March 5th, 2010
A form 1099-C is a document issued by a creditor, typically a mortgage or vehicle lender or credit card company, which reports that income to a borrower for tax purposes. The “C” stands for cancellation of debt, which can, under certain circumstances, be translated into “income” for calculating income taxes. This can be a potentially very large and troubling issue; many borrowers unknowingly become responsible for large tax debts because of a 1099-C, which debt cannot be typically discharged in bankruptcy for several years. There are many remedies for this problem; specifically, in the event of the filing of a bankruptcy, a 1099-C generally becomes irrelevant.
A recent Arizona Court of Appeals Opinion provides further help for borrowers in this situation. The Court essentially held that the lender in this situation (foreclosure or short sale, or a vehicle deficiency) may not attempt to collect on a deficiency while issuing a 1099-C. This was held in the opinion of December 15, 2009, entitled AMTRUST BANK V. FOSSETT, Case Number. 1CACV 08-0840. This case was sent back to the trial court for further review. A person who has this situation should promptly seek legal advice, and stand up to a creditor who is attempting to collect on a debt which is already a loss. The link to review this opinion is http://www.cofad1.state.az.us/opinionfiles/CV/CV080840.pdf
Tags: 1099-C, AZ Bankruptcy, Clint W. Smith, Debt settlement, Mesa Bankruptcy, Short Sale
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March 1st, 2010
Yes! The Bankruptcy Code, in a Chapter 13 case, allows for the treatment of a second (or third) mortgage to be treated as an unsecured debt in certain circumstances. Specifically, where a homeowner owes more on their first mortgage than the home is worth (which is the case for so many in Arizona today) the second mortgage and any subsequent mortgages can be treated as unsecured debts. In a typical Chapter 13 case, those creditors may receive as little as a penny on the dollar. At the conclusion of the Chapter 13 payment plan, which is 3-5 years, the Bankruptcy Court issues an order that removes the lien from the residence. This is only in a Chapter 13 case, and only where the first mortgage amount exceeds the value of the residence.
My office has helped many people through the complex legal procedures that allow this to take place. We are anxious to help homeowners make the right decision, and where possible, remove liens on homes that have depreciated.
Tags: AZ Bankruptcy, AZ Chapter 13, Bankruptcy Lawyer, Debt settlement, Mesa Bankruptcy, second mortgage discharge, second mortgage scrape off
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February 19th, 2010
Short sales have been all the rage in recent months. Many realtors are excited about the prospect of obtaining a sale, and homeowners want to avoid the stigma and effect on their credit of a foreclosure. However, there are many pitfalls in this area. One should not assume this is always the best solution.
For example, under Arizona law, the general rule is that “purchase money” mortgages, (including a second mortgage!) cannot result in any deficiency owed. Thus, when a foreclosure goes through, and the proceeds are inadequate to pay off both mortgages entirely, the second mortgage holder cannot pursue a money judgment against the homeowner. This does not apply in the event that the second mortgage is non-purchase money. This is due to Arizona’s anti-deficiency statute. It is a very tricky area, and requires legal advice.
The problem is, the anti-deficiency statute does not apply in the event of a short sale! So if a person sells their home for $50,000 less than what is owed on the second mortgage, the second mortgage holder can pursue a judgment and collection activities to collect that $50,000. Had the home been allowed to be foreclosed, the homeowner would not have had that problem. As stated, there are many intricacies here, and this blog is not intended to answer all questions. It is just a warning to all homeowners who are considering a short sale, and the real estate professionals who advise them. We welcome your inquiries at our law office.
Tags: AZ Bankruptcy, Bankruptcy Lawyer, Debt settlement, Mesa Bankruptcy, Short Sale
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