Hi Scott ... sorry, I didn't get an alert that you had asked a follow-up ... I think they're having some system issues today, and yesterday.
The non-recourse part only applies to whether the bank can come after you PERSONALLY AFTER they have foreclosed and there's still remaining debt if the house being sold won't satisfy it (sell for enough to pay it off).
And again, what the money was used FOR is not the issue (doesn't matter)
All that matters is whether these were mortgages or equity lines of credit (when the house is what's being used to get the loan).
As long as that's the case (and based on the wording you're using ... "1st, 2nd" ... these are mortgage (or equity) type loans, ...
... which means that the tax on anything borrowed, not paid back, and the bank writes it off (forgiven)
is not taxable (or better said the tax is waived)
If the bank doesn't issue a 1099 that its not income at all ... If the bank DOES issue a 1099, then you just use form
982 with your taxes for the year and the tax is waived.
Let me know ...