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Permalink Reply by Melanie Ross on April 10, 2011 at 6:04am

yes, it has to be one or the other.  The bank cannot have it both ways. Once it has been considered settled for less, it is SETTLED and reported to the credit bureaus as such.  Done, gone, over with.  I am not an accountant but there is an accounting of how this is reported in the banks financials etc.

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Permalink Reply by Bobbie Files on April 11, 2011 at 12:46am

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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Permalink Reply by Dieter Diaz on April 11, 2011 at 11:22am

The homeowner is going to be getting a 1099c regardless of whether there is a deficiency involved or not because the  bank is passing the loss to the homeowner as income. The homeowner is to seek expert advice from a CPA or qualified tax person that can help them deal with the repercussions. Here in California a CPA has advised that the 1099c can be dealt with by claiming insolvency which a lot of homeowners will be able to do. Every single case is different but there truly is no way to avoid receiving a 1099c whether the house sells as a short sale and specially as an REO. Every single homeowner needs to consult a tax professional or CPA to find out what the outcome could be for their particular case. I am not a CPA nor tax professional.

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