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This is an email that I sent to the MA Attorney General and the response regarding this exact issue:
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.
Sincerely,
Nicholas Downing
Constituent Services Coordinator
Public Inquiry & Assistance Center
Office of the Attorney General Martha Coakley
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