Forum

Is there truly forgiveness of debt?

Posted by Amanda R. Cowan, P.A. on May 27, 2011 at 9:45am in Short Sale Discussions

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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Replies

  • Neddie B. May 30, 2011 at 12:29pm

    Maria, similar to what Bryant and Amanda said above, with a short sale you are reducing your liability and possibly eliminating it NOT SO with a foreclosure.

    It appears that the deficiency is being forgiven which is what you want BUT you are posting bits and pieces of the letter and peppering it with your own comments and not breaking it down in paragraphs making it a bit hard to read and understand.  ASK an attorney to interpret it for you, it may cost you $200 or so to do but you would at least know for sure or ask your real estate agent for guidance.  

    I know that what you are going through is very stressful, just take a deep breath and try and sort through all the information you are being presented with.  Also, go back and read the first two lines of this post.

    The above is not intended to be legal advice.  I am not an attorney and do not play one on TV.

     

  • Maria May 30, 2011 at 10:57am
    I thank you for taking the time to reply to our concern however we are located in Kissimmee Florida and the letter I got was given to me through my Realtor it is from the financial Vericrest it is a letter of short Sale acceptance and the house we own is only worth$ 60,000.00 and we still oh over $172,000.00 which there is a big negative the man who is buying the house is buying cash and his driving from Virgina and I was very clear to my Realtor that we will back off the deal if we do not get a forgiveness letter or a letter Wipe off letter at the table the same day of closing. We will walk away if we don't see the forgiveness letter which would be the first thing my husband and I will be looking for. The other Realtor said that the letter I get is the one of the Short sale and I know better then that and i explained to her I have nothing future to say other then those will be the paper we will be looking for. The letter I have is only a letter from my Financial which is Vericrest Financial and in one part of the letter it says the contract sales price shall not be less then $60,000.00 another part reads: The seller's settlement charges to be withheld from the net proceeds check shall not be greater than $4,240.00. The sellers settlement charges include $1,200.00 for HOA, $0.00 for buyer Credit. in another part it reads the net proceeds check Vericrest at closing shall not be less than $52,985.24 any additional fee/Cost assocaited with the sale must be negotiated among and paid for by the seller, Buyer, and/ or real estate agent in number 4. says the actual payoff due through the anticipated close of escrow date is estimated at $120,066.00 the payoff includes unpaid balance.then  when I read number 8. Vericrest will release its lien upon the property onces all conditions of the letter are satisfied.VERICREST WILL NOT PURSUE A DEFICIENCY JUDGMENT ON THE DEFICIENT BALANCE....WHICH NUMBER 8. IS THE MAIN QUESTION I HAVE IS IT saying there not pursue a deficiency judgment on the balance am I good to go on closing or after the sale there going to hit me with the different like they do other people then number 10 says there may be tax consequence as a result of a short sale or negotiated payoff. You are encourage to contact a tax professional to identify any tax liabilities you may have then the far end of the letter reads THIS IS AN ATTEMPT BY A DEBT COLLECTOR TO COLLECT A CONSUMER DEBT AND ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE WHAT CAN YOU ADVISE US ARE WE SAFE TO CONTINUE WITH THE CLOSING OR SHOULD I BE EXPECTING A LETTER OF FORGIVENESS OF DEBT OR WIPE OF AT THE TABLE JUNE8 I THANK YOU FOR HELPING US AND GUIDING US THE WAY GOD BLESS AND THANKS A MILLION..<3

    Maria said:
    I thank you for taking the time to reply to our concern however we are located in Kissimmee Florida and the letter I got was given to me through my Realtor it is from the financial Vericrest it is a letter of short Sale acceptance and the house we own is only worth$ 60,000.00 and we still oh over $172,000.00 which there is a big negative the man who is buying the house is buying cash and his driving from Virgina and I was very clear to my Realtor that we will back off the deal if we do not get a forgiveness letter or a letter Wipe off letter at the table the same day of closing. We will walk away if we don't see the forgiveness letter which would be the first thing my husband and I will be looking for. The other Realtor said that the letter I get is the one of the Short sale and I know better then that and i explained to her I have nothing future to say other then those will be the paper we will be looking for. The letter I have is only a letter from my Financial which is Vericrest Financial and in one part of the letter it says the contract sales price shall not be less then $60,000.00 another part reads: The seller's settlement charges to be withheld from the net proceeds check shall not be greater than $4,240.00. The sellers settlement charges include $1,200.00 for HOA, $0.00 for buyer Credit. in another part it reads the net proceeds check Vericrest at closing shall not be less than $52,985.24 any additional fee/Cost assocaited with the sale must be negotiated among and paid for by the seller, Buyer, and/ or real estate agent in number 4. says the actual payoff due through the anticipated close of escrow date is estimated at $120,066.00 the payoff includes unpaid balance.then  when I read number 8. Vericrest will release its lien upon the property onces all conditions of the letter are satisfied.VERICREST WILL NOT PURSUE A DEFICIENCY JUDGMENT ON THE DEFICIENT BALANCE....WHICH NUMBER 8. IS THE MAIN QUESTION I HAVE IS IT saying there not pursue a deficiency judgment on the balance am I good to go on closing or after the sale there going to hit me with the different like they do other people then number 10 says there may be tax consequence as a result of a short sale or negotiated payoff. You are encourage to contact a tax professional to identify any tax liabilities you may have then the far end of the letter reads THIS IS AN ATTEMPT BY A DEBT COLLECTOR TO COLLECT A CONSUMER DEBT AND ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE WHAT CAN YOU ADVISE US ARE WE SAFE TO CONTINUE WITH THE CLOSING OR SHOULD I BE EXPECTING A LETTER OF FORGIVENESS OF DEBT OR WIPE OF AT THE TABLE JUNE8 I THANK YOU FOR HELPING US AND GUIDING US THE WAY GOD BLESS AND THANKS A MILLION..<3

    Paul Antonelli said:
      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. Info@PaulAntonelli.net

    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.

  • Maria May 30, 2011 at 10:55am
    I thank you for taking the time to reply to our concern however we are located in Kissimmee Florida and the letter I got was given to me through my Realtor it is from the financial Vericrest it is a letter of short Sale acceptance and the house we own is only worth$ 60,000.00 and we still oh over $172,000.00 which there is a big negative the man who is buying the house is buying cash and his driving from Virgina and I was very clear to my Realtor that we will back off the deal if we do not get a forgiveness letter or a letter Wipe off letter at the table the same day of closing. We will walk away if we don't see the forgiveness letter which would be the first thing my husband and I will be looking for. The other Realtor said that the letter I get is the one of the Short sale and I know better then that and i explained to her I have nothing future to say other then those will be the paper we will be looking for. The letter I have is only a letter from my Financial which is Vericrest Financial and in one part of the letter it says the contract sales price shall not be less then $60,000.00 another part reads: The seller's settlement charges to be withheld from the net proceeds check shall not be greater than $4,240.00. The sellers settlement charges include $1,200.00 for HOA, $0.00 for buyer Credit. in another part it reads the net proceeds check Vericrest at closing shall not be less than $52,985.24 any additional fee/Cost assocaited with the sale must be negotiated among and paid for by the seller, Buyer, and/ or real estate agent in number 4. says the actual payoff due through the anticipated close of escrow date is estimated at $120,066.00 the payoff includes unpaid balance.then  when I read number 8. Vericrest will release its lien upon the property onces all conditions of the letter are satisfied.VERICREST WILL NOT PURSUE A DEFICIENCY JUDGMENT ON THE DEFICIENT BALANCE....WHICH NUMBER 8. IS THE MAIN QUESTION I HAVE IS IT saying there not pursue a deficiency judgment on the balance am I good to go on closing or after the sale there going to hit me with the different like they do other people then number 10 says there may be tax consequence as a result of a short sale or negotiated payoff. You are encourage to contact a tax professional to identify any tax liabilities you may have then the far end of the letter reads THIS IS AN ATTEMPT BY A DEBT COLLECTOR TO COLLECT A CONSUMER DEBT AND ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE WHAT CAN YOU ADVISE US ARE WE SAFE TO CONTINUE WITH THE CLOSING OR SHOULD I BE EXPECTING A LETTER OF FORGIVENESS OF DEBT OR WIPE OF AT THE TABLE JUNE8 I THANK YOU FOR HELPING US AND GUIDING US THE WAY GOD BLESS AND THANKS A MILLION..<3

    Paul Antonelli said:
      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. Info@PaulAntonelli.net

    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.

  • Maria May 30, 2011 at 10:05am

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

     

  • Bryant Tutas May 30, 2011 at 6:58am
    Amanda. I agree completely. I can't think of any situation where a foreclosure would be better than a short sale.
  • Amanda R. Cowan, P.A. May 30, 2011 at 6:48am
    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
  • Jan Sanderlin May 30, 2011 at 6:47am

    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...

  • Amanda R. Cowan, P.A. May 30, 2011 at 6:45am
    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
  • Neil Blumberg May 30, 2011 at 5:47am

    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.

  • Lucien Vaillancourt May 30, 2011 at 5:18am
    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.
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