John

————–

Hello John,

A credit report will normally contain a tradeline which lists the creditor, balance, payment, payment history and rates the account.  In the event of foreclosure, the contractor’s for the credit bureaus may find the court ordered judgment and place that in the public records section of a credit report.  Therefore, there are two entries: the tradeline and the public records entry of foreclosure.

You have a private mortgage and while it’s possible for you to report to the credit bureau, I’ll assume that you did not choose that option.  California’s most popular form of foreclosure is through power of sale which is non-judicial and upon conclusion will not have a court ordered summary judgment of foreclosure for the contractor’s to discover.

An alternative way to handle a situation like that would be through a deed-in-lieu of foreclosure.  This would be appropriate if there are no junior liens and if both spouses were amenable.

Thanks for the questions and hope this helps.

Paul

First of all I want to say you have an excellent and very informative web site.  I have a question that I think will stump you. 

Let’s assume I have a credit card with a credit card company.  Let’s also assume that I quit paying on this account and the credit card company reports that loss on their taxes as most businesses do.

If a business would write that account off and the credit was given by the IRS on the proper form then in my opinion there is no debt anymore.  If anybody owns it the government does.

My question is this.  If the credit card company writes it off as a loss how can they turn around and sell that account to a Junk Debt Buyer?  Just to make this more interesting I will ask a second question.  If the account was written off how can the Junk Debt Buyer purchase anything that really no longer exists? 

I personally don’t know of any company after a debt has been written off that will even attempt to collect it at a future date.

It just appears to me that the credit card company is trying to have it both ways.  First claiming the loss on taxes.  And secondly then turning around and selling something they really don’t have the right to sell. 

Can I please take my star now or must I continue to try and Stump The Experts.

Thanks again for a really great web site.

Robert

———————-

Hello Robert,

Well, some case law would have been nice.  Now, don’t get me wrong I do appreciate your question.  It’s just that somehow I have a vision of this fellow.  Ok, so maybe that’s not you, but he is singing the same song and along those lines, here’s something that is interesting from the Code of Federal Regulations (emphasis added):

31 CFR § 903.5  Discharge of indebtedness; reporting requirements.

(a) Before discharging a delinquent debt (also referred to as a close out of the debt), agencies shall take all appropriate steps to collect the debt in accordance with 31 U.S.C. 3711(g), including, as applicable, administrative offset, tax refund offset, Federal salary offset, referral to Treasury, Treasury-designated debt collection centers or private collection contractors, credit bureau reporting, wage garnishment, litigation, and foreclosure. Discharge of indebtedness is distinct from termination or suspension of collection activity under part 903 of this title and is governed by the Internal Revenue Code. When collection action on a debt is suspended or terminated, the debt remains delinquent and further collection action may be pursued at a later date in accordance with the standards set forth in this chapter. When an agency discharges a debt in full or in part, further collection action is prohibited. Therefore, agencies should make the determination that collection action is no longer warranted before discharging a debt. Before discharging a debt, agencies must terminate debt collection action.

(b) Section 3711(i), title 31, United States Code, requires agencies to sell a delinquent nontax debt upon termination of collection action if the Secretary determines such a sale is in the best interests of the United States. Since the discharge of a debt precludes any further collection action (including the sale of a delinquent debt), agencies may not discharge a debt until the requirements of 31 U.S.C. 3711(i) have been met.

(c) Upon discharge of an indebtedness, agencies must report the discharge to the IRS in accordance with the requirements of 26 U.S.C. 6050P and 26 CFR 1.6050P–1. An agency may request Treasury or Treasury-designated debt collection centers to file such a discharge report to the IRS on the agency’s behalf.

(d) When discharging a debt, agencies must request that litigation counsel release any liens of record securing the debt.

So there seems to be some truth to the “write that account off and the credit was given by the IRS on the proper form then in my opinion there is no debt anymore”.  The only problem is that the above regulations are standards for “Federal agencies” which includes “agencies of the executive, legislative, and judicial branches of the Government, including Government corporations”.

Now, do we have any case law regarding continued collection after issuance of form 1099-C?  Interestingly, we do.  In DEBT BUYERS’ ASSOCIATION v. SNOW [Civil Action No. 06-101 (CKK) January 30, 2006] a collection agency trade group argued that “submitting 1099-C Forms will disinvest them of the ‘right’ to continue to pursue collection activities”.  The JDB’s Club was even able to dig up some case law “In re Crosby, 261 B.R. 470 (Bankr. Ct. D. Ka. 2001), Plaintiff states that ‘case law suggests that courts are willing to find debt, including judgment debts, unenforceable if the creditor (here, a Debt Buyer), has issued to the debtor a Form 1099-C reporting discharge of the indebtedness income.’”

(time-out)

You get the funny feeling that something’s not right when the JDB’s Club is arguing on your side (i.e. that the 1099-C cancels the collector’s right to collect).

(time-in)

The Court concludes (emphasis added):

 “Plaintiff insists that issuance of 1099-C Forms will prohibit Debt Buyers from pursuing debt collection and enforcement activities after such forms are issued, which may be before a state’s statute of limitations for the collection of such debts has expired.  However, as stated above, there is no reason that a Debt Buyer cannot include with its statement to an affected debtor an instructional guideline explaining the reasons for the issuance of the 1099-C (for example, because 36 months have transpired without debt collection activity), a disclaimer that a 1099-C must be issued as a result of an identifiable event regardless of whether an actual discharge of indebtedness has occurred on or before the date of such an event, and a notice to the debtor that a Debt Buyer plans to continue debt collection activities….Plaintiff can only cite one case, notably from a bankruptcy court in Kansas, in which the prior issuance (without any disclaimer) of a Form 1099-C rendered a debt effectively discharged and unenforceable….this Court does not find persuasive the evidence presented by Plaintiff regarding the limitations Treas. Reg. § 1.6050P-2(e) would place on Debt Buyers’ ability to collect debts in accord with state statute of limitations”.

Robert, from a practical standpoint [such as in the forgiveness of debt from a short sale], the creditor’s issuance of a 1099-C will equate with the waiving of any future collection, although that does not necessarily seem to be the case legally. 

Thanks for the questions and no star for you today my friend. 

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

(source=law.justia.com/us/cfr/title31/31-3.1.5.1.4.0.1.5.html)

Mike

——————

Hello Mike,

Let me guess that the HELOC is with Regions Bank.  They would also be offering a third option of a cash settlement which would be considerably less than the 50% amount zero interest promissory note.  The advice I have in handling seconds may not help you at this stage because you are too far into the HAFA process, but I type these words for the benefit of anyone else facing a short sale with two mortgages.

First thing I think of when I learn that the short sale on my desk that I’m about to start dealing with has two mortgages is (in Dr Seuss voice): I do not like them in a house.  I do not like them with a mouse.  I do not like them here or there.  I do not like them anywhere.  I do not like short sales with two mortgages.  I do not like them, realtor-i-am.

Yeah, I’m a realtor and I’m physically in Clearwater, Florida at least once a week.  I could have helped you with your short sale, but you found my blog too late.  Again, for the benefit of those who are reading, I can help you with your short sale if you own a property in the state of Florida, so send me an email.

OK, enough self promotion.  As I’ve stated, I don’t like short sales with two mortgages, but that doesn’t mean that I won’t do them.  The key to closing a short sale with two mortgages where the junior lien is requiring more moolah than the first will allow, is to have the buyer pay the difference.  The buyer is only going to be willing to pay the difference if the purchase price is low enough for it to make economic sense to them.  The purchase price can only be low enough if the first mortgage agrees to a low enough short payoff and this is directly related to the BPO value.  So, in your case because the valuation has already been completed, this information is academic.  For others who are searching this information prior to finding a realtor and prior to entering into a contract with a buyer, may they now feel a little more encouraged and say to themselves (in Dr Seuss voice): And I will eat them in the rain.  And in the dark. And on a train.  And in a car. And in a tree.  They are so good, so good, you see!

And for the dear homeowners in the state of Florida contemplating short selling, for you I say call friendly realtor Paul first, close your short sale and say: I do so like short sales with two mortgages!  Thank you!  Thank you, Realtor-I-am!

Paul, Realtor I-am

In a scathing opinion issued last week, Elizabeth Magner, a federal bankruptcy judge in the Eastern District of Louisiana, characterized as “highly reprehensible” Wells Fargo’s behavior over more than five years of litigation with a single homeowner and ordered the bank to pay the New Orleans man a whopping $3.1 million in punitive damages, one of the biggest fines ever for mortgage servicing misconduct.

“Wells Fargo has taken advantage of borrowers who rely on it to accurately apply payments and calculate the amounts owed,” Magner writes. “But perhaps more disturbing is Wells Fargo’s refusal to voluntarily correct its errors. It prefers to rely on the ignorance of borrowers or their inability to fund a challenge to its demands, rather than voluntarily relinquish gains obtained through improper accounting methods.”

The opinion reflects Magner’s disgust with tactics that Wells Fargo used to fight the case — and perhaps frustration with an appeals court ruling in a separate, but similar case, that overturned her order that would have forced Wells Fargo to audit and provide a full accounting for more than 400 home loans in her jurisdiction.

As The Huffington Post previously reported in a story co-published with The Center for Public Integrity, sources familiar with the preliminary findings said that the bank made costly accounting errors in the administration of practically all of those loans.

In an emailed statement, Tom Goyda, a Wells Fargo spokesman said: “The ruling handed down by the court in an individual bankruptcy case covers allegations going back more than six years and ignores significant changes in servicing practices that have occurred since that time. We believe that there are numerous factual and legal problems with the opinion and are reviewing our options regarding an appropriate legal response.”

Goyda said that an appeal of the ruling is “one option” the bank is considering.

Despite widespread reports that the banks and other companies that service home loans engaged in a range of misconduct — from ordering unnecessary property inspections to misapplying payments in a way that can lead to wrongful foreclosure — few judges have had the time, ability or inclination to do the kind of forensic analysis necessary to uncover wrongdoing in individual cases. For a non-accountant, reading a loan history is like interpreting hieroglyphics without a Rosetta Stone, and banks are often reluctant to turn them over in the first place.

The exceptions have tended to come in federal bankruptcy courts, where justices typically have more time to dig into loan accounts, and are much more likely to have the financial expertise necessary to do so. In an earlier interview, Magner said that she analyzed the loan files of more than 20 borrowers in her court and found mistakes in every instance.

“These are loans of working-class people who bought homes they could afford and whose loans were not administered correctly from an accounting perspective,” she said. “I think that these types of problems occur in almost every [defaulted] loan in the country.”

The current case involves Michael Jones of New Orleans. In a 2007 decision, Magner ruled that Wells Fargo improperly charged Jones more than $24,000 in fees, owing to a fundamental problem in the automated methodology the bank used to account for his loan payments.

After Jones fell into default, Magner ruled, the bank improperly applied his mortgage payments to interest and fees that had accrued instead of to principal, as required by his servicing contract. This triggered a waterfall of additional fees and interest that consumer lawyers call “rolling default.” Later, after Jones applied for bankruptcy, the bank continued to misapply payments, according to Magner’s opinion.

In the most recent opinion, Magner describes Wells Fargo’s litigation tactics, which involved filing dozens of briefs, motions and other filings that slowed down the proceedings to a snail’s pace, as “particularly vexing.” The tactics suggest that any other borrower who might wish to contest a fee or charge would find a legal challenge to the bank simply too burdensome.

And yet, Magner writes, it is only through litigation that the abuses can be uncovered. Calling Wells Fargo’s conduct “clandestine,” Magner wrote that the bank refused to communicate with Jones even as it was misdirecting payments for improper purposes.

“Only through litigation was this practice discovered,” Magner writes. “Wells Fargo admitted to the same practices for all other loans in bankruptcy or default. As a result, it is unlikely that most debtors will be able to discern problems with their accounts without extensive discovery.”

Magner wrote that the bank still refuses to come clean with homeowners about mistakes it made in the accounting of home loans. This is particularly troublesome in her district, where more than 80 percent of the borrowers who file for bankruptcy have incomes of less than $40,000, and consequently are often unable to hire the kind of legal firepower necessary to counter Wells Fargo’s army of lawyers.

“[W]hen exposed, [Wells Fargo] revealed its true corporate character by denying any obligation to correct its past transgressions and mounting a legal assault ensure it never had to,” Magner wrote.

(source=HuffingtonPost.com)

Would the banks have recourse to this cashed in money? 

Are there actions I can take to prevent this?

Scott

—————-

Hello Scott,

Read: Short Sale & Retirement Accounts

The first and second lien holders could file a lawsuit against you, have judgment granted in favor of them, and still would not be able to tap into the retirement accounts.  It is conceivable that any funds transferred into a personal checking account could be levied.  The best scenario is to short sell and have the proceeds of the sale treated as a full settlement with zero balance owing.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

I do mailouts to folks in St Petersburg, Clearwater, Seminole, Tampa, Bradenton, Sarasota, Palm Harbor, Largo, Pinellas Park, Safety Harbor and basically all areas in and around the Tampa Bay area for those who have recently been named defendant in a foreclosure action.  I get a good response I think partly because my services are free to them and partly because my mailers are chock full of information that can help them get out of this foreclosure mess, containing the harm to their credit report, and getting them a check for $3,000 for relocation – again all of that is free.  You see licensed real estate agents in Florida represent sellers in short sale transactions in a fiduciary relationship yet shorting lenders pay their fee upon closing the transaction.  Banks need Florida real estate agents to get short sales closed and if you are a Florida short seller then you need a real estate agent too.  The idea that there is a short sale expert who can guide them through the process is appealing and perhaps even more so if it is someone that they don’t already know.  My friendly mailer is timely.  But I’m getting sidetracked here, back to my neighbor.

I’m not sure he speaks English.  I waive to him every now and then when I see him in the front yard.  He smiles and waives back.  I’ve tossed a few volleyballs back over the fence that landed in my backyard when the kids were playing – I hear a child say thank you as the ball bounces back into their yard.  The kids speak English but I don’t think the father does.  Anyways, I saw the foreclosure filing and decided not to send my mailer to him.

Why you ask?  I’m not sure but something felt strange about it because I never know how someone might react.  When I send the mailer offering Florida short sale help to strangers in the Tampa Bay area I learn that almost all of them know, are related to, or are friends with another Florida real estate agent yet they choose to work with me, and perhaps the fact that I don’t already know them is what is appealing.  People need to come to grips with the fact that homes are upside down, incomes have been reduced, living expenses have increased, etc. and it is easier to talk with a realtor-stranger who you know is an expert than it is to bear your soul to the local realtor-agent-friend whose kid plays on the same little league team as your own.

A few minutes before writing this article I stepped outside.  It was around 9 pm Monday night.  A creepy pick up truck was parked in front of my neighbor’s house.  I hadn’t seen it before and it was parked in an odd way blocking the driveway.  A few more steps outside and the pick up truck starts its engine and drives away.  The first thought that came to my mind was that my neighbor has just been served his foreclosure complaint by the driver of the creepy pick up truck.  After that I started thinking about how many people are going through this exact situation right now – just served with a Florida foreclosure complaint by a process server.  And finally, I wrote this article.

If this news about the VA short sale program (the compromise sale) was not enough to make an upside-down VA home mortgage seller happy then how about $1,500?  That’s right – for a limited time only (actually through 2013) the VA pays the seller/borrower $1,500 upon closing the VA short sale.

The information in this article summarizes the Department of Veterans Affairs Circular 26-11-1 which is dated January 6, 2011 and is slated for rescission by January 1, 2014.

I deal with Florida foreclosure defense lawyers every day.  They represent the Florida homeowner in defending the foreclosure action through the courts and then refer their clients to me to handle the short sale.  I deal with the bank on behalf of the homeowner, get the approval of the shorting lender typically as a full release of liability with $3,000 paid to the seller by the bank for relocation costs and we close the file.  As a result of the successful HAFA short sale of the property, the lis pendens is discharged, the foreclosure case is dismissed, and the seller/borrower is forever free of this monstrous mortgage debt.  The Florida attorney in that scenario filed a notice of appearance and an answer to the foreclosure complaint and that’s it – case closed – full settlement.

I received a call after 8 PM on Friday night from a Florida foreclosure defense lawyer working late.  I didn’t get the message until Saturday morning.  It looked like he was playing catch up on his files and was asking about a specific file that we were working on together – he was handling the foreclosure defense for a client in Clearwater, Florida and I was handling the short sale for the same clients.  He wanted to know the status of the short sale.  Below is the email that I sent to his paralegal in reply:

Hey *paralegal name and attorney name redacted*,
 
*attorney name redacted* left a message for me at 8:17 pm last night asking for the status of *seller name redacted*.  *seller name redcated* was a HAFA short sale that closed on 12-30-2011 in your office.  The HUD1 is attached and there was a $900 attorney fee included for *attorney name redacted* on line # 1304.
 
Thanks,
Paul

Bear in mind that he was asking about the status of this file on 2-17-2012 and he was unaware that the file closed on 12-30-2011.  Some law offices are able to handle real estate closings so I sent the title work back to the law office and also had the shorting lender pick up an extra $900 tab for attorney fees for him.  I had sent him the HAFA short sale approval earlier that month and we had the closing in his office so it was a surprise that he was unaware that the closing took place.

But I’m getting a little sidetracked away from my point.  My point is that there has to be an end game for Florida homeowners in all of this.  Florida homes mortgaged prior to 2009 are in large part underwater and many that I deal with are severely underwater by $50,000 to $100,000 or more.  What is the goal in all of this?  To lengthen the amount of time that the foreclosure will take to complete?  And then what?  Be left with a Florida deficiency judgment and/or continued collection on the mortgage deficiency for up to 20 more years?  Is the goal to modify the loan?  When lenders modify mortgage loans they typically make them temporary and do not modify the principal.  This means that the lender can recall the loan and send you a past due bill at any time whether months or years later.  I have repeatedly encountered Florida homeowners who have been told –by no fault of their own – that the lender decided that they did not qualify for the loan mod over a year after having being given the mod and now the lender demanded all of the past due amounts at once.

The fact is that we are in the throes of a housing crisis and it is going to be a slow crawl out of all of this mess.  The foreclosure programs such as HAFA (the Home Affordable Foreclosure Alternatives) which allow a home to be short sold and require the bank to provide a full release of liability and give $3,000 to the home seller at closing are set to expire at the end of this year.  Also, there are some dire tax consequences written in the IRS code for those who wait until after 2012 to complete a short sale.  This means the time to settle the debt and get out of it without having to repay the deficiency or taxes on the debt forgiveness to the IRS is now, this year.  Those who wait it out may find that these programs no longer exist come 2013.

This article is not to say that hiring an attorney won’t help the homeowner.  Other than the cost, it certainly won’t hurt.  And I don’t know your situation – maybe you have equity?  Maybe you made all of your payments on time and were never late?  Or maybe you came home one night and there was a creepy process server sitting in your driveway who handed you a Florida foreclosure complaint and the first thing that came to mind was: I should hire an attorney.  So, I get asked that question a lot – a foreclosure has been filed against you and you want to know if you should hire an attorney?  My answer: You can, that’s up to you.  I will help you with the short sale.

Do you like what you read, then contact me for help with your Florida Short Sale

“It could be said that some consumers might be in a better position financially post-foreclosure, as they no longer need to worry about making large mortgage payments.  Any analysis regarding these deficiencies should begin with a discussion of whether the loan is recourse or non-recourse.  A recourse loan is, ‘a loan that allows the lender, if the borrower defaults, not only to attach the collateral but also to seek a judgment against the borrower’s (or guarantor’s) personal assets.’  Blacks Law Dictionary 955-956 (8th ed., West 2004).  The majority of states are so-called ‘recourse states’ and permit lenders to pursue a mortgagor personally for a deficiency after sale.”

“An interesting situation potentially arises where a creditor obtains a deficiency judgment against a consumer and places a judicial lien on another piece of real property at which the consumer resides.  If the consumer subsequently files for bankruptcy and asserts his or her homestead exemption as to the residence, there is some question as to whether the bankruptcy code allows the consumer to avoid the judicial lien resulting from the deficiency judgment.  One bankruptcy court has rules that the language of the bankruptcy code is ambiguous as to whether the judicial lien can be avoided in such a situation, and posited that a public policy concern called the ‘Flow of Capital Purpose’ should prevent avoidance of liens resulting from a deficiency judgment.  See In re Crisuolo, 386 B.R. 389 (Banr. D. Conn. 2008).”

The bottom line is that if you own property in a recourse state such as Florida which allows creditors to obtain and pursue deficiency judgments then don’t delay on obtaining a full release of liability through a short sale at this time.  Mortgage lenders will allow the debt to be settled with a zero balance now, but if you wait then all you have to look forward to are mortgage deficiency collections.

Do you own a Florida property and want to do a short sale?  I can help.

Mark Twain