Attorney Roy Oppenheim on HuffPost Live: Double Whammy – Hitting Homeowners When They’re Down
By Oppenheim Law on Deficiency Judgments, Foreclosure, News & Media, Real Estate & Roy Oppenheim
Josh: With all eyes on December 31, 2012, as the deadline for the fiscal cliff, the media is ignoring another crucial provision that expires that night. It’s called the Mortgage Forgiveness Debt Relief Act. It was put in place in 2007, and if it’s not renewed, then homeowners who are foreclosed on after the 1st of next year will be slugged with a huge unaffordable income tax bill.
Zach: What’s interesting about this particular policy, as Josh just pointed out, though, is that this one doesn’t actually require banks to take a hit. This just requires the government not to, effectively, raise taxes on people who are facing foreclosure, but you still can’t get any sort of movement, either in your own caucus or among Republicans?
Congressman Miller: Well, I think Democrats would generally favor it. There aren’t that many who really know about this stuff. It’s really people who are kind of part of housing policy that know about this.
Roy: Forgive me, if I may chime in. I don’t see this as a left/right, Democratic/Republican kind of issue. I see the Chamber of Commerce, the local Board of Realtors that historically have been more conservative and more Republican being very, very strong advocates of getting this continued legislation, as you’ve just stated. In fact, virtually every Attorney General in the United States, Democrat or Republican, including Pam Bondi, a rather conservative Republican here in Florida, has begged the President to make sure that this is part of the fiscal cliff’s negotiations because she knows, as we know here in the trenches, that this legislation, merely because it’s about to expire, has already had devastating consequences to the economy. I mean, people are being laid off, realtors are less busy.
Congressman Miller: Two years ago, when we fought this the last time, and it was included in the Bush tax cut extension and the payroll tax cut, it was treated as, when they kind of did the ledger of who got what, this was treated as a give to Democrats. This was something Democrats wanted. This was something we got.
Zach: This is a direct hit to people who are struggling. I mean, these are people who are likely to spend this money immediately. They’re not going to put it in some long-term savings account. I mean, they have to buy, you know, diapers and toilet paper and food, or even just pay their mortgage bill. If you get mortgage forgiveness, that money will actually get…they will be paying some of this non-existent tax burden if it gets relieved. Some of that will flow through financial institutions, as well, so this money goes back out into the economy and helps it to grow.
Roy: Can I add something here?
Josh: Hang on just a sec, Roy. Zach, you are so naive. Weren’t you paying attention when we were interviewing Grover Norquist this morning? The only time that stimulus works is when it’s tax cuts, not when it’s actual stimulus. That’s the only time [inaudible 00:02:37] works. Roy, jump in.
Roy: What’s ironic here is that this particular tax cut if it is taken away, because this is actually a tax cut that occurred, so if it’s taken away, it’s going to hurt the banks. I mean, that’s what’s so bizarre here. It’s going to hurt the banks on two folds. It’s going to hurt the banks because they’re going to make less loans. It’s going to hurt the banks because they’re not going to be able to actually settle their $25 billion little settlement that they have with the Attorney Generals for the robo signing.
Josh: You mean, it’s going to disincentivize people from doing short sales, right? I mean, it’s going to disincentivize people from coming to an agreement with their banks, and it’s going to leave, presumably, more toxic assets on the banks’ balance sheets. Is that right?
Nick: Almost every homeowner that we’ve worked with, people who are coming to us for help, they could afford to stay in their homes with a principal reduction if they were actually paying what the home was really worth. Unfortunately, if this tax were to go into effect, it would really nullify the effects of a principal reduction which would make this affordable.
Josh: Right. And just to reiterate, that’s because, if people are just tuning in, that’s because a principal reduction would then leave the homeowners liable for a tax bill on the difference between what their loan originally was and what their home is now worth. Roy, what’s your… I mean, you’re close to the real estate market in Florida. What impact do you think this will have on the market?
Roy: Well, as I was saying earlier, it’s having a tremendous impact right now. We’re seeing a precipitous decline in short sales right now because people don’t know how to plan their taxes. Just like a big corporation is accelerating their interest dividends, like Home Depot or Costco is going to do it, homeowners are holding back from doing a short sale because they can’t do their tax planning. And so, everyone is really going to be affected negatively. It’s going to be a negative impact, from the bank not being able to do the closing, to the pool guy who’s not going to get paid, to the homeowner who’s going to get stuck with a home that they’re trying to get rid of. It’s having a major negative impact right now on the economy.
Josh: Zach, what’s your sense of the political weather vanes. Is this sort of a victim of the fiscal cliff looming so much larger, that in any ordinary year, this would probably be something that people have time to pay attention to? Most people haven’t even heard about this because the fiscal cliff is taking up all the oxygen.
Zach: I actually don’t think it’s the fiscal cliff’s problem. I think it has to do with just a broad problem in Washington and with the priorities that exist inside the beltway. I mean, housing has been in crisis for several years, for a long time, and there are some people in Congress, mostly Democrats like Congressman Miller, who have been very active on trying to gen up support on policies that will help struggling homeowners.
Josh: Roy, I’ll give you the final word. If you were the Emperor of the United States, you know, crafting your ideal solution to the housing crisis, what would it be?
Roy: You would have to allow for the continued reduction of income for those people, certainly at the lower end of the spectrum, to be able to get out from under an asset that has limited or no value and is pulling them down, and drowning them, and suffocating them and their family, and enslaving them to debt for as long as… You know, here in Florida, it could be 10 or 20 years that a bank could come after you.
At the same time, I would probably tie it to a grand bargain, that we would reduce the interest deduction for high-end homes and wealthier individuals as it relates to the mortgage deduction. And so, that deduction, right now, is allowable for people, regardless of income, up to $1 million worth of mortgage debt a year, and even possibly for a second home. And so, I think that we could probably replace some of the income at the lower end with income from the higher end, and it would have a very minor effect on the economy. And if we could keep interest rates low through this grand bargain, we could, in fact, maintain, stimulate, and encourage, and nurture a vibrant real estate economy, which is what this is really all about.
And so, there’s left and right, there’s Democrat/Republican. It drives me crazy. It does drive me crazy that the President did run on cram-down, on bankruptcy cram-down, and he abandoned it when he came to office. And that, for me, was inexcusable and I would tell him that personally if I had the chance.
Josh: I mean, the home interest mortgage deduction is a whole other can of worms. As a foreigner, it seems bizarre to me. Most countries don’t have it. My home country of Australia doesn’t have it. It just seems peculiar that you should be able to deduct the interest from your own home.
But, anyway, that’s just my little beef. I thank you so much, Zach, Nick, and Roy for being with us. You can leave a comment in the comment well about this, and you can also find, if you want to read Oppenheim Law’s the South Florida Law blog, there’s a good article about that, of course, which Roy wrote, which is about the residential real estate market heading for the fiscal cliff.
The conversation continues here, of course, on Huff Post Live.