SB401: The bill would bring a number of areas of California tax code in line with federal law, including a provision that excludes “forgiven debt” on a principal residence from being considered taxable income. Currently, people who sell their homes back to the bank for less than what they owe on their mortgages are being hit with tax bills counting the difference between the mortgage balance and sale price as income. The bill would apply to short sales, foreclosures, deeds in lieu of foreclosure and loan modifications that reduce the principal due. The Legislature is expected to pass this bill today, and it appears likely the governor will sign it. The 108-page bill would be retroactive to the 2009 tax year.

SB1275: Aimed at borrowers who want to change their mortgages, the bill mirrors many of the provisions of a federal program. Lenders would be required to contact a borrower prior to filing a default notice and provide them with a loan modification application. If the borrower applies, the bank would have to process that application prior to starting the foreclosure process. If an application is denied, the bank would be legally required to state why in writing. The bill must clear at least one more Senate committee and the full Senate, and then would be sent to the Assembly for consideration.

AB1639: This bill would create a mediation program for lenders and borrowers. The program, similar to those in more than a dozen other states, would allow borrowers at risk of losing their homes to request mediation with the lender, who would be legally bound to participate in talks to work out a home loan modification. The bill will likely get a hearing in the next few months.

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