1099-C - anyone try this?

A few months ago, I came across an item on a Georgia HOA attorney (or management company, I forget which) that suggested an interesting tactic to use on our never ending quest to compel delinquent homeonwers to pay. The site suggested that HOA boards inform the homeowner that if he/she/they do not make payment arrangements, the Association will file a 1099-C with the IRS.

Apparently, what this does is notify the IRS that a creditor is no longer pursing payment on an unsecured debt, listing the amount owed. Since this would be considered income, the homeowner could be subject to paying higher income taxes - and facing THAT proposition, might be more persuaded to come up with a payment plan with the association. I've heard unsecured creditors like credit card companies often do this - but it can't be done if the person declares bankruptcy because discharged debts aren't looked as income by the IRS.

I asked our Associaiton attorney about this - she hadn't heard of this and since it's a tax issue, it would be best to talk to a tax attorney. We may do this down the road (right now, we don't the money for that), but it would be great if we had to foreclose on a homeowner and take a bath when writing off the debt, notifying the IRS of the deadbeat would result in him or her trying to explain all of this (go ahead and try to cheat the IRS out of their money!)

You've probably guessed why I'm posting - anyone heard of this or tried it with their association? If so, has it helped recover some money? Thanks in advance for your opinions and suggestions!

Shoot. Hit the post too soon.

Wanted to add that it is an interesting avenue to explore (especially if the Association is to the point of realizing that they aren't going to collect anything).

Sheila that's correct.

But, in general from a financial perspective this would work out in the homewoner's favor, as at most it would be what 36% of the past due amount?

Also once this is done you cannot take any further action related to the amount forgiven, as per the 1099-C the HOA has waived their interest in the debt.

At a minimum this would cause the delinquent HO to pay something....

Doesn't sound like a bad last resort when all other options are expended.

I think the article that you are referring to is Take Action Against Delinquent Homeowners on the website of Riverside Property Management. As Brian pointed out, the strategy is not to file the 1099-C to get some benefit, but to threaten to file it and see if that spurs action.

Our delinquent homeowners have learned how much it costs the Association to pursue a collection lawsuit, and they have been thumbing their nose at us while they dare us to spend the money it would take to force them to pay. Filing a 1099-C costs nothing, so this might be a strategy that works.

Brian,

In times past, when most homeowners were sitting on large equity positions on their property, the threat of a foreclosure was a powerful incentive to pay assessments. Nowadays an Association has to resort to more creative means of collection, since many homeowners are under water on their homes and largely "judgment proof". We have yet to start calling the place of work of delinquents or harassing them at odd hours, but we are looking for most any idea that will help.

Just to toss a burning torch on the pitch wagon....

Anecdotal musings:

Without fail, every single person I know in my two HOA histories that "couldn't afford to pay" their dues, assessments, etc., had cell phones. They had Cable TV. In each HOA, the monthly cost of either item was double, or triple what our dues were. They couldn't afford $20/month for HOA dues, but had Cinemax and HBO on cable. Couldn't afford $110/year, but had cell phones for themselves, spouses, and kids. Had a fridge full of beer, at least one more car than drivers in the home, etc..

People choose not to pay their HOA dues, rarely do circumstances drive them to being unable to pay. I feel no sympathy for them because of that (lazy) choice.

I learned not to judge people for what they have. Most people ONLY have cellphones now adays and not home phones. If you have kids cable is a great babysitter...You may see someone have "new" furniture coming into their house. How do you know that was NOT an inheretance?

Don't judge what people spend their money on. It is NOT yours to judge or manage. The HOA just needs to take action when it is approriate and allowed to do so.

I learn to judge people by what they say and do. If they say they will pay X on time, and live by Y rules, and they do, I judge them as good people. If they promise to do X,Y and Z, and they don't, I judge them to be unreliable, untrustworthy people. I judge people who continually complain to me that they have "no money" when I see them with cell phones, HBO, beer in the fridge, etc.. Because if they WANTED to have money to pay their other bills, they could. They just have to give up some extras. But, in all my time of being a sounding board for these folks, they all, without fail, balk at making these real cuts in their lifestyle. they would rather whine about not having any money, while waiting in line at Starbucks, chatting on their cell phones, about the movie they DVR'ed last week while they were out at the clubs and bars getting drunk.

I honestly don't care if they own a phone, mercedes, or can barely scrape together 50 cents for a cup of coffee. Do they follow through on their commitments? Do they do what they promise to do?

The homeowners association itself, acting through its board of directors, is not subject to the provisions of the Fair Debt Collections Practices Act (FDCPA). I think that is one of the points that Brian was making.

The FDCPA applies only to third parties hired by a creditor to collect a debt. Since the HOA is the original creditor, the act does not apply.

Please see Federal Fair Debt Collection Practices Act for a detail discussion of this.

Tim - You're right, but I think in some cases where you're going to write off the debt and you know that it's not worth spending the money on filing a judgement in order to pursue the debtor. You weigh the expense of going after the debtor versus the amount of the debt.