BofA in Calif is foreclosing on first...Is Bof A heloc wiped out?

[scotlindoug]

My Cal. BofA serviced first mortgage (BAC Home Loans Financing), owned by Freddie Mac, was originated with BofA and is foreclosing. It will be paid in full but the recourse heloc will not to the tune of about $100k. Does the fact that BofA (BAC Home Loans Financing) sold out the heloc and thus merged the loans mean that there can be no deficiency judgement OR 1099c issued to me?

[LadyInTheRed]

BofA (BAC Home Loans Financing) sold out the heloc and thus merged the loans

I don't know what you mean by that. Maybe others don't either. If you explain it differently, maybe you'll get more responses.

[scotlindoug]

I don't know what you mean by that. Maybe others don't either. If you explain it differently, maybe you'll get more responses.

The fact that both the first and the heloc are held (and serviced) by the same lender (BofA) and that the first is foreclosing means that the security for the heloc has been erased, placing it in the same category as an unsecured loan. The heloc can no longer foreclose on the property and has no security. I read that this foreclosure on the part of the first means that since BofA holds both the first and the heloc, that it essentially has treated the loan as one loan (merged the loans) and that it may mean that there is no further recourse against me on the heloc, based on Simon v. Superior Court (Bank of America), 4 Cal. App. 4th 63 (1992.)

[ryan]

The fact that both the first and the heloc are held (and serviced) by the same lender (BofA) and that the first is foreclosing means that the security for the heloc has been erased, placing it in the same category as an unsecured loan. The heloc can no longer foreclose on the property and has no security. I read that this foreclosure on the part of the first means that since BofA holds both the first and the heloc, that it essentially has treated the loan as one loan (merged the loans) and that it may mean that there is no further recourse against me on the heloc, based on Simon v. Superior Court (Bank of America), 4 Cal. App. 4th 63 (1992.)

This is very interesting. I have the exact same situation, BofA 1st and BofA Heloc...but not in California. First loan is currently in FC. I wonder if the same court opinion would hold sway anywhere else?

[Billssuck]

Ryan...same situation here with BOA first and HELOC. I wonder the same thing...

[scotlindoug]

Hi Ryan,
Did BofA sell your first to Fannie May or Freddie Mac and is it serviced by BAC Home Loans?? One attorney said it would make no difference but I'm concerned that this might make a difference as to how the court would look at it. From all of my research I think I'm in the clear on my heloc but may have to take it to court. On an attempted short sale, the first and the heloc both asked me to contribute and the heloc requested I sign a note for the balance but backed down when I refused and I have since pulled the short sale since I was advised that a 1099c from the heloc would simply make me indebted to the IRS rather than BofA, which was not at all a good idea. At this point, I am letting the foreclosure proceed rather than a short sale in the hopes that I can convince BofA that it's a waste of time coming after me considering this 1992 decision....I hope that you will find this helpful but the lawyers in your state should be able to advise you on whether or not it applies in your case. Good Luck!

I'd love to hear of your situation as it proceeds.

[scotlindoug]

Are you in California?

[ryan]

Hi Ryan,
Did BofA sell your first to Fannie May or Freddie Mac and is it serviced by BAC Home Loans??....

Yes, exactly. It was sold to FannieMae and is serviced by BAC.

It was originally a Countrywide mortgage, but that was 6 years ago. Like you, I declined the idea of short sale, and am letting FC proceed (tho causing it to take a lot of time, by legal means).

[mpm203k01]

Ryan can you share some of your tactics

Yes, exactly. It was sold to FannieMae and is serviced by BAC.

It was originally a Countrywide mortgage, but that was 6 years ago. Like you, I declined the idea of short sale, and am letting FC proceed (tho causing it to take a lot of time, by legal means).

This is interesting can you share a bit?

[LadyInTheRed]

This is very interesting. I have the exact same situation, BofA 1st and BofA Heloc...but not in California. First loan is currently in FC. I wonder if the same court opinion would hold sway anywhere else?

That ruling was by the Court of Appeals for the First District of California which covers the counties of Alameda, Contra Costa, Del Norte, Humboldt, Lake, Marin, Mendocino, Napa, San Francisco, San Mateo, Solano, and Sonoma. Only courts in the First District of California must follow the ruling. If you are in a different district in CA or in another state with similar laws as the California laws at issue in this case, the case can be used as "persuasive precedence", but the court in the different district or state does not have to follow it.

Scotlindoug, if you are in the first district, it sounds like the case would prevent BoA from getting a deficiency judgment on the 2nd. But I'd consult with a lawyer before relying on it.

I'm confused about when you do and don't get a 1099c, but even if you get one, you still may not owe tax on the "forgiven" amount. If you haven't already, read the IRS publication on the issue: http://www.irs.gov/pub/irs-pdf/p4681.pdf

[scotlindoug]

Thanks for your informative input, LITR! I wonder how BofA will respond to this "persuasive precedent", as I'm in SoCal. Maybe they wouldn't want another judgement along those lines in another jurisdiction?? I'm also wondering if the concept of "selling out the junior heloc by the first"and thus "merging" the loans will prevent BofA from having recourse against me. The fact that it's such a large amount ($140k) will make them look very carefully at their legal options, I'm sure.
Since I'm not quite insolvent, I'm going to contest a deficiency judgement, and thus the issuance of a 1099c when they can't collect.

[LadyInTheRed]

Since I'm not quite insolvent, I'm going to contest a deficiency judgement, and thus the issuance of a 1099c when they can't collect.

The lack of a deficiency judgment doesn't mean they don't have to issue a 1099c. A 1099c is issued when a debt is canceled. From the instructions for Form 1099c:

When Is a Debt Canceled

A debt is canceled on the date an identifiable event occurs. An identifiable event is:

1. A discharge in bankruptcy under Title 11 of the U.S. Code for business or investment debt (see Exceptions on this page).
2. A cancellation or extinguishment making the debt unenforceable in a receivership, foreclosure, or similar federal or state court proceeding.
3. A cancellation or extinguishment when the statute of limitations for collecting the debt expires, or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Expiration of the statute of limitations is an identifiable event only when a debtor's affirmative statute of limitations defense is upheld in a final judgment or decision of a court and the appeal period has expired.
4. A cancellation or extinguishment when the creditor elects foreclosure remedies that by law end or bar the creditor's right to collect the debt. This event applies to a mortgage lender or holder who is barred by local law from pursuing debt collection after a “power of sale” in the mortgage or deed of trust is exercised.
[There's more, but I'm clipped it]

http://www.irs.gov/instructions/i109...02.html#d0e389

If this is a personal residence, the 1099c may not be an issue. Read page 7 of publication 4681 under the heading "Qualified Personal Residence Indebtedness". [see the link in my previous post]

You are not filing bankruptcy, right?

[ryan]

This is interesting can you share a bit?

....well, honestly it would take some time to describe what I have done and continue to do.

Just in general, since IL is a judicial FC state, you can expect a longer FC timeline anyway. But it's still important to answer the Summons and Complaint with a detailed and well-drafted Answer w/Affirmative Defenses, make regular court appearances, file motions to request Discovery and Motions to Oppose the Plaintiffs Motions for Summary Judgment, file appropriate requests for Time Extensions and more. I have spent many, many hours researching what may currently work, but this is always subject to change. I've also recently benefited from the publicized BoFA delay in FC actions.

I was also a bit lucky and able to find one or two arguments that have proved successful (at least to date)....we shall see how much farther they carry me. BUT, I have no illusions, as i will definitely lose the case eventually.

(MPM203Ko1, I just noticed you've made only 4 posts in a year and they have all been asking about MY posts, wanting more detailed info about my personal situation. ??... I'm afraid I don't choose to disclose any more details on a public forum- sorry.)

[scotlindoug]

That's right, I'M not quite insolvent, not quite eligible for BK, and didn't use the heloc to improve the primary residence...I'm afraid a 1099c will mean a VERY large tax bill...I was hoping that the 1992 ruling OR the fact that the loans were merged by the same lender (first selling out the junior heloc) would mean that there would be no 1099c since there would be no basis for a deficiency judgement....OUCH, the tax man commeth and my beleaguered SEP-IRA, with its tax implications on withdrawal, is my only available asset.

[LadyInTheRed]

That's right, I'M not quite insolvent, not quite eligible for BK, and didn't use the heloc to improve the primary residence...I'm afraid a 1099c will mean a VERY large tax bill...I was hoping that the 1992 ruling OR the fact that the loans were merged by the same lender (first selling out the junior heloc) would mean that there would be no 1099c since there would be no basis for a deficiency judgement....OUCH, the tax man commeth and my beleaguered SEP-IRA, with its tax implications on withdrawal, is my only available asset.

Is the house worth less than what you paid for it? From what I understand, if the foreclosure sale price results in a loss from your original purchase price, that loss can offset income on the 1099c.

If you end up with a big tax bill, you can negotiate a payment plan with the IRS instead of using your IRA.