U.S. House Passes Bill To Protect Debtors As California Home Foreclosure Rates Rise

Discovery Bay, CA (AHN) - According to financial analysts monitoring the California foreclosure rate, the state is showing an increase in mortgage defaults contrary to national trends. ForeclosureRadar.com tracks every California foreclosure with daily updates on foreclosure auctions, issued its monthly California Foreclosure Report on Wednesday showcasing the results from their survey. However a new bill lawmakers are approving found a way to give tax relief to those losing their homes in foreclosure.

The group reported an in increase in foreclosure activity in September in spite of the story the numbers tell. A total of 8,818 properties -- with a loan value of $3.6 Billion dollars -- were sold at auction statewide in the month of September, compared to August which had a total of 9,477 that equated to $3.86 Billion dollars.

Sean O'Toole an analyst with ForeclosureRadar says, "In the month of August there were 23 recording and auction days. In contrast, September had 19 recording days and only 18 auction days, so we actually saw across the board increases in average daily foreclosure activity."

Adjusting for recording days statewide Notices of Default were up 5 percent in September on an average daily basis, and Notices of Trustee Sale were up 28 percent. Adjusting for auction days, Sales at auction were up 18 percent from August.

California has had a very active foreclosure market and O'Toole predicts that new legislation being considered by the House could result in further increases. The Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) is a measure meant to help address the ongoing turmoil in the housing and lending markets.

Government lawmakers approved the bill in a 386 - 27 overwhelming bipartisan vote earlier this month. Similar legislation is pending before the U.S. Senate. This bill would provide needed tax relief to families by permanently excluding debt forgiven under these circumstances from tax liability and would tighten requirements for excluding taxable gains on vacation and rental property.

Some politicians view it as a rewrite of the Internal Revenue Act of 1986 to prevent the taxation of canceled debt for a property in foreclosure. Under present law, this canceled debt is handled as income, and taxed as such.

In a Summit Daily News report opponents of the legislation say this is not a bill aimed solely at protecting the first-time home buyer of a modest property who has been sucked into a mortgage he or she cannot afford by a predatory lender. HR 3648 doubles the upper limit of value to be excluded from taxation upon debt cancellation from $1 million to $2 million dollars.

According to those in the real estate industry this potentially delivers a double whammy to the housing market by eliminating a barrier keeping mid-tier, debt strapped home owners from walking away from their homes which would undoubtedly result in more foreclosures, while also reducing demand for second homes.