Galgiani’s bill to help homeowners gets deep-sixed

August 17, 2016
In ths 2012 photo, a work van and trailer are parked near unwanted furniture next to the home, left, that Toby Lopez and his family had been renting for the prevous two years in the Anatolia neighborhood of Rancho Cordova. The home was being foreclosed, and the family was moving to Missouri. The home on the far left had also just gone through a foreclosure. At the time, more than half of homeowners in the Sacramento region owed more than their homes were worth, amounting to about $21 billion in negative equity. José Luis Villegas Sacramento Bee file

By Dan Walters

The Sacramento Bee

Senate Bill 907, which had won unanimous approval of the state Senate, died in just a few seconds last week, and that angers Peggy Spatz.

She and her husband, George, took out a $150,000 second mortgage on their modest suburban Sacramento home 11 years ago, only to see home values and their retirement investments crash in the Great Recession.

Like millions of other Californians with underwater homes, they eventually negotiated a settlement with their lender to write down the loan, only to learn the canceled debt was what’s called “a taxable event.”

Congress declared that loan write-downs, short sales and other forms of mortgage relief would be free of federal income taxes. And the California Legislature and then-Gov. Arnold Schwarzenegger followed suit for several years, extending relief through 2013.

But when Jerry Brown returned to the governorship, facing an immense budget deficit, he refused to continue the tax exemption for any relief actions since 2013, last year vetoing a bill that would have added two years to the window. It created, a Senate staff analysis said, “a fine mess.”

Brown said the state budget “has remained precariously balanced (and) I cannot support providing additional credits that will make balancing the state’s budget even more difficult.”

SB 907, carried by Sen. Cathleen Galgiani, who respresents parts of Stanislaus and San Joaquin counties, would have extended the tax break through 2016. Her region, from Stockton to Modesto, was the hardest hit by the housing meltdown. During one hearing she cited her own underwater mortgage.

“Many years later, it still isn’t worth what I paid for it,” said Galgiani, adding that many Californians are in the same situation and “for us to hit them a second time is unconscionable.”

The Spatzes hoped that with the Senate’s passage and a heavyweight list of supporters, including Attorney General Kamala Harris and real estate and banking lobbies, it would at least get to Brown’s desk.

In anticipation, they wrote a letter to Brown, laying out their experience and concluding, “This letter is written by two people, but there are hundreds of thousands of us. Please don’t turn your back on us.”

SB 907 never made it to Brown. Though it also won unanimous support in the Assembly Revenue and Taxation Committee, it was placed on the Assembly Appropriation Committee’s “suspense file” because of its cost – an estimated $95 million in lost revenue during its first year and $57 million in the next two years.

Last week, the appropriations chairwoman, Lorena Gonzalez, announced the fate of dozens of Senate bills, spending just a few seconds on each. SB 907, she said, would not be sent to the Assembly floor.

As is the custom, no reason for its demise was offered. But it probably had something to do with its cost, more than 10 percent of the total for bills on the suspense file, and the strong likelihood Brown would have vetoed it, as he did in 2015.

“The thing that breaks my heart is that people aren’t marching in the street,” Peggy Spatz said later. “I’m a bitter person at this point.”


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