What are the thoughts of the members on this site in regards to 1099c and deficiency?

My CPA seems to believe that if the lender issues a 1099c, they can not pursue a deficiency, at least in Florida.

Anyone have an real world examples?

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Laura, very interesting, any way of getting your hands on that letter?  You could black out the personal info, I would LOVE to see it.

Laura,

 

When the approvals came in did the letter contain a waiver of deficiency or retainer of deficiency?

Laura A. VanHise said:

Good morning,

We did a short sale recently with Bank of America.  The seller had a first and a second with Bank of America and it was investment property.  The seller received a 1099c in January for both mortgages.  Then in February the seller received a letter that said as you are aware we sent you a 1099c for the loans mentioned above.  This letter is to inform you that since we filed 1099C for both loans we can no longer pursue a deficiency judgment on either loan and consider this matter to be closed.  I have always thought this was the case as you can't claim a loss on your taxes and then try and collect at the same time.  This letter proves my point.

What gets me is that when dealing with Bank of America they will try to get the seller to give a cash contribution in order to waive deficiency when in reality the seller will receive this once Bank of America writes of the mortgage.  We do quite a few with Bank of America as Countrywide was a dominant lender here in Florida, who was later purchased by Bank of America.  Thanks, Laura

 

 

 



Jeff Payne said:

Laura, very interesting, any way of getting your hands on that letter?  You could black out the personal info, I would LOVE to see it.

Attachments:
Here is a copy of the letter that I was talking about.  I also was told by another lender and my real estate attorney that once they file a 1099C and have taken the tax write off they can't come back for a deficiency.  This gets back to my point when working on a short sale and the lender ask for a cash contribution to waive any deficiency, I almost wonder if your seller can't afford the any capital contribution it's not the end of the world.  Thanks,
Waiver of deficiency.  See the attached letter in earlier post. 

Smitty said:

Laura,

 

When the approvals came in did the letter contain a waiver of deficiency or retainer of deficiency?

Laura A. VanHise said:

Good morning,

We did a short sale recently with Bank of America.  The seller had a first and a second with Bank of America and it was investment property.  The seller received a 1099c in January for both mortgages.  Then in February the seller received a letter that said as you are aware we sent you a 1099c for the loans mentioned above.  This letter is to inform you that since we filed 1099C for both loans we can no longer pursue a deficiency judgment on either loan and consider this matter to be closed.  I have always thought this was the case as you can't claim a loss on your taxes and then try and collect at the same time.  This letter proves my point.

What gets me is that when dealing with Bank of America they will try to get the seller to give a cash contribution in order to waive deficiency when in reality the seller will receive this once Bank of America writes of the mortgage.  We do quite a few with Bank of America as Countrywide was a dominant lender here in Florida, who was later purchased by Bank of America.  Thanks, Laura

 

 

 

Laura,

What I was asking was in the original approval letter (before you closed) did BOA retain it's deficiency rights?  Do you have that letter?

Yes, in the original approval letter the bank didn't waive their right to a deficiency.  This is my point that even if the banks don't waive their right to a deficiency once they file a 1099C for debt forgiveness which is a gain to the borrower and a tax write off to them they can't come back and try and collect as is explained in the letter.  This is also why so many of the banks are easier to deal with at the end of the year on the short sales as they want to get them off their books vs. in the first part of the year. 

Smitty said:

Laura,

What I was asking was in the original approval letter (before you closed) did BOA retain it's deficiency rights?  Do you have that letter?

Laura,

Thanks for sharing, that letter is great!  My non legal, non attorney thought on this is that a 1099c cancels the debt and the bank can not pursue the deficiency.  Doesn't mean they won't try though.  A good attorney would wipe the floor with the deficiency the bank tried to pursue it after issuing a cancelation of debt, in my opinion.

I think it would be a very messy scene for a servicer to RESCIND a 1099-C.  The homeowner would have to then seek a refund from the IRS if they did, in fact, pay taxes on the cancelled debt.  I see how there is no "official linkage", but it might be "evidence" not viewed favorably by a judge.  Correct me if I am wrong, Tni.

I think you're right Wendy.  Theoretically possible I suppose because anything that was done can probably be undone. 

But oh so messy in its implications because the homeowner relied on that document. 

 

Besides if a mistake was made that seems to me to be a servicer issue.  If the servicer had authority to issue that document and made a mistake -- they made a mistake and I would think they would be liable to the investor/guarantor as the debt was "mistakenly" rendered uncollectable.  Seems like some bad loan servicing to me and what does that have to do with the person who relied on the document?  I suppose if you didn't want the 1099 rescinding could be an easy process  if the bank also wanted to do that, but since many people are relying on it to deal with their deficiency and getting tax forgiveness anyway -- I think you'd have to tear it out of their cold hands.

 

1099's are an interesting topic also because they have a potential penalty for not issuing a 1099 in a timely fashion as well.  This discussion never gets old to me.  I loved reading that BofA letter.  Looks like the banks are getting more of a handle on what they want to do and what it means.  I've had plenty of bank reps tell me the same thing that their opinion is that they can not do both:  continue to try to collect and issue a 1099c.

 

*By the way this is not legal advice and should not be relied on as legal advice.  Legal advice is expensive and this was totally free.

TNI,

I think that if any bank ever came back after a borrower received a 1099C and filed taxes claiming insolvency or if this was their primary resident using the tax code that was offered up when this mess started, there would be an outcry in this country.  I for one would be on every soap box I could find.  I think common sense dictates that these banks just want this mess to go away as fast as they can. 

I believe that they have given most seller's a window of opportunity to do a short sale and that within a couple of years this will be over.  I'm telling you my age by talking about this, but we did short sales back in the early 80's when the savings and loans went down.  We dealt with the Resolution Trust Company.  Much was written and talked about the repercussions sellers would be in.  As history has shown they just wanted to get the mess cleaned up from the negative amortizations they did back then.  I've been in this business 37 years. I have never heard of or saw a lawsuit from a residential first mortgage lender after a foreclosure or (short sale in the 80's) go after a deficiency here in Florida.  It is costly to file another suit on a borrower already in financial stress and not good on there image.  We didn't have credit lines back then, but history has a way of repeating itself. 

Tni LeBlanc said:

I think you're right Wendy.  Theoretically possible I suppose because anything that was done can probably be undone. 

But oh so messy in its implications because the homeowner relied on that document. 

 

Besides if a mistake was made that seems to me to be a servicer issue.  If the servicer had authority to issue that document and made a mistake -- they made a mistake and I would think they would be liable to the investor/guarantor as the debt was "mistakenly" rendered uncollectable.  Seems like some bad loan servicing to me and what does that have to do with the person who relied on the document?  I suppose if you didn't want the 1099 rescinding could be an easy process  if the bank also wanted to do that, but since many people are relying on it to deal with their deficiency and getting tax forgiveness anyway -- I think you'd have to tear it out of their cold hands.

 

1099's are an interesting topic also because they have a potential penalty for not issuing a 1099 in a timely fashion as well.  This discussion never gets old to me.  I loved reading that BofA letter.  Looks like the banks are getting more of a handle on what they want to do and what it means.  I've had plenty of bank reps tell me the same thing that their opinion is that they can not do both:  continue to try to collect and issue a 1099c.

 

*By the way this is not legal advice and should not be relied on as legal advice.  Legal advice is expensive and this was totally free.

Laura,

 

I completely agree.  The outcry would be insane.

 

Tni

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