Relief For People Sued By Lenders

A federal bankruptcy court in Tennessee has made a ruling that may offer relief to people being sued by their former lenders to pay the balance on their mortgages long after they lost their homes in foreclosure. Earlier this month, The Washington Post reported that hundreds of people in the Washington area, including 400 in Maryland, are being sued by their former mortgage lenders for the so-called deficiency on their old mortgages; this is the balance on the loan that was not paid after the bank sold the house after a foreclosure. These people were blindsided by the lawsuits—they had assumed their obligation to the lender ended when they surrendered the property.In California the same thing is happening, and mortgage companies are selling the debts to collection agencies, which are actively pursuing them. But in Tennessee, a bankruptcy court made a ruling around IRS Form 1099-C, a cancellation of debt document that people receive after the foreclosure process. It comes from the mortgage lender, saying the debt has been canceled, and is used to calculate any federal or state taxes owed on the amount forgiven. The Tennessee court held that this form itself does not cancel the debt, but reflects the fact the financial institution has discharged the indebtedness. Other cases stating “cancellation of debt (COD) is a term that is interchangeable with the term discharge of indebtedness” were relied on in the ruling.The bankruptcy judge also pointed out that as canceled debt is considered as income for the debtor, it’s unfair for the taxpayer to be hit both ways—having to pay the tax and the lender. This judge added the court “has adopted the minority view; however, in the interests of justice and equity, the court believes that this is the proper view.” Further, lenders have played both sides of this issue before, with banks claiming in some cases that the 1099-C is filed merely to comply with the Internal Revenue Service’s reporting requirements, and in other situations—when accused of violating the Fair Debt Collection Practices Act—telling the court “the issuance of an IRS Form 1099-C is not an attempt to collect a debt; instead, it is a declaration under penalty of perjury that the debt has been canceled” and that the bank “would never attempt to collect the debt.”Although this important case (Eastern District of Tennessee bankruptcy court, case No. 12-30049), is law only in Tennessee, Kentucky, Ohio and Michigan, it’s a significant step for consumer rights; it seems likely the issue will eventually be decided by the U.S. Supreme Court.If a collection agency like  Dynamic Recovery Solutions has harassed you, you may be entitled to money damages up to $1,000.00, based on the FDCPA, which has been around for almost 35 years. The FDCPA is a federal law that applies to every state. In other words, everyone is protected by the FDCPA. The FDCPA is essentially a laundry list of what debt collectors can and cannot do while collecting a debt, as well as things debt collectors must do while collecting a debt. Plus, the FDCPA has a fee-shift provision. This means, the collection agency pays your attorney’s fees and costs. Founding attorney, Michael Agruss, has settled over 1,500 debt collection harassment cases. We want to help you, too.