There are many foreclosure defense lawyers whose practice consist of defending numerous homeowners with the goal of keeping them in the home as long as possible. Although ethics prevent a lawyer from using delay as a strategy, to be candid, this is all that can be done for the majority of these homeowners - and this is all they may need to be done. Although these lawyers advertise that they "aggressively defend the foreclosure" with the lofty goal of "defeating the bank," their tactics typically involve little more than delay. Suffice it to say that that is NOT our practice
Although we promise no miracles, we have different objectives. Our clients are concerned with a potential deficiency judgment and they require tax advise on handling the receipt of a Form 1099C. They may or may not want to "buy some time," but their overriding concern is not having a deficiency judgment that may follow the client for up to twenty years (depending upon applicable state law), which is collectible against the client's other assets.
In many states the lenders (or, in future years, those bottom feeders who buy such judgments for ten cents on the dollar) may pursue the borrower for a deficiency judgment. Thus, if you owed $400,000 on the loan and at the foreclosure sale the lender only received $300,000 back, you still owe $100,000. Years later you may still have someone chasing you for the money and your problems will continue long past turning in the keys on a failed investment.
To further compound the agony, these borrowers will typically receive a 1099 from the lender, only to be informed by their tax preparer that they have a significant tax bill to the IRS. This may be the case whether they simply walked away from the property, allowing a foreclosure, negotiated a deed in lieu of foreclosure or negotiated what they believed (from their realtor, no doubt) to be a successful short sale.
Many investors are advised to just turn in the keys and walk away from a property they can’t afford. Unless your assets are quite modest, this approach is overly simplistic and financially irresponsible. We have represented celebrity athletes who are "on the hook" personally for over $1,000,000. Clients have purchased vacant land for over a million dollars, worth only $50,000 now. They are looking at a potential personal liability of as much as $1 million, followed by a 1099 for possibly the same amount. (Mine was more modest: Purchased for $185,000 and currently valued at $4500)
It is now becoming clear that your best strategy is either to negotiate a short sale with an explict release of deficiency or to fight a foreclosure in order to achieve the same objective. If the lender is recalcitrant, one must use the necessary leverage to get them to either agree to a reasonable short sale offer, agree to a discounted payoff, or take the deed and forego any personal judgment against the borrower.
Deals may be struck whereby, in exchange for the borrower allowing the foreclosure sale to proceed, the lender agrees not to pursue a deficiency judgment and further agrees that the property value equals the loan amount, thus avoiding the tax on forgiven debt. There are several other ways to avoid the 1099 foregiveness of debt income, and that is one of the primary areas of our practice.
Law Office of Hilton Wiener
100 Park Avenue
20th Floor
New York, NY 10017
(561) 750-6672 info@returnthedeed.com
