Our condominium was foreclosed in July 2013, and we received a 1099 from the lender. Now a collection agency for our home equity line of credit (HELOC) lender is contacting us trying to collect on the $15,000 that we didn’t pay them. Can we or should we try to settle for less than the $15,000? Is there a statute of limitations on collections?
When your condominium was foreclosed, you probably had two loans on it. One loan was for your principal mortgage and the second was for a home equity line of credit (HELOC). While you might have received a 1099 tax form from your lender, you didn’t mention whether the 1099 form was an IRS form 1099-C or a just an IRS form 1098 or whether you even received a 1099-C from both lenders.
An IRS form 1099-C is for the cancellation of debt. This form is generally given by a lender when they have written off the debt on their books, but that form is for IRS purposes. The debt may actually exist and the lender might 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 indicating that they released you from the debt. In that case, the lender couldn’t sell the debt nor could they go after you later for repayment.
Your home went into foreclosure and the lender might still have the right to sell the debt even if they wrote off the amount you didn’t pay back the lender.
If the 1099-C you received was from your principal lender and not from your HELOC lender, then they didn’t write off the debt and still view you as an active debtor and believe that they might get something from you. If you simply received a 1098 IRS form, that form simply reports any interest you paid 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 in which you live in, a HELOC lender may have the right to go after a borrower for amounts owed after a foreclosure. Remember that in those states that allow deficiency judgments — the difference between what the lender gets in a foreclosure and what is owed on the loan — the lender can obtain that judgment and still try to get money from you. When you signed the loan documents, you personally agreed to repay the money and gave your home as collateral. When the home was foreclosed, the lender didn’t get repaid in full and still can go after you for the amount owed under the promissory note you signed.
For more information on your particular issue, you’d want to talk to a bankruptcy attorney or foreclosure attorney in your area. In particular, some states require lenders to take certain steps to get a judgment against you after a foreclosure. If the lender failed to comply with these requirements, it may lose the right to come after you for the money you owe. These laws may not be statutes of limitations but they do restrict a lender’s ability to go after you for unpaid money. Other states have broader rules that allow lenders to come after you for unpaid money years after a loan was foreclosed.
Given these differences, you should know where you stand before thinking that you can negotiate a lesser sum to pay the lender than the full amount. While the collection agency may agree to take a lesser amount, it could insist that you pay the full amount.
If you don’t, they could sue you and attempt to collect the debt by other means. If it has the right to sue you and wins, it could obtain a judgment against you and garnish your wages for some time to come until the debt is paid. While we aren’t saying that it has that right or that it would do that, it depends on the circumstances and on laws of your state.
Ilyce R. Glink’s latest book is “Buy, Close, Move In!” If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11 a.m. to 1 p.m. EST. Contact Ilyce through her Web site, www.thinkglink.com.