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Ask Fritz Your Own Question

Fritz
Fritz, Attorney
Category: Bankruptcy Law
Satisfied Customers: 302
Experience:  Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases
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Customer Question

hello, i foreclosed on my property a year ago, there is no deficiency judgement for my first mortgage, and my second mortgage is charged off for 48k. i checked my credit report and there is no collection listing on my report. though i get the collection calls now and then but i ignore them most of the times. What is the best thing for me to do? negotiate with the bank? collection agency? will i be able to settle the loan for about 1500? what are my options if i dont want to declare bankruptcy? Thanks
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  Fritz replied 1 year ago.

Fritz :

Hi, I'd like to assist you with your bankrutpcy questions this afternoon.

Customer :

hi

Fritz :

When your property was foreclosed upon, did you enter into a Consent Foreclosure or a Deed in Lieu of Foreclosure?

Customer :

it was a consent foreclosure

Fritz :

That's good. If you did, in fact, enter into a Consent Foreclosure, you cannot be pursued for a deficiency judgment under Illinois law.

Customer :

no sorry it was a regular foreclosure, i dont have a deficiency judgement because my first mortgage paid the whole amount that covered my first loan so there is no deficiency judgement

Fritz :

Oh, okay, that's a little different situation then.

Fritz :

So there was NO deficiency as to the 1st mortgage, correct? What about the 2nd mortgage? Did the sale proceeds cover any or all of the 48k owed on the 2nd mortgage?

Customer :

i dont think so

Customer :

i think it only covered the first

Fritz :

Even though the 2nd mortgage has been "charged off," you could still be liable for any deficiency on the 2nd mortgage.

Fritz :

"Charged off" is simply a term of art that means the creditor doesn't believe they'll collect on the debt (and gives the bank a tax break/write-off, so that's why they classify it as such).

Fritz :

But it does NOT mean that the debt is no longer collectable against you.

Customer :

why there is no collection records on my credit report?

Fritz :

It's possible they've simply made no attempts to collect (or at least not yet sold the debt to a 3rd party). I agree that it's a little unusual that you'd be receiving collection calls yet have nothing show up on your credit report.

Fritz :

You may want to negotiate with the lender regarding settlement; however, there's always a chance that doing so could put you on the radar as to a potential deficiency judgment (the thought process being that if you're offering to settle, you must have money).

Customer :

if there is statute of limitation for my debt? what happens if i dont settle down my account and will not declare bankruptcy?also is the mortgage forgiveness act extends for 2013? I know it was suppose to expire in 2012? It was a year after my foreclosure. If it is not listed in my credit report can they post a collection later on?

Fritz :

Apparently, some lenders holding foreclosed second mortgages (especially Citibank and Wells Fargo) now hand over the loans to collection agencies to file a separate lawsuit against the homeowner for breach of contract.

Fritz :

The statute of limitations on cases like these is 10 years.

Fritz :

10 years on "written contracts" in Illinois

Customer :

I also never got the form 1099 C, if the debt was charged off weren't they suppose to send it to me? or only if i will settle my account with the bank?

Fritz :

A 1099-C is for cancellation of debt income. Presumably, you did not receive a 1099-C because the bank would rather sell the debt or hold it on its books for a possible deficiency suit in the future.

Fritz :

This isn't unusual; although it happens, it's generally a bad business decision to send out 1099-Cs on relatively fresh debt.

Customer :

so what do you think is the best thing for me to do/ I just dont want to declare bankruptcy.

Fritz :

Generally speaking, I'm seeing that in Illinois, attorney blogs I'm viewing say there's perhaps a 5% chance that a generic borrower will be sued for a deficiency judgment.

Fritz :

It would generally be best to wait until a deficiency suit is actually filed, and even then, you would probably want to consult a local attorney to determine whether you might have any viable legal defenses.

Customer :

so i shouldn't communicate with collection agencies till then?

Customer :

how should i know if the suit was file?

Fritz :

You can, as they may offer you a settlement you can afford. I'd just be a little careful making unsolicited offers to settle, as that would tend to indicate that you may be collectable.

Fritz :

You (or an adult family member at your home) would be personally served with the Complaint and Summons if a lawsuit were to be filed.

Fritz :

So you would almost certainly know if/when it happens.

Fritz :

IF a deficiency suit is filed against you (which isn't that likely), you could discharge the debt in bankruptcy.

Customer :

and if not?

Fritz :

Then you can ignore the collection calls...

Customer :

if the suit will be filed then it will definitely be shown in my credit report, right?

Fritz :

It's really strange that they'd be calling you about the mortgage deficiency though. Are you sure it's not for some other debt?

Fritz :

Yes, I believe so.

Customer :

no, for my second mortgage, 100 % sure

Fritz :

There's a chance the deficiency judgment on the 2nd mortgage was entered against you along with the foreclosure judgment, but I've personally never seen that here in Florida.

Fritz :

You might want to take a look at the foreclosure judgment and see what it says (if anything) about the deficiency judgment on the 2nd mortgage.

Fritz :

Were both mortgages with the same lender? If so, I suppose it's possible that's what could have happened.

Customer :

no, i had two mortgages with one bank, but then it sold my second mortgage to the other bank.

Fritz :

You might want to speak with a local bankruptcy attorney about your options, as it's possible a deficiency judgment was already entered against you (a local attorney could answer this question definitively).

Fritz :

Many bankruptcy attorneys offer free consultations, so I'd recommend taking advantage of that if you can (even if you really want to avoid actually filing), because the attorney can help clarify this situation for you.

Customer :

ok i will do that thanks

Fritz :

Thank you. Do you have any other questions for me this afternoon?

Customer :

no, i think thats it

Customer :

thank you

Fritz :

Thank you, XXXXX XXXXX luck!

Expert:  Fritz replied 1 year ago.
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Expert:  Fritz replied 1 year ago.
Hi, I saw that you rated my service as "Poor." I spent a considerable amount of time and effort attempting to assist you today. May I ask why you rated my service as "Poor"?

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