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Deficiency Judgment / 1099

Idaho Deficiency Judgments and Anti-Deficiency Laws

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Question: I know that Idaho allows Deficiency Judgments. I’ve heard that Idaho also has Anti-Deficiency laws and that they apply only to 1st mortgages on a primary residence. Is this true? What criteria needs to be met to be protected by the anti-deficiency law in Idaho?

Answer: – It’s so hard to say because every state is different. Typically states with anti-deficiency laws apply only to 1st mortgages, and it must be your primary residence. It may also depend on what type of loan you have. In Arizona, despite the anti-deficiency law, if it’s a VA loan, they can file a deficiency judgment. In most cases throughout the U.S., lenders very rarely file deficiency judgments on 1st mortgages, they just take back the collateral. Lenders in 2nd position are more likely to file deficiency judgments because they are the ones taking the biggest losses and they have no way to re-coop their losses because the first took the house. And even still, most of them will 1099 the homeowner. One of the best things you can do is have someone negotiate a short payoff or a short sale on your home and have the lender agree to a “satisfaction” which means the lender is giving up their right to go after the homeowner for the deficient amount. If they only agree to “release the lien” then they still have their right to file a deficiency judgment.

Idaho laws? How many days to file deficiency judgment and 1099? Can the lender do both, send a 1099 and file deficiency judgment?

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Question: Idaho laws? Balance at time of foreclosure 465K, opening and closing bid 247,500 sold back to lender. How many days to file deficiency judgment and 1099? Can the lender do both, send a 1099 and file deficiency judgment?

Answer: – Typically they will choose to either 1099 you or file a deficiency judgment. Not both. In terms of when that will happen, your guess is as good as mine. Usually it’s pretty quick. Sometimes it takes a little while. There are other factors that also influence when they will issue the 1099 or judgment. Like what lien position they are in. It makes a difference whether they are in 1st position or 2nd position. A lot of times, the 2nd lien holder will not file for a very long time, sometimes up to several years before you see anything. I’m assuming in this case you are referencing a 1st lien holder so my guess it that you will know something very quickly.

The most common outcome is a 1099 from the 1st lien holder. So really what you have to be aware of are the tax obligations. They will count that deficient amount as income to you. So make sure you have a good accountant who can usually counter that tax obligation by claiming insolvency. Usually that’s a far better option that bankruptcy or having to work out a payment plan to pay back the amount that is deficient.

Short sale and release of lien

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Question: Close to signing a short sale agreement between my first(Countrywide) and second(WAMU). this is a rental, Countrywide has settled, second will accept $7000 to release the lien, however they still want to come after me for the $93,ooo balance. Broker(advocate) was told that WAMU has already charge of the second as bad debt. Can WAMU sell the note to a collector that will still come after us for the full 93,000K. Been advise to try to settle with wamu at an agreed amount and make $100/MONTH PAYMENTS TO LIMIT LIABILITY. Any other questions to consider? If the house goes into foreclosure, Countrywide does a trustee sale are we finished with wamu too?

Answer: The best thing you can do is ask for a satisfaction of the loan. Ask them how much they need to “satisfy” the loan. Typically you’ll have to pay more for a satisfaction of loan, but they give up their right to come after you for the difference. If they’ve agreed to “release the lien” then yes, they can and usually will come after you for the difference. If the home goes to foreclosure, you can bet WAMU will file a deficiency judgment because it sounds like that is what they are planning to do anyway. So, no, you are most likely not finished with WAMU. The best thing you can do is try to get them to accept a satisfaction. Good Luck.

Deficiency judgement on a Trustee Sale?

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Question: In the state of Idaho can a lender obtain a deficiency judgement on a Trustee Sale or must they use a Judicial Foreclosure?

Answer: -Yes, lenders can file a deficiency judgment no matter if it was foreclosed judicially or non-judicially. Typically it’s more common to see deficiency judgments on properties foreclosed judicially but I live in a state where trust deeds are the primary security instrument and deficiency judgments are filed sometimes. In most cases they 1099 the homeowner.

Who is responsible for the difference of the original loan amount if a short sale is accepted?

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Question: Who is responsible for the difference of the original loan amount if the property is redeemed by the mortgagor, or if the property is sold in a short sale? Who is responsible for the difference? The money lost on the original loan?

Answer: -The individual(s) who signed on the dotted lines and promised to pay the loan back are responsible for the difference. The lender has the option of doing nothing and counts it as a loss, or they can 1099 the homeowner for the difference, or they can file a deficiency judgment against you for the whole amount. If they file a deficiency judgment against you, the only way to get rid of it is to file bankruptcy or pay it off. If they 1099 you for the difference and count it as income, you can fill out a form (982) the IRS has that (in most cases) will counter the 1099. So really all you have to worry about is the deficiency judgment. And a good short sale expert knows how to avoid that so it’s rarely an issue. Most of the time they just 1099 you for the difference.

Short Sale Tax Liability to Seller

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Several years ago i had property go back to the lender..my debt was 150K…
the back accepted an offer from an investor for 125K …the following
January i rec’d a form 1099 from the bank showing a “charge off” of 25K ..which is treated as ordinary income…i was’nt expecting this….

Now fast forward to now.. i have a deal working to get a short sale accepted to save this seller from foreclosure and give him a little moving cash…  Seller thinks all is well and i’m a great guy till next Jan. when he gets a 1099-c for income he’s never seen..

QUESTION?…do i tell him in writing up front that there could be tax liabilities and risk the chance of losing the deal?

Suggestions? comments?

Answer:

Absolutely without question you tell them they will be receiving a 1099 for the amount that was forgiven.  The tax liability would be worse if it wasn’t for you, right?  They are either going to 1099 them or file a judgment ANYWAY… Regardless of what you do!  You are actually bettering their situation.

This is a common concern for most investors, however there is a solution. There is a form the IRS puts out that counter acts a 1099. You can find it on www.irs.gov. It is form 982. Yes, you should always disclose to the seller the risks involved, but your main concern is a deficiency judgment now.

You need to read the Short Sale Secrets ebook that I have, it would help you tons…