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Here in Florida, more and more deficiency judgment collection efforts are being pursued by lenders and debt collectors, even though the associated foreclosure or short sale happened several years back.

And, to make matters worse, and confusing, Florida borrowers have been receiving 1099s (a/k/a IRS Form 1099) from their lender related to their deficiency. What does this mean? Is the deficiency still collectible?


1. What is an IRS Form 1099?

An IRS Form 1099 is sent by a bank to each borrower when the lender has canceled the debt owed to it by the borrower. Technically, it is an Internal Revenue Service form 1099-C and the lender is required by law to send this document to the borrower anytime it “cancels” $600+ in debt.

The bank sends a copy of the form to the IRS. It also sends a copy to the borrower. Lots of 1099s have been sent to Florida borrowers who lost their home in foreclosure and a deficiency was left on the debt. Lots of Florida short sales also resulted in 1099s being sent to Florida borrowers, where the sale was approved by the bank and the deal closed but there was a balance left after the bank received the closing proceeds.

We have been warning about how 1099s were going to be arriving in mailboxes this year because there was no extension of the Mortgage Debt Relief Act; for details read:

2. The 1099 May or May Not Bar Collection Efforts

In states where deficiencies are not collectible by lenders after a foreclosure (“non-recourse” states), there is no complicated legal issue. The deficiency results in a 1099 and no collection efforts. There is no collectible deficiency in a non-recourse state.

Florida is a Recourse State

However, Florida is different. Florida is a recourse state. Here, the amount left due on the mortgage after a foreclosure or short sale remains viable under the law – meaning the lender can try to collect from the borrower. In Florida, there is a collectible deficiency.  The lender (or a company that buys the debt from the bank) can institute collection efforts on a deficiency even after you have received a 1099 form.

Remember, that 1099 form is a federal tax requirement. It is not a release of liability under Florida contract law.

That 1099 is not a legal settlement; it doesn’t mean that the lender may not try and collect on the deficiency.  Unfortunately, this is a complicated issue – see this article by Forbes discussing the issue — and therefore it’s important to have a real estate lawyer review your situation to see if there are defenses and arguments to prevent the bank’s collection efforts (Was the borrower served with the lawsuit in the underlying foreclosure case? – If not, then the bank shouldn’t be able to pursue a deficiency).  After all, under Florida law, the collection of a deficiency is not guaranteed – the courts have discretion in deciding whether or not to grant a deficiency to a bank.

Bottom line here, is that a Florida real estate lawyer with experience in deficiency counseling can be helpful.

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Do you have questions or comments? Then please feel free to Chat with Larry in the comments below, at, or (954) 458-8655. If you have a specific or personal situation, please call or email Larry because he can’t answer specific fact questions in general comments.

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