Mr. Speaker, I rise today to introduce the Homeowners Tax Fairness Act. In February of this year, the 49 state attorneys general announced that they had completed negotiations with the country's five largest mortgage servicers to settle claims arising from mortgage fraud and wrongful foreclosures. The settlement, which amounts to over $25 billion is the largest settlement this country has seen since the 1998 Master Tobacco Settlement.
This historic settlement will allow hundreds of thousands of distressed homeowners to stay in their homes through enhanced loan modifications and principal reduction, and it will also provide payments to victims of unfair foreclosure practices. Unfortunately, under current law, those settlement payments would subject the homeowners and servicemembers who receive them to additional tax burdens. For instance, homeowners receiving relief in the form of mortgage debt forgiveness and direct cash payments for wrongful foreclosure could be subject to federal income tax. Moreover, additional tax would be owed on the payments made to servicemembers who were wrongfully foreclosed on while deployed overseas.
To prevent that injustice, the Homeowners Tax Fairness Act would extend the exclusion for debt forgiveness on a primary residence throughout the term of the settlement agreement, and exclude the relief payments from income for homeowners and servicemembers. This bill also considers the particularly egregious actions taken by the five largest banks in violation of the Servicemembers Civil Relief Act. Over the past three years, the five largest servicers violated the law and wrongfully foreclosed or overcharged mortgage interest on servicemembers, many of whom were deployed overseas in combat zones. Accordingly, the Homeowners Tax Fairness Act not only excludes this relief from income to servicemembers, but denies these banks the ability to deduct these payments from their federal income taxes.
The estimated 1.7 million homeowners eligible to benefit from this settlement deserve to receive the full benefit of this relief--relief that was negotiated in good faith by the states, the banks, and the federal government. Collecting federal income tax on relief for struggling homeowners is not only bad policy, but is simply the wrong thing to do.
As we move forward from one of the worst recessions in American history, we must be vigilant and provide as much help to the American people as possible. This bill will do just that, and will ensure that our homeowners and servicemembers get every bit of relief they deserve.
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