As readers of my Blog are aware, the Federal Government passed a law in December, 2007 allowing debtors to avoid the tax on debt forgiveness which typically occurs through a foreclosure or short sale. Debt forgiveness is considered taxable income by the IRS even though the debtor never had the actual income. The federal Debt Forgiveness Relief Act enables most people who lose their homes between 2007 through-going budget c 2012 to avoid the tax.  Most states including California followed suit although California’s relief expired in December, 2008.

In January 2009, Assemblyman Roger Niello introduced AB 111 to extend California’s law to match the Feds. Unfortunately, in late May the Assembly voted down his Bill… most likely in response to the ongoing Budget crisis. No new Bill appears to be in the works to replace this.  “AB 111 was based on fairness and common sense. The tax revenues from mortgage foreclosures are windfall gains to the state at the expense of California’s most desperate families. The tax revenue exempted by AB 111 would not have been realized if California weren’t at the very epicenter of the mortgage crisis,” said Assemblyman Niello.

If you are burdened by an over-encumbered property that you no longer can afford, be sure to get competent legal advice on your rights and strategies to minimalize or possible eliminate your exposure to a financial judgment and debt forgiveness taxes.  If you have specific questions about your liability, foreclosure, or any legal issue, feel free to contact me at sjbeede@bpelaw.com.  Need help Coping with an Upside Down Loan? Checkout Steve’s audio-seminar and e-book at: http://www.stevebeede.com/copingwithanupsidedownmortgage/