# Foreclosure with active loan



## Minnesota1922 (May 1, 2014)

Purchased a timeshare with diamond resorts as part of the Hawaii collection. Being stupid we financed it and currently owe 13,000 still and maintance fees.  We are no longer able to pay (haven't paid in 5 months) our loan or maintence fees.  I have spoken with diamond resort several times and they do not buy back timeshares with loan balances.  I have spoken to the hospitality team and loss mitigation reps and have gotten no help.  Today I was informed at the end of the month the property would be foreclosed on since it will be 6 months with no payments.  I  asked what happens to my active loan since the property will be taken away and rep told me the account will be closed and no more financial obligation.  I find that hard to believe--anyone have any experience with this?  My credit has already taken a significant drop of 96 points with the 30-60-90-120 days late notice that they reported.  And I know with it foreclosed it will drop more. Paying is not an option and I am just wondering if anyone has been foreclosed on with a loan balance and what truly happens to the balance?


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## dougp26364 (May 1, 2014)

Typically these loans are bundled and sold as high risk securities or junk bond type investments, which is why when the financial markets crashed so many timeshare developers had issues. No one would buy their high risk loans. 

You'll still likely be on the hook for the loan balance with whomever owns it. It may be written off as a bad debt/uncollectable and ding your credit rating. They may decide it's large enough to seek a judgement against you and garnishment of your wages. It's hard to say what will happen but I'd think those are potential options unless you file bankruptcy or reach some sort of payment agreement. 

DRI could still come after you for unpaid MF's but once the HOA forecloses on the property I don't believe they can include any fee's from that date on. I'm pretty sure they can tack on penalties and interest to any past due fee's while the property was in your name. 

Keep in mind these are just educated speculations on my part.


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## Minnesota1922 (May 2, 2014)

Thanks for thoughts. I should add the rep said something about getting a 1099 or 1098 and having to pay taxes on it.  Anyone out there gone through this process?


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## dougp26364 (May 3, 2014)

Minnesota1922 said:


> Thanks for thoughts. I should add the rep said something about getting a 1099 or 1098 and having to pay taxes on it.  Anyone out there gone through this process?



That would be interesting. It might indicate that DRI kept the loan inhouse rather than bundle/package and sell them as junk bonds. If that's the case I suspect the amount written off is treated as income by the IRS and would be taxed in some fashion as such. It would also mean that what the rep stated about no more obligation might be correct in that DRI is writting this off as a bad debt. It may still show up on your credit report as an uncollectable debt/bad debt write off, which could lower your credit score. 

Let us know how this works out in the end.


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## Minnesota1922 (May 3, 2014)

Today we got a certified letter in the mail from diamond resorts. The letter states the following:
This is a formal notice that our records indicate your account is delinquent as a result of your failure to pay the purchase installments doing alone with diamond resorts US collection. As a result of such delinquency and pursuant to the owner agreement executed by you:

A: you're right to make a reservation or use the commendations and facilities at the resort or through exchange companies has been suspended
B: if the account remains in default for 14 days without further notice your loan will be subject to terminate any reservations helping your name will be canceled and all amounts previously paid that you will be retained as damages.

Your options are:
Option one: bring your account current within the next 14 days by paying the delinquent amount listed above.
Option two: allow the loan to automatically terminate without further notice.

If you have any questions regarding this matter please immediately color office.


I plan on calling again to speak with another rep to clarify some things but it's an understanding this right and we choose option two it sounds like the loans and would be terminated and possibly we would not be libel anymore for the loan amount. Of course it's going to take a really big hit on our credit and I and that sucks but without a job and without income coming in we don't have a choice. It does make sense what you said that diamond resorts might write it off as a debt and we will end pay taxes on that. How do you guys interpret this letter?


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## SmithOp (May 3, 2014)

Minnesota1922 said:


> Thanks for thoughts. I should add the rep said something about getting a 1099 or 1098 and having to pay taxes on it.  Anyone out there gone through this process?



You will get a 1099A or 1099C, Cancellation of Debt. You will take a tax hit as well as a credit score hit.  You should have a professional tax preparer or accountant do your taxes next year, and not H&R or any of those other storefront outfits.


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## b2bailey (May 5, 2014)

Due to my husband's illness we had a situation where we were issued a 1099 for Cancellation of Debt. I fretted for months about doing our taxes -- and then I realized there is a provision regarding insolvency. If your situation is that dire -- you won't need to pay the additional tax.


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## Minnesota1922 (May 5, 2014)

B2baily--after u got your 1099 did you notice if your loan was closed on your credit report? Where you truly no longer responsible for the loan? Any debt collectors trying call you to collect the loan balance?


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## b2bailey (May 6, 2014)

MN1922...to be honest I've been afraid to look at our credit report -- might frighten me to death. Fortunately, we are at the age where a poor credit score won't affect us much. The collection calls definitely stopped after we were advised we would receive the 1099.


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## Minnesota1922 (May 15, 2014)

It's been 1 week and haven't received 1 collection call. Still haven't received 1099, I believe that comes in June. Will keep you all posted on status. Our credit score has dropped 170 pts total so far and still shows loan.


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## Saintsfanfl (Jul 1, 2014)

Once the debt has been officially forgiven it is illegal for collection attempts to occur. You can owe someone a debt forever but as soon as they "forgive" it, which many times results in a 1099-C, it becomes taxable income and collection attempts must cease.

Some debts are transferred or sold many times. Usually it ends up in the hands of entities that never officially "forgive" the debt. Therefore it is not income but it can be collected on forever. If you never get a 1099-C it is safe to assume that the debt it still out there.


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## Saintsfanfl (Jul 1, 2014)

b2bailey said:


> Due to my husband's illness we had a situation where we were issued a 1099 for Cancellation of Debt. I fretted for months about doing our taxes -- and then I realized there is a provision regarding insolvency. If your situation is that dire -- you won't need to pay the additional tax.



This is easy to do if someone has a lot of unsecured debt and/or seriously upside down on real estate.


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## ronparise (Jul 1, 2014)

Saintsfanfl said:


> This is easy to do if someone has a lot of unsecured debt and/or seriously upside down on real estate.



 the insolvency thing is for your personal residence, and it was for debt forgiven between the years of 2007 and 2013

In a foreclosure the property is sold "on the courthouse steps" Assuming the sale didnt raise enough money to satisfy the debt, the lender then has three choices, 1) come after you for any shortfall (a deficiency judgement) or 2) forgive the loan.  or do 3) do nothing.  If they choose option 2 they will issue a 1099. and you will owe the tax.


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## simpsontruckdriver (Jul 2, 2014)

If foreclosure happens, the only way to prevent it is Chapter 7/13 bankruptcy. It's not as easy as it used to be (thanks to Conservatives in Washington), but it will clear all your debts. The best route is Chapter 13, where the court figures out how much you owe, discharges all your debts from your credit record, and works out a payment plan. If you can't afford the payment plan, the court would change it to a Chapter 7 (discharge and no repayment). It can be expensive (usually around $1500 for a GOOD bankruptcy attorney, not including court fees), but it is used to get people back on their feet.

TS


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