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Loren, Attorney
Category: Legal
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Experience:  30 years experience representing clients.
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I own a single member LLC. It owns 3 apartment buildings.

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I own a single member LLC. It owns 3 apartment buildings. I am a member in a 2 person LLC. That LLC is in Bankruptcy- Chaper 11. One of the buildings we own will be absolutly foreclosed on and the other my partner is trying to save. I gave the personal guarantee on the mortgage of both buildings. Everyone thinks I am crazy to not get an attorney (the bankrupcty attorney won't advise due to conflict) I say "what's done is done." My Question-- Is there anything I can do. Will the IRS 1099 me for the deficency? Will the lender come after me? What can anyone do to me?

Thank you for using JustAnswer. I am Loren, a licensed attorney, and I will do whatever I can to answer your question and provide excellent service.

I am sorry to hear of your dilemma. I realize how frustrating this is for you, but I believe I have information which you will find helpful.

Yes, you do have options and yes, since this is recourse debt, there is a good chance any deficiency will be reported to the IRS.

You may want to try a deed in lieu of foreclosure. This is a negotiated settlement with the bank. The advantage to the bank is that it gets the collateral back without the expense of formal foreclosure. The advantage to you is that you can negotiate the continuing obligation to for the deficiency or even get a stipulation from the bank that the property market value is the balance due on the loan. That way there is no deficiency and the debt is effectively becomes nonrecourse debt.

Of course, you will need to get a release from the note and guaranty as a condition of the deed in lieu.

It is my privilege to assist you. Let me know if you need further information. I hope I have helped you beyond your expectations in the service I have provided to you. I am here for you.

Since this forum is no substitute for your own legal counsel, you may want to verify the information I have provided with a local attorney who is familiar with your local laws and procedures.

I am happy to answer your follow-up questions and assist you until I am able to explain the answer to your satisfaction.

Thank you.

Customer: replied 3 years ago.


I appreciate your fast response. And I am/familiar w/Deed In Lieu. My question truely is only the last question. What can anyone do to me? Theoretically my net worth is zero.

But I have apartment buildings.(with zero equity) I have zero 1099 income. What can the lender do to me with a judgement? What can the IRS do? Thanks-

Thank you, XXXXX XXXXX following up with me.

Any judgement for deficiency would put your assets at risk to the extent they have available equity to attach. If you have no assets or income then it is possible that you are judgement proof and, even with a judgement, the lender may not have anything to go after.

The IRS alternative is a bit more sticky since that will result in tax liability which will, though eventually fade away if uncollected, could have more serious repercussions in terms of future credit and the lifespan of the tax obligation. Also, while the loan obligation can be discharged in bankruptcy, the tax liability may not.

That is one of the main attractions of the deed in lieu.

I hope this is helpful to you.

Thank you.

Customer: replied 3 years ago.


We are getting close-thanks. The answer is so obvious to you, you can't see it.

1) Will I have legal battles (court appearances etc) or can I just ignore everything?


2) With a judgement can they force any action on me. i.e. force me to sell a $6,000 boat. I was told they can lien the properties for when I sell them. The proerties are in LLC's- however I own shares of the LLC's (don't I?) so I would think they aren't protected.


I think we'll get it thiis time- Thanks







Hi Ace,

Sorry for the delay. I was in transit when you posted your reply.

1. I would never advise anyone, even the judgment proof, to ignore a summons. It is dangerous to just give a plaintiff whatever they ask. Even if you have no defense to the allegations, the plaintiff should always be required to prove their damages.

2. They would not be able to attach property in a separate and distinct LLC, but they could, possibly, attach the ownership interest and take the property that way.

I hope this is helpful to you.

Customer: replied 3 years ago.

Loren- I was this close to wrapping this up. In this day and age Do you think a bank would go to the trouble to get a $100,000 judgemnt from a guy who is worthless? -Thanks

Yes, unfortunately, I do. They will seek a judgment to have in place, just in case.
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