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Permalink Reply by Smitty on September 18, 2011 at 3:52am

There was a very interesting discussion about this recently on this site.  Harry one of our members, was of the opinion that just because a 1099 was issued that didn't mean the lender couldn't pursue the homeowner in court for the deficiency.  I had the oposite opinion, in that if your deficiency is "forgiven" there is NOTHING the lender can pursue in court.  Basically I spoke to an accountant and two lawyer who stated if you get the 1099, there is no balance they can pursue as they "forgave" it.  Now, Harry brought up a good point.  At any time a lender COULD hypothetically ammend the 1099, and then pursue the homeowner.  I don't see that happening, but I suppose it could.

 

Here's the other thing to keep in mind...to this date, I've NEVER seen a lender pursue a homeowner for a deficiency..although I've only had two approval letters having lenders "reserve their right" to pursue.  It doesn't mean they can't pursue you either.  I've asked other agents if they've ever had a homeowner pursued and not ONE said they've had it happen.  I think lenders are already so far underwater and it costs them MORE money to go to court, they just aren't doing it.

 

Basically if you have the 1099 in hand, I think you are good to go, but would you write back and let us know the language that the contract states?  Specifically where it says they will issue a 1099, but that doesn't constitute the release of the deficiency.  I'd like to read it.

 

 

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Permalink Reply by Steve Maxson on September 18, 2011 at 4:18am

Thanks for the reply, the language in the contract does not specifically state the issuance of a 1099 doesnt constitute the release of the deficiency.  My lawyer stated that the lender, by refusing to put specific language in the contract releasing me of the deficiency leaves the right open to pursue it, and that they could in fact re-issue the 1099 if they decide to do so.  He agreed that the likelihood is not high, and the lenders Short Sale negotiator we worked with said they have performed over 3,000 short sales and have yet to pursue a deficiency.  The reality is they have left their options open and another path the lender can take is to sell the bad loans to a collector and they can pursue it, though my lawyer said he could defend against more easily than the lender. There is a 5 year statute of limitations for action by the lender. 

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Permalink Reply by Smitty on September 18, 2011 at 4:31am

Well, from the lawyers and accountants I've spoken with, if you get the 1099, you are all set, but UP UNTIL that point, of course they CAN pursue you.  Once the 1099 is issued, there is no debt left to pursue.  The likelihood of them amending a 1099 is probably slim to non at best, but again, it doesn't mean they can't.  Not every short sale contract has specific verbiage about forgiveness of deficiency.

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