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It’s very stressful to be a Florida home owner dealing with an underwater mortgage or defaulting on a home loan.  Your credit rating is getting zapped, there are all the collection practices by the mortgage lender to juggle, and then there’s the legal process itself – strategizing with your lawyer on your home and mortgage debt, making decisions after weighing the consequences, planning for the future.

Congress and those lawmakers up in Tallahassee aren’t making things any easier, either, stress-wise.  First, let’s consider filing your income tax.

1.  The 1099C Headache

Many Floridians have – or will soon – receive notices of cancelled debt (IRS Form 1099C.) Across the country, there’s simply a flood of 1099Cs being mailed out to citizens. Over 6,000,000 of these forms are being sent out this year.

What is a 1099C?  It’s the form required for documenting “cancellation of debt” for the purposes of the federal income tax.  Under the current Tax Code, cancelled debt is considered income unless the specific debt is exempted.

For example, cancelled mortgage debt is not considered income right now, but will be after December 31, 2012.  This is important: read our earlier post on this issue (and why it’s important to resolve your short sale, etc. before the end of this year).

Due to a new federal law, Floridians will be receiving 1099Cs for debts that are very old.  Very old.  Stories are already appearing in the news about individuals receiving 1099Cs from creditors where the debts are literally decades in the past.   From the perspective of the IRS, this is income coming into the pockets of the citizen who gets that 1099C – regardless of the financial reality of their situation.

2.  The Florida Foreclosure Farm Is Getting Ready for a Big Harvest

We have already posted about the pending Florida Fair Foreclosure Act, which is predicted to pass the state legislature soon and become effective Florida law in 2012.  For details, read our earlier post on what the Fair Foreclosure Act means – bottom line, it’s going to boost the banks’ ability to foreclose on Florida homes.  Faster, easier for them.

However, that only gets the banks to the local courthouse.  There’s still that big problem of an overwhelmed court system here in Florida, where dockets are bottlenecked by all the foreclosure filings already in the system. That big idea to force mediation as a way to resolve the glut of foreclosures didn’t work, and Florida’s still facing a huge backlog of court lawsuits on file, where banks are wanting foreclosure judgments on Florida homes.

So, another problem solved up in Tallahassee:  the Florida legislature has budgeted $4 million for new judges to be hired, just to help clean out that bottleneck.

Assuming this is okayed by final vote this week, the money would be available to start hiring new judges as soon as July 1, 2012. That’s a little more than 90 days away.

Larry’s Tip

No one considering defaulting on their Florida home or facing a Florida foreclosure (or deficiency) judgment has the luxury of ignoring their credit history and credit rating.  For one thing, the impact of the foreclosure or deficiency judgment on their credit score (FICA) is a consideration in making their decisions on how to handle their mortgage – and it’s a part of planning how to build their future in the aftermath of a default.

It may be terrifying for some and enraging for others to have things established in their planning and then get a 1099C for a debt that not only is years old, but that has long since passed the state statute of limitations for collection efforts.  How can the federal government consider this income in 2012?  Really????

Right now, it’s a complicated matter.  Mess may be a better word.  There are no clear answers here, and anyone receiving a 1099C on an old debt would be wise to consult a professional on how best to respond.  One thing is certain:  don’t ignore a Form 1099C if you get one.

As for Florida foreclosures, if a Florida homeowner has been setting in their home, defaulting on their mortgage or planning to do so, now is not the time to procrastinate on making a plan and taking action on how to deal with a foreclosure lawsuit.   Expect the Fair Foreclosure Act to pass, and expect the state government to help get these foreclosure lawsuits up and moving.  Tallahassee is trying hard to jump start this process just like an old car battery — it may take awhile to get that charge going, but they will get that vehicle up and rolling along pretty soon now.

(Maybe longer than they think, since one hand seems to be gutting the clerks in the courthouse while making way for more judges.  The clerks are the workhorses of any courthouses; if things don’t go right, we could end up seeing judges figuratively twiddling their thumbs since there aren’t enough clerks in the file-rooms and front offices to get the files moving….)

Your future is based upon the choices you make today.  Procrastination is not wise.  Your future credit rating,  the ability to regroup and build your family’s future – these are the goals that need to be protected and planned for now.  Professional advise is important and may not be as complicated or expensive as you might think.  It’s a strange time in Florida today, don’t go it alone.

If you have questions or comments, please feel free to Chat with Larry in the comments below, at or (954) 458-8655.

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