Over the last several years as I have been handling foreclosure matters first for the banks and now for those being foreclosed upon, the subject of deficiencies has been a persistent nagging concern sitting out there. The amount of a deficiency can only be determined after the foreclosure sale is held and it is calculated as the difference between the amount of the Plaintiff’s final judgment minus the amount that the property ultimately sells for. For many years the banks would let borrowers waive the amount of this deficiency as an incentive to encourage the settlement of pending foreclosure actions.
Determining The Amount Of Deficiency
Borrowers are asked to consider this offer before the court enters judgment in the underlying foreclose action. Determining what the actual amount of a deficiency will be is not always as possible as there are events that have not yet taken place (and sometimes may not happen for many months depending on how far off the sale is set by the Court and possibly continued numerous times by the parties). Once the sale does take place the plaintiff has one year from the date of the sale to seek to enforce the right to the deficiency.
For years, many plaintiffs in foreclosure actions either decided that:
A) It wasn’t prudent to seek these sums due to the close government and media scrutiny during the foreclosure crisis
B) It didn’t make financial sense to expend additional sums to attempt to try and collect from borrowers who, in many instances, had already proven their inability to pay based upon their previous default on their mortgage loans.
As for the borrowers, the decision whether to accept a waiver of the possible deficiency also had to be considered against the very real possibility that whatever the amount of the deficiency that was waived (essentially written off by the lender), when finally determinable, would be reported by the lender to the IRS as 1099c income.
See: https://www.thinkglink.com/2012/03/22/reporting-cancellation-debt-income-to-irs/ (“Once the lender writes it off, this deficiency is usually reported to the IRS through a 1099-C Cancellation of Debt form. The homeowner would receive a copy of the 1099 form and would have to report the deficiency to the IRS. The IRS typically treats this deficiency as phantom income, meaning you don’t actually have the cash in your pocket, but the IRS sees you as having received a benefit and will tax the amount as if you did receive that cash.”)
The Effects Of Fewer Restrictions
With government restrictions being relaxed in addition to the CFPB being defanged while the media turns its attention to other more “interesting” tweets and white noise, there have been whispers that some government lenders including Fannie Mae and Freddie Mac have begun to sell off their deficiency rights to 3rd party investors that are seeking to enforce the outstanding deficiency rights. The governmental lender are usually the leaders in the foreclosure realm with the private lenders and mortgage servicers following suit. It may just be a matter of time before we begin to see another foreclosure industry crop up to buy up and attempt to enforce the outstanding deficiency rights of these non-governmental lending institutions.
Contact Us For Bankruptcy Assistance
If you are the subject of a pending foreclosure action please be aware that whatever you ultimately choose to do, if offered a waiver of deficiency by your lender, please be keenly aware that your determination may have lasting and costly ramifications down the road. Learn more about our Fort Lauderdale foreclosure defense services.
Our Fort Lauderdale bankruptcy lawyers have helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 1,800 homes from foreclosure, eliminated $100,000,000 in mortgage principal and consumer debt, and have collected millions of dollars on behalf of our clients due to bank, loan servicer, and debt collector violations, negligence and fraud. Contact us for a free consultation to see how we may be able to help you. Call us at 1-888-Fight13 (344-4813).