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Deficiency Judgment / 1099

Foreclosure on my home in New York affecting my other home in South Carolina

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Question: I built a home in New York two and a half years ago for my daughter to live in. The mortgage and title is in my name only for a current balance of $147,000.00. My wife and I live in South Carolina. Our condo here is on the edge. We could probably sell it for what is owed. We also have a boat that probably has $30,000.00 in equity. Add in a Money Market Account with $35,000.00 and $60,000.00 in what were 401K’s but are now rolled into simple IRA’s. Credit card debt is about $10,000.00 Cars are bought and paid for. My daughter has not been able to make the mortgage payments for the last eight months. I have been making them, along with all of my own payments. It has come to the point where I am going to have to let the bank have the house back. I have about $50,000.00 wrapped up in the house, but when the bottom dropped out in rural upstate NY, it really dropped out, and I could not sell the house at this time. If I let the house go into foreclosure, can they touch any of my other assets. My wife is co-signitor on the condo and boat, but again, not on the NY house. I have excellent credit, but I’m at the age where I seriously doubt that I will be making any major purchases any time soon.

Answer: -Can they come after your assets? No. Because when you signed the paperwork, the bank agreed to loan you the money and used the house as collateral. However, if you ultimately go through foreclosure, the bank has the right to file a judgment against you for the amount they lost. So you are expected to pay the difference or in most cases people will file bankruptcy to eliminate the judgment. By doing so would require you to sell some or all your assets. So the best option is to work out a pay off or settlement with the bank for a fraction of what you owe on the loan. This is called a short sale. By having the bank approve a short sale and asking them to satisfy the loan, they give up their right to file a judgment. You’ll also able to avoid foreclosure and possible bankruptcy. Again the key here is to get them to “satisfy the loan”. By doing a short sale, you’re also giving the buyer a good deal on a home that is upside down. Now if you are successful in getting a short sale approved, more than likely they will just 1099 you for the difference. But that’s a lot better than a judgment. And there is a chance they won’t 1099 you either.

We have a home in NY that we were unable to sell and will be going into foreclosure after trying to get the loan modified and bad renters.

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Question: We have a home in NY that we were unable to sell and will be going into foreclosure after trying to get the loan modified and bad renters. We currently live in PA and the PA house is paid for…will they come after me for the deficiency, put a tax lien on the PA residence or 1099 us? Thank you for your help.

Answer: -Typically they can’t come after your other assets because the loan was created based on the properties value which was collateral for the loan. So in the event you didn’t follow through with the terms, they could take the property. Now with that said, yes they can file a judgment against you which would affect your “assets” because you would have to pay that back or file bankruptcy. It’s more common that they would 1099 you for the amount they lost but you never know. They best way to counter a deficiency judgment is to do a short sale and get it accepted as full satisfaction for the loan. This means they give up their rights to go after the homeowner for a judgment. All they can do is issue a 1099. So I would definitely try to do a short sale because it also helps your credit.

2 houses in Arizona, unable to modify our loan. If the house sell in short sale or if I give the house back to the bank can they come after our primary residence?

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Question: We don’t know what to do, we have 2 houses in Arizona, 1st house we took out a loan of $60k (leaving us a loan amount of $220k) and used those $60k to build our 2nd home which is now our primary residence we have been living in it for 1yr 4months and we were renting out the 1st house to help us pay the loan, but now we have been unable to get renters in and my husband got fired from work and has been unable to find a job, this month will be our first month not be able to make the mortgage payment, I called the bank and they told me that they were unable to modify our loan since we have 2 houses and 1 is not owner occupied. I spoke to anther department and asked them about a deed in lieu foreclosure, all they told me was that the house would need to be in short sale for 90 days before they could talk to me about that. So my question is if the house sell in short sale or if I give the house back to the bank deed in lieu foreclosure can they come after our primary residence to collect money and if they will can I change the deed of trust to owner primary home (which is free and clear of any loans) before the bank tries to get involved to someone elses name so the bank wont take away our primary residence away? Thank you.

Answer: -This is a very common question…can the bank come after my other assets if I do a short sale, deed in lieu foreclosure or it just goes to auction. The answer is “NO”. When you signed the paperwork with the bank it specifically states that the home would be sufficient collateral for the loan. The only way they could come after other assets is if you pledged them as additional collateral in order to get the loan. So you don’t have anything to worry about. What you do have to worry about is a deficiency judgment where the lender can sue you for the difference that was not collected. Although this procedure is not common at all, it does happen once in a while and is more common in mortgage states. It does not happen very often because homeowners will just file bankruptcy and wipe it out altogether, which means the bank loses even more money. So more often they will issue the homeowner a 1099 for the amount they lost, which could be a significant amount. That is why a short sale is a better alternative because it’s less damaging on your credit, you can eliminate the deficiency judgment altogether if done properly, and in many cases you don’t have to pay as much when they 1099 you.

My father’s home recently foreclosed and our bankruptcy lawyer did not file the bankruptcy prior to the foreclosure.

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Question: Hello:

Please help. My father’s home recently foreclosed (last week) and our incompetent bankruptcy lawyer did not know it was important to file the bankruptcy prior to the foreclosure which would have cleared any tax consequences or deficiency judgment against him. Since my father has filed bankruptcy AFTER the foreclosure, I understand the lender will either forgive the debt and issue a 1099 to the IRS or seek a deficiency judgment. My question is, if the lender decides to seek a deficiency judgment, will the deficiency amount be discharged in the bankruptcy – although he filed the bankruptcy after the foreclosure? Please advise. Thanks!

Answer: -More than likely you won’t even have to worry about the deficiency judgment because most lenders don’t file a deficiency judgment against homeowners. It is much more common for them to issue a 1099. But yes, if by chance they did file a judgment against him, filing bankruptcy after foreclosure shouldn’t matter. In fact, most homeowners will file bankruptcy after they are hit with the deficiency judgment so it will be wiped out.

I have a mortgage and home equity line of credit I am in Florida. If my property is foreclosed upon what happens to the equity line of credit?

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Question: I have a mortgage and home equity line of credit on the same property with Countrywide. I am in Florida. If my property is foreclosed upon what happens to the home equity line of credit? Also am I held liable for taxes up to the foreclosed date?
Thanks

Answer: -If your home has a first and second with the same lender, Countrywide, it’s almost treated like it’s one loan. If they send it through foreclosure, they’ll probably start at just what’s owed on the first and hopefully get someone to bid on it…If no one bids then they’ll end up with the property. Then they’ll probably write off that 2nd in which they could file for a deficiency judgment but more than likely they will 1099 you for that amount they lost and you’ll have to pay taxes on it. As for the property taxes, they’ll have to pay those in order to sell it to an end buyer.