As part of the "National Mortgage Settlement" reached during 2012, some lenders in California are in the process of determining whether to forgive balances on certain second mortgage loans.
In those very limited situations where borrowers qualify, a letter from the lender would be sent to the borrower spelling out the conditions of the "offer of mortgage debt forgiveness".
Because of possibility that such a lender letter could be a fraud or a hoax, title companies will need to do serious diligence in order to clear or eliminate the prior trust deed from title. Until completion of title company due diligence, there would not be a recorded reconveyance of a prior deed of trust.
Title companies must verify that the "offer of mortgage debt forgiveness" is valid, and that the borrower has not opted out and has in fact accepted the lender's offer.
Some borrowers are expected to decline such an "offer of mortgage debt forgiveness" because of significant tax liability on phantom income – and receiving a 1099 from the lender for the amount of the debt forgiveness.
In order for title company to verify all of the essential these facts, a third party authorization and full cooperation will be required from the borrower and lender.
If you as borrower receive such a letter "offer of mortgage debt forgiveness", be very careful. Contact the lender and determine all necessary facts, including contact information for the person at the lender making decisions. Then consult with an experienced real estate attorney or income tax professional about your decision whether to accept the offer.
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