Defrauded Homeowners, Already Wronged Once, Could Carry Tax Burden BoA Won't Share

You'd think getting some money back from a bank that defrauded you when you purchased a home would be a good thing, right? It was their mistake, their bad, the onus was on them not to behave criminally. 

Well, not so fast. Part of the record-breaking settlement Bank of America had to pay out was to homeowners – reducing mortgages, and decreasing the interest rate – but there could be a big tax problem on the back end for people who've already been screwed over by the bank. Here's the Center for Effective Government breaking it down:

Shockingly, however, some of these households could be penalized if they accept help from the consumer assistance fund. Any debt forgiveness will, in the absence of legislative action, be counted as income when a homeowner files his or her taxes. People already harmed by Bank of America’s faulty mortgages will be required to pay taxes on their share of the settlement.

The rich love to complain that the capital gains tax is double taxation on income. But this is a real, punitive double tax on the people least able to afford it. A second wrong to those already wronged. This definitely does not make a right.

This highlights an important contradiction: Current policy gives tax breaks to law-breaking banks while families are penalized for accepting the compensation they are owed as a result of the banks' harmful actions. Bad behavior is subsidized, and those harmed are left to foot the bill.

Negotiators knew of this issue during talks but weren't able to convince the banks to pony up enough to cover all the claims:

“Now, [the tax relief fund] will help tens of thousands of consumers to offset, at least in part, any taxes that result from consumer relief they receive as a result of this settlement, but it's only a temporary fix; the fund isn't large enough to cover every potentially affected consumer,” explained Associate Attorney General Tony West. There are as many as 2 million borrowers either in foreclosure or close to it in the United States, according to the Urban Institute.

 

The Center closed with this paragraph, summing up the scenario beautifully:

While the Bank of America settlement and similar agreements have the potential to help some affected families, banks should not be using fines for bad behavior to reduce their tax bill while everyday Americans continue to suffer with the aftereffects of the 2008 financial crisis. Making sure that banks pay their fair share and that relief money reduces the hardships of vulnerable homeowners is crucial to helping these families – and our economy – recover.

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