The State’s Response to a question on 1099c and Collection Activity…

As my readers (and anyone who knows me) know, I am a Short Sale Specialist.  I aggressively fight for the right of home owners to get them out of their unaffordable mortgages all the while with the intent of removing them from future liability.

Please read an email I sent to the Massachusetts Attorney General:

I have a question as to the state’s laws on allowing a lender to proceed with collection activity after issuing a 1099C to a consumer.  A 1099C by its very name says a debt was cancelled by the lender and the amount reported on a persons taxes.  How can it be legal for a mortgage lender to issue the 1099C and then proceed to start collection activity? Any dime the consumer pays back after appropriately filing the 1099C and paying taxes on the “gift of equity” or the “phantom income” invalidates that 1099C as the money at that point was wrongly reported and is actually an ongoing debt.

What is the Commonwealth’s stance on this?  What laws are in place to protect the consumer and prevent this double dipping?

If there are no laws in place at this point, it seems to be a big loophole in the law that allows a mortgage lender to “have his cake and eat it too”.

Thank you in advance for your prompt response.

Here is the response I received:

Dear. Mr. Files:

Thank you for contacting the Office of Attorney General Martha Coakley.  Your message has been forwarded to me for response.

The Massachusetts Consumer Protection Act, G.L. c. 93A, section 2, prohibits unfair and deceptive acts in commerce.  Were any creditor to take action to collect a debt that was previously written off, it is possible that such conduct might constitute a violation of said statute.

Such conduct also might possibly constitute a violation of 940 CMR 7.07(2), which says

It shall constitute a deceptive act or practice to engage in any of the following       practices:

(2) Any knowingly false or misleading representation in any communication as to the     character, extent or amount of the debt, or as to its status in any legal       proceeding, provided, however, that an incorrect or estimated bill submitted by a       gas or electric utility company regulated by M.G.L. c. 164, and the Department of       Public Utilities shall not be prohibited by 940 CMR 7.07;

I hope this information will be useful, and thank you again for contacting the Office of Attorney General Martha Coakley.


Nicholas Downing
Constituent Services Coordinator
Public Inquiry & Assistance Center
Office of the Attorney General Martha Coakley


Please print this out and keep it for your records to have handy in case needed! Also, please forward this to any Massachusetts home owner who is currently OR has completed a short sale.

Bobbie Files, C.D.P.E.
Certified Distressed Property Expert
Your Bristol and Plymouth County Realtor
508-238-5000 x.296 Office
508-521-9480 Direct / SMS
888-570-9907 Toll Free Direct Fax
[email protected] Email

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Comment by Wendy Rulnick on March 7, 2011 at 4:29pm
Good fighting!
Comment by Bobbie Files on March 7, 2011 at 4:13pm
The seller and I talked at length.  I cc'd them this email.  They are going to sit quiet for a bit and see if this is just a few threat phone calls from a 2-bit shark collector.  Massachusetts also has a law that they only have 2 years to file a judgement. So, in case the A.G.'s info is incorrect and there is in fact a legal loophole for the snakey collector, they want to pacify and drag it past the 2 year marker.  If they start to push hard before that, then they are prepared to hire an attorney with this info.
Comment by Wendy Rulnick on March 7, 2011 at 4:08pm
Bobbie - That is unbelievable.  Did it put a stop to them?
Comment by Bobbie Files on March 7, 2011 at 4:00pm
Yes.  Chase issued a 1099C to my seller. 14 months after the closing some  collection company called on behalf of Chase asking for the money!!! I asked 4 different Attorneys and got 12 different answers, so I decided to go right to the A.G.
Comment by Wendy Rulnick on March 7, 2011 at 3:56pm
Bobbie - Very good reference material and research by you.  Have you had a case where a creditor went after someone after issuing a 1099C?


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