I went to a Short Sales & Tax Implications seminar presented by a real estate attorney and was advised that in the state of FL waiving the deficiency judgment does not preclude a bank from attempting to
recover balance owed. Unless the approval specifies no deficiency judgment on the mortgage and note the investors can still collect on the note. While the deficiency may have been waived on the mortgage the instrument is just collateral for the note; therefore, the promise to pay as agreed to on the note
itself can still be called due. In essence, the borrower could potentially receive a 1099 and still have a deficiency judgment. Has anyone else heard of this?

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I'm with Mark on this one. Court cases have determined that a 1099c is a procedural requirement for IRS reporting. By itself it is not an agreement to not pursue a deficiency. However, it sure would be extra ammunition if a borrower were to be sued for the deficiency.

Mark Karten, ABR, CSP, SFR, ePRO said:

Great discussion.  I'll just chime in from what we've learned from our real estate attorneys here in Nevada.  The 1099C, according to the banks and some court cases (not relating to short sales), is issued because the IRS requires it.  The banks say "unless we specifically waive our right to pursue, in writing" the 1099C does not imply that we do.  We file a 1099C because that is IRS law.

 

Because we don't have any evidence yet of a pursuit (with or without a 1099C issued), it is argued that the lender would have to issue an amended 1099C if they were to collect on any of the outstanding debt.  So, we tread lightly, give our clients all the possible scenarios and take it one step at a time.

 

Most of us think we're going to get sued years down the line for giving the wrong information and guidance, so we don't represent ourselves as experts or that what we say is the definitive truth.  We leave that to the attorneys.

Hi we are going to go to closing June 8, 2011 I am not getting a great vibe with the fact were almost to closing and all I got was a letter of approval for the short sale in the letter it says  vericrest will release its liens upon the property once all conditions of this letter are satisfied . Vericrest  will not pursue a deficiency Judgment on the deficient Balance am I safe to sgin on closing or what....we made it clear to the Realtor who is sailing the house that we want a letter black and white saying forgiveness of debt or a wipe of he says this is the letter of forgiveness and I do not feel he is being honest of course at the end of the day he makes his commission and we end up screw over so can anyone advise he what should I be looking for at closing cause the first thing I said I want to see is the letter of forgiveness or wipe of and if I don't see either one we will walk away and not close but the person who is buying my house is coming from Virgina and he sold all his stuff and pack what he is to carry with him  and I do not think it would be fair i walk away and not sign after the man drove miles so before he makes his step I would like to be guide now what it is still time I don't want to lost neither do I want the buyer to lose and to have him travel so far would not be fair for him nor us.Is it true the 1099 C I do not receive till the new year in the beginning of Jan or Feb what is it you know that can help us make  the right decision I came across this page and I know it was God who guide me cause i was just preparing myself for a preaching. So your in put is very important and thanks for your help.. God Bless



Cindy Kidd said:



Paul Antonelli said:

   What he is saying here is common knowledge. If an approval letter has no line about Full Waiver, then the lender has secured it's rights to seek a judgement within 5 years. 

 The investor is bound by what the servicer does and agrees to. If your approval letter does not include the verbage :Full Waiver" then go back. Tell them you can not have your seller sign and agree to such an open ended approval.  And then you want the 1099C, with this the lender/investor can not collect anything else. That would be double dipping and it is illegal for the lender. If you get the letter and it says 1099A or just 1099, you need to tell them it needs to say 1099C.

Cindy. If the letter states they will NOT pursue a deficiency judgment then that is a waiver of deficiency and you should be good to go. However, it would make sense for you to have an attorney review the letter and the language. I am NOT an attorney and this is just my opinion as a broker. But it sounds pretty straight forward to me that you are good to go. And yes they have until Feb following the year they write off the debt to issue your 1099c.

 

It sounds like you are almost there.

  I can understand your concern, I deal with this every day. The approval letter you got from the bank, was it presented to you by an attorney? Are you in Florida? You should also have been given another paper that says M.A.R.S. somewhere on the top. That should say that you are not bound and do not have to accept the settlement if your not happy. If your in Florida and all this was done, then feel assured that your agent is compliant. If you need an attorney to ask about your approval letter let me know. [email protected]

Maria said:

Hi we are going to go to closing June 8, 2011 I am not getting a great vibe with the fact were almost to closing and all I got was a letter of approval for the short sale in the letter it says  vericrest will release its liens upon the property once all conditions of this letter are satisfied . Vericrest  will not pursue a deficiency Judgment on the deficient Balance am I safe to sgin on closing or what....we made it clear to the Realtor who is sailing the house that we want a letter black and white saying forgiveness of debt or a wipe of he says this is the letter of forgiveness and I do not feel he is being honest of course at the end of the day he makes his commission and we end up screw over so can anyone advise he what should I be looking for at closing cause the first thing I said I want to see is the letter of forgiveness or wipe of and if I don't see either one we will walk away and not close but the person who is buying my house is coming from Virgina and he sold all his stuff and pack what he is to carry with him  and I do not think it would be fair i walk away and not sign after the man drove miles so before he makes his step I would like to be guide now what it is still time I don't want to lost neither do I want the buyer to lose and to have him travel so far would not be fair for him nor us.Is it true the 1099 C I do not receive till the new year in the beginning of Jan or Feb what is it you know that can help us make  the right decision I came across this page and I know it was God who guide me cause i was just preparing myself for a preaching. So your in put is very important and thanks for your help.. God Bless



Cindy Kidd said:



Paul Antonelli said:

   What he is saying here is common knowledge. If an approval letter has no line about Full Waiver, then the lender has secured it's rights to seek a judgement within 5 years. 

 The investor is bound by what the servicer does and agrees to. If your approval letter does not include the verbage :Full Waiver" then go back. Tell them you can not have your seller sign and agree to such an open ended approval.  And then you want the 1099C, with this the lender/investor can not collect anything else. That would be double dipping and it is illegal for the lender. If you get the letter and it says 1099A or just 1099, you need to tell them it needs to say 1099C.

  You should really talk with a licensed CPA or attorney. If the lender files a 1099 or a 1099A upon your approval, that is not good enough because they can come after you for the entire balance. If you are issued a 1099C and they try to come after you they will be in trouble with the IRS for double dipping. Once a C is issued they get reimbursed for the lose from the government. They can't come after you for something they got already. 

John A Brassner said:
I'm with Mark on this one. Court cases have determined that a 1099c is a procedural requirement for IRS reporting. By itself it is not an agreement to not pursue a deficiency. However, it sure would be extra ammunition if a borrower were to be sued for the deficiency.

Mark Karten, ABR, CSP, SFR, ePRO said:

Great discussion.  I'll just chime in from what we've learned from our real estate attorneys here in Nevada.  The 1099C, according to the banks and some court cases (not relating to short sales), is issued because the IRS requires it.  The banks say "unless we specifically waive our right to pursue, in writing" the 1099C does not imply that we do.  We file a 1099C because that is IRS law.

 

Because we don't have any evidence yet of a pursuit (with or without a 1099C issued), it is argued that the lender would have to issue an amended 1099C if they were to collect on any of the outstanding debt.  So, we tread lightly, give our clients all the possible scenarios and take it one step at a time.

 

Most of us think we're going to get sued years down the line for giving the wrong information and guidance, so we don't represent ourselves as experts or that what we say is the definitive truth.  We leave that to the attorneys.

All approval letters I have received where the lender intended to pursue the deficiency clearly stated that in the approval letter.  Here is a quote from one of the letters, "THIS NOTE WILL NOT BE RELEASED NOR WILL THE NOTE BE ENDORSED PAID AND THE REQUEST FOR RECONVEYANCE WILL INDICATE THAT THE DEBT REPRESENTED BY THYE NOTE HAS NOT BEEN FULLY PAID".  This statement is usually in capital letters to ensure that it stands out.  I would also point out that a 1099 was not mentioned in any letter that did not waive the deficiency.  The 1099 is also reported to the IRS to show the deficiency as income to the debtor in cases where the loan did not meet the requirements of H.R. 3648.

Maria, you said the letter states:"Vericrest  will not pursue a deficiency Judgment on the deficient Balance". I agree with all the respondents who have stated that this constitutes a release.  You should accept that verbiage and move immediately to closing.  

 

There is an important tactical, as opposed to legal, issue you should consider.  While there is some comfort in getting the most absolutely water tight perfect wording possible, I believe that requesting a clarification whether the release you have constitutes absolute, full, complete and irrevocable release has a significantly greater chance of hurting than helping you, because what happens if the bank comes back and says no, it does not.  Now you've gone from a fairly water tight release to no release at all.  

 

As to the 1099 I agree with my colleugues who have said it is not a waiver.  And remember that your lien holder has the right to amend its tax return, so pursuing you for a deficiency, after amending the 1099, would not be contradictory.  I also agree with John Brassner who says that having the 1099 can only help - depending on the timing and circumstances, it may enable you to raise estoppel (in its various forms including laches)(http://en.wikipedia.org/wiki/Estoppel) as one of many defenses.

 

As always, with all legal issues, you are advised to consult a lawyer.

While there may be uncertainty as to the terms and conditions under which a bank can/will collect after a short sale or foreclosure two things are definite. If the bank opts to pursue a deficiency after a short sale when the balance owed is less they most certainly will in a foreclosure when it's more. A short sale still seems to be the best of the worst case scenarios. Also, whether the bank even has a right to collect depends on the state you live in. If you reside in a recourse state like I do in FL they have the right to pursue a deficiency judgment; however in a non-recouse state once the bank settles it has no legal right to collect on the debt. I'm attaching a link I found that lists which states are recouse and which ones are not. For some of you there is absolutely no need to worry; for the rest of us there is cause for concern.

http://www.forecloseddreams.com/recourse_states

Hi Amanda,

 

In your defense, I have heard attorneys state the above as well...here in California, the Short Sale Lender was doing exactly that.  They were issuing a 1099 (c) and then going after borrower for the deficiency. Wrong?? Absolutely, on so many different levels.  Most Lenders walk away and call it a day...It really depends on the note and the Lender. Remember, anyone can sue any one for anything at any time...Doesn't make it right.  This is why California passed a law for all holders of 1st mortgages who accept a short sale on a home that qualifies as the borrower's primary residence disallowing them to come after a deficiency.  I am seeing very clear deficiency waivers in short sale approval letters now that I had not seen before without requesting that the deficiency language be there...

While there may be uncertainty as to the terms and conditions under which a bank can/will collect after a short sale or foreclosure two things are definite. If the bank opts to pursue a deficiency after a short sale when the balance owed is less they most certainly will in a foreclosure when it's more. A short sale still seems to be the best of the worst case scenarios. Also, whether the bank even has a right to collect depends on the state you live in. If you reside in a recourse state like I do in FL they have the right to pursue a deficiency judgment; however in a non-recouse state once the bank settles it has no legal right to collect on the debt. I'm attaching a link I found that lists which states are recouse and which ones are not. For some of you there is absolutely no need to worry; for the rest of us there is cause for concern.

http://www.forecloseddreams.com/recourse_states
Amanda. I agree completely. I can't think of any situation where a foreclosure would be better than a short sale.

What does Verticrest will not pursue a deficiency Judgment on the deficient balance means?

 

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