I love this forum! Been reading it for 6 months and love everyones stories - thank you so much for sharing them!
I have a question for those who have walked in recourse states or had a recourse mortgage, especially those with a second mortgage or heloc which become unsecured debt after foreclosure.
As far as the first mortgage goes, from my understanding (please correct me if im wrong) its a good chance that the process can result in no deficiency on the first.
i.e. if at the time of foreclosure the amount to cure the default accumulates to 300k (principal, past due interest, FC filing fees, etc) the bank often sets the starting bid at the amount owed (300k). so if there are no takers, the bank gets it back at 300k so there is no deficiency since by law the deficiency amount is the difference between the sale price and amount owned and they are the same its 0.
So assuming the risk of deficiency is not so bad on the first, what happens to the second?
it becomes unsecured debt. Do they typically send it off to 3rd party collections? Do they issue 1099s? I read a lot of stories of people negotiating the debt after 6 months or more of being late. I guess the main questions is why negotiate, just to get a "settled" mark on your credit report, to put it all behind you? It seems to me if your second is 40-60-100k , even if you settle at 10% its still 4-6-10k out of pocket a lot of us dont have.
So why not just ignore it forever until it goes away and hope the SOL expire?
Has anyone had the experience of dealing this way with the second, and what route did you go - 1099/ settle / ignore and why?
Another question: can they write off debt ONLY in the year they foreclosed? In other words, say FC happened in 2010, does that mean both first and second MUST give you a 1099 in Jan 2011. Or can they collect for 3 years and then 1099 you in 2013. Will in that case the tax break on debt forgiveness still apply?