Question: WILL YOU EXPLAIN WHAT HAPPENS AFTER FORECLOSURE… I HAD A FORECLOSURE SINCE 2008 BUT I STILL GOT A LETTER FROM COLLECTION FOR THE AMOUNT I OWED FROM MY HELOC. MY QUESTION IS HOW COME THEY DID NOT SEND ME A 1099 FORM LIKE MY FIRST MORTGAGE DID ONE YEAR AFTER FORECLOSURE.
Answer: -This is a great question but first lets look at the foreclosure process because I think it will help you understand why this happened.
Here’s What Happens After Foreclosure
After the foreclosure process, or lets say auction, a couple of things happen depending on what state you live in and what kind of liens were on the property. In some states there is a deficiency period after the foreclosure auction. This is the time allotted for the homeowner to cure the loan (very rarely happens). Once the redemption period is over the sale if final and either a) the home is owned by the highest bidder or the home goes back to the bank.
If the bank owns the home, they will contact their REO listing agent that is in the area and try to get the thing sold. With a lot of these homes right now in inventory, they will typically put it on the market for LESS than what it’s worth, just to try and move the inventory. They might lose a little on the deal depending on the market conditions.
If there was a 2nd mortgage on the property, as in your case, it has just been wiped out; unless of course someone bid on it. Because the 2nd mortgage is treated this way, they stand to lose the most and are the ones you have to be concerned about because they are not very happy right now. More than likely they didn’t get anything. Here is what happens after foreclosure – they have 3 options. Either do nothing, 1099 the homeowner, or file a lawsuit against the homeowner – a deficiency judgment. In many cases they do 1099 the homeowner just like the 1st. The difference is the first was secured by a physical home and in some states they can’t file a deficiency judgment even if they wanted. They almost always 1099 because they got the property. The 2nd got nothing and there is no law that says the 2nd can’t file a judgment.
However, that being said, they also have to choose their battles wisely. It costs them even more money to file a judgment. So most of the time they will file if it looks as if the homeowner has assets. The reason is because of bankruptcy. Most homeowners who receive a judgment, cannot pay for it so end up filing bankruptcy. They are hoping they can get something from the homeowner by filing bankruptcy.
You’re best option is to try and settle with them. Work out something, a payment plan, anything. Even if it’s for a few thousand bucks. You have to convince them that you are flat out broke and have no money. Some of these collection agency’s are tough to deal with too. It’s their job to scare and play hard ball. Sometimes it even requires the service of an attorney to negotiate with them because they simply won’t listen. This is typically what happens after foreclosure.