”of the debt is considered taxable income even though you don’t actually get a check.
You get no cash but the IRS wants their piece of the pie. Under the Internal Revenue Code, the simple forgiveness of debt can be taxable.
Many victims of foreclosure abuse are members of our armed forces. Bank of America, Wells Fargo and several other banks kicked people out of their homes while they were off fighting wars. Under the agreement, the banks must pay settlements to those soldiers who lost their homes while deployed. You guessed, under current law those payments can be taxable too.
Three Congressmen introduced legislation to amend the tax code and at least protect service members and those who received modifications or settlement payments on their primary residence.
The legislation, called the Homeowners Tax Fairness Act, is an important first step. The problems should have been addressed in the settlement, however. Retroactively applying bandaids is never the best solution.
The law firm of Mahany & Ertl helps homeowners have a voice and fight back against lenders. We are NOT foreclosure lawyers. Instead, we help homeowners that have been abused and ignored by mortgage companies and banks. If you think you have a particularly eggregious case, we would love to hear about it.
Currently we are co-counsel in the largest federal false claims case in the nation against a mortgage lender – we filed the original case against Allied Home Mortgage (now a $2.4 billion case and adopted by the U.S. government). From class actions to multi billion dollar false claims act cases to simply helping neighbors and good people stand up and fight predatory foreclosure practices, the mortgage fraud lawyers at Mahany & Ertl want to listen.
If you have a story or think you may have a case, drop us an email or call. (If you want your communication to be private, do not post it as a comment on our blog! Email us instead.) For more information contact attorney Brian Mahany at (414) 704-6731 or by email at All inquiries are kept strictly confidential.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Services available in many jurisdictions.