When your condominium was foreclosed, you probably had two loans on it. One loan was for your main mortgage and the second was for a home equity line of credit (HELOC). Although you may have received a 1099 tax form from your lender, you did not mention whether the 1099 form was an IRS 1099-C form or just an IRS 1098 form or if you even received a 1099-C from the two lenders.
An IRS Form 1099-C is for cancellation of debt. This form is usually given by a lender when they have written off the debt from their books, but this form is for IRS purposes. The debt may actually exist, and the lender may have written it off its books, but may have sold it to a collection agency for pennies on the dollar.
If you had gone through the short sale process with the lender, you might have received a letter from the lender stating that they have released you from debt. In this case, the lender could not sell the debt or sue you later for repayment.
Your home has been foreclosed and the lender may still have the right to sell the debt even though they have canceled the amount you have not repaid to the lender.
If the 1099-C you received was from your primary lender and not your HELOC lender, they have not canceled the debt and still consider you an active debtor and think they could get something out of you. If you just received an IRS Form 1098, this form simply reports the interest you paid to the lender. We would have expected you to receive two 1099-Cs: one from your primary mortgage lender and a second from the HELOC lender.
But again, depending on the state you live in, a HELOC lender may have the right to sue a borrower for money owed after a foreclosure. Remember that in states that allow deficiency judgments – the difference between what the lender gets in a foreclosure and what’s owed on the loan – the lender can get that judgment and still try to get money. money from you. When you signed the loan documents, you personally agreed to repay the money and pledged your home as collateral. When the house was foreclosed, the lender was not repaid in full and can still sue you for the amount owed under the promissory note you signed.
For more information about your particular problem, you would want to speak to a bankruptcy or foreclosure attorney in your area. In particular, some states require lenders to take certain steps to obtain judgment against you after a foreclosure. If the lender fails to meet these requirements, they may lose the right to sue you for the money you owe. These laws may not be statutes of limitations, but they do restrict a lender’s ability to sue you for unpaid money. Other states have broader rules that allow lenders to sue you for years of unpaid money after foreclosing on a loan.
Given these differences, you need to know where you stand before you think you can negotiate a smaller amount to pay the lender than the full amount. Although the collection agency may agree to take a lesser amount, they may insist that you pay the full amount.
If you don’t, they could sue you and try to collect the debt through other means. If he has the right to sue you and wins, he could get a judgment against you and garnish your wages for a period of time until the debt is paid. Although we are not saying that he has this right or that he would, it depends on the circumstances and the laws of your state.
Ilyce R. Glink’s latest book is “Buy, Close, Move In!” If you have any questions, you can call his toll-free radio show (800-972-8255) every Sunday from 11 a.m. to 1 p.m. EST. Contact Ilyce through his website, www.thinkglink.com.