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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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M.: I received a Notification of Lien Release on my 2nd mtg

Customer Question

Customer: M. Baker: Hello. I received a Notification of Lien Release on my 2nd mtg which states:" This letter is to inform you that XXX lendedr has decided to cease collection efforts on the loan associated with the above referenced account number, and will release it lien on your property. After the lien release is issued, your ownership interest in the property and your right to occupy the property will no longer be subject to our lien.
JA: Thanks. Can you give me any more details about your issue?
Customer: It goes on to say "if required by law, XXX lender will report this debt forgiveness to the IRS on for 1099 C. Currently I am chapt 13 with another two yrs. My 1st mortgage is current. My second was part of the Chapt 13 but only for what they notified the court of (which was hundreds of dollars). To my knowledge my payments to the BK trustee do not include any amounts beyond what the court received as a claim.
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Submitted: 1 year ago.
Category: Tax
Expert:  Jax Tax replied 1 year ago.

Hello. I have reviewed your account. It is common place for a mortgage company that is in 2nd or 3rd place to release their lein during bankruptcy if the value of the home is less than any mortgages with priority leins.

Expert:  Jax Tax replied 1 year ago.

This does a few things. One it helps their balance sheet.. Also, it means they no longer can collect the debt by way of foreclosure. Since you are in bankruptcy, they will lose all ability to then collect the unsecured debt. They may issue a 1099c to you but since it is part of bankruptcy, it is not taxable. Form 982 would be included with your tax return to state such.

Customer: replied 1 year ago.
I need you to refine/clarify your answer. In my original question I mentioned that they claimed only hundreds not the balance. I currently have 2 more years left to the Chapt 13. Will I have to pays taxes on the amount listed on the 1099-c (I am assuming it will be the mortgage balance).
Expert:  Jax Tax replied 1 year ago.

They only include or as you put it "claim" up to the FMV of the home. Seeing as there are mortgages with priority, it would make sense that on a small amount of the FMV of the home secured that particular mortgage which is why only a couple hundred was "claimed.

Expert:  Jax Tax replied 1 year ago.

Or it is likely, the mortgage company figured they had no chance ever to collect and simply wrote off the debt for business purposes. More likely that it is tied to bankruptcy.

Expert:  Jax Tax replied 1 year ago.

The couple hundred that was in the bankruptcy has likely been paid in full by the trustee with previous BK payments which is why you are now getting the release of lein.

Expert:  Jax Tax replied 1 year ago.

Example. Fmv of home is $100 at time of filing BK. 1st mortgage is $80k, 2nd is $19,500, 3rd is $10k. Only $500 of 3rd mortgage is included in repayment schedule of chapter 13 because the FMV limits it. Once the $500 is paid, the 3rd goes away as does the lein.

Customer: replied 1 year ago.
The only amount claimed was the few hundred. No previous bk payments were made .Since I am currently in bk - chapter 13 and to your point the trustee did pay the few hundred in full, I am wonderingi f I am on the tax hook for the balance - in excess of $100k
Expert:  Jax Tax replied 1 year ago.

You are not on the hook so long as you make it through the BK to the last payment. If the BK defaults, the amount owed will come back.