Posted Oct 15, 2007 08:53 pm CDT
In the latest of a series of aggressive efforts by the state of Massachusetts to deal with the local effects of a national crisis in mortgage lending, the governor announced today that he plans to pressure lenders in the communities hardest-hit by foreclosures to agree to “short sales.” The term refers to home sales in which the amount paid by the buyer is less than the amount of mortgage debt owed by the seller.
However, at least one state housing expert questions whether Massachusetts officials have legal authority to require lenders to accept short sales, reports the Boston Globe. Although he personally supports the program, says Thomas Callahan of the Massachusetts Association for Affordable Housing, most mortgage lenders are out-of-state companies not regulated by Massachusetts. Hence, the effort “is getting very limited cooperation from the lenders,” he says.
More details will be reported later about the fledgling plan, according to the newspaper.
Perhaps shedding some light on the governor’s plan, however, is a lawsuit recently filed by the Massachusetts attorney general against a California-based subprime lender. As discussed in an earlier ABAJournal.com post, she contends in the suit that the state should be able to regulate the lender’s Massachusetts mortgage foreclosures, because its widespread “unfair and deceptive conduct” allegedly led to foreclosures that otherwise would not have occurred.
President George W. Bush has previously announced a plan to change Internal Revenue Service rules to eliminate tax that sellers otherwise would owe, and legislation to implement this change is advancing in Congress, as discussed in other ABAJournal.com posts. Under present tax rules, mortgage debt that is forgiven by a lender in a short sale is considered taxable income.