Legal Question in Real Estate Law in California
My parents are in the process of a short sale with B of A. The approval letter states that B of A "may" pursue a deficiency judgment for the short amount after the sale. The B of A negotiator says that most likely they will report their loss thus triggering a 1099 for my parents. The B of A negotiator says that once my parents receive a 1099, B of A will not come after my parents for the deficiency amount. The negotiator says that the deficiency amount is not forgiven or canceled but will be "charged off." My question is....if the debt is charged off and they issue a 1099 to my parents, can a collection agency or even B of A still collect on the deficiency amount?? Doesn't issuance of a 1099 mean that the debt is canceled and therefore not collectable?
2 Answers from Attorneys
Good question. Have them put it in writing.
The issuance of a 1099 is not a guarantee of anything. It is simply a report to the IRS and the taxpayer of a transaction that may affect the taxpayer's tax liability. The bank MIGHT be otherwise prohibited from seeking a deficiency, but if not it could possible renege on its unwritten promise, go for the deficiency, and issue a corrected 1099 informing the IRS and the taxpayer of a different result. I'd get any promises in writing, or at least a clear understanding of why they will not waive their right (if any) to a deficiency in writing.
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