Anyone out there ever had a SS approved but homeowner still held liable for debt? If so, what did you do to resolve? I am going to send BB&T a letter stating that if they are unable to forgive the debt, the HO will allow the foreclosure to proceed. Just looking for suggestions. Thanks!!!
Great question Sara. I hope you get some answers b/c thats something that I need to know as well. Because how can what we are trying to do be classified as win-win-win if the lender goes after our HO after we do our SS?
Don’t know if I could go through with a deal if I know the HO is going to be pursued for the deficiency. What would be the benefit for the HO if what we do results in a deficiency judgement?
It is my understanding that the bank will either file the 1099-C for debt forgiveness or seek the deficiency judgment. While it would in most cases be better to have the 1099, the deficiency judgment can be included if the homeowner is seeking bankruptcy protection. Foreclosoures hurt your credit for 7-10 years, while a bankruptcy is more in the 2-4 year range.
Finally, just because a home goes to foreclosure does not rule out the possibility of the deficiency judgment. Example: Homeowner owes 100k on a 80/20. The auction price is 80 and there are no bidders. Home then sells as an REO for 75K. Second could seek deficiency for 20k and first for 5K.
2-4 years on bankruptcy?!? That’s all? So foreclosing is 2-3x as bad for your credit than a bankruptcy. IIRC I thought bankruptcy laws recently changed (2006) and not only did it become harded to file but also marked your credit longer than what it traditionally always had. <<<please comment.
Also, is the 1099-C a way the lender can write-off their loss by having SS’ed the property to the investor? If so, wouldn’t that be a better deal from a corporate taxation standpoint than to pursue a financial broken “former” borrower for the money? Hell, banks and lenders need as many write-offs as they can get their hands on to offset the windfall of profits that they realize every year. Lets face it, yes bank and lenders are loosing money on what we make money on in these SS’s but look at their profitable portion of their books…huge revenues were talking. So wouldn’t it be better for them to just 1099-C everything…unless they know the prior HO had other assets that they could try to recover… <<<if possible, please comment on this too.
I just sent a letter back to BB&T asking again for the HO to be released from the remaining debt. Otherwise, she will have to proceed with the foreclosure or file bankruptcy. The HO has another home that will be going into foreclosure soon so you can’t get blood from a turnip. Will let you know what they say.
I don’t know if there is any truth to this, but an investor I know told me that if the HO gets a 1099 from the lender for the deficiency, they can go to their accountant, and the acct. has a way of writing it off as a loss so they don’t have to pay anything. I’m sure it depends on each situation, but maybe someone here knows this stuff or is a CPA?
I’d like someone to verify this as well. This is what I tell the sellers that I deal with, but I haven’t put it into practice yet and don’t anyone that has. It seems logical so I use it as my explanation.
Sara, any news or updates? This is a good post.
The homeowner may be able to avoid paying taxes on the 1099 income if they are insolvent. See IRS publications 544 and 908 for applicable information … http://www.irs.gov/pub/irs-pdf/p544.pdf
IRS form 982 would be the form the accountant would use to forgive them of their debt
Basically, accountant claims that the former homeowner is insolvent
…didnt see your post their swgprop
Here’s an update from BB&T. They will NOT forgive the debt owed unless the HO pays at least 1/2 of what’s due. If they don’t, BB&T will accept the SS deal in order to release title to the home but the HO’s file will then be sent “to another department” and someone in that department will call them in order to negotiate a payoff of the remainder due. I was told by BB&T that it’s “usually pennies on the dollar.” Don’t know if there are other banks out there doing this or not but just my experience with BB&T.
Sara: The potential for BB&T to pursue the debt is dependent on a number of things, not the least of which are the laws of the state in which the property is located. A certain servicer with whom I am familiar categorizes debt like this between collectible and noncollectable. It then assigns the collectible accounts out to collection firms who will go after the debtor. Up for negotiation at that point. Could be pennies on the dollar, the debtor could just ignore them until they go away, or if the situation warrants they might get sued for the deficiency. Impossible to predict without knowing all the facts - and then still impossible to predict unless they are legally disallowed.