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2nd mortgage released without paying it off??

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Junior Member
What is the name of your state (only U.S. law)? NH

About 3+ years ago I consulted with a lawyer about potentially filing for bankruptcy, as I have a 1st and 2nd mortgage that was too much to maintain due to loss of income. At that time the lawyer advised I stop paying on the 2nd mortgage immediately. He said with the house being "underwater", the 2nd mortgage company cannot or most likely will not try to foreclose as the cost to do so would be a significant loss to them financially. So while I continued to hem and haw over bankruptcy, I had stopped paying on the 2nd mortgage. I have not filed for bankruptcy.

Yesterday I received a letter from the 2nd mortgage company that reads:

"Your mortgage in the amount of $xx,xxx will be forgiven!"

"The lien securing you mortgage will be released. Additionally, we have agreed to forgive all of the balance on you mortgage in the mount of $xx,xxx, an any other amounts related to that mortgage. You may have to report the mortgage forgiveness on your tax returns and pay income tax on the balance forgiveness amount."

"This release operates as a complete forgiveness of your mortgage loan to XXXXXX. XXXXXX is the holder of your mortgage and it is releasing and extinguishing your mortgage. XXXXXX will no longer pursue payment obligation under this mortgage loan. For the protection of the owner, this release will be filed with the recorder or registrar of titles in whose office the mortgage was filed."

I am guessing this will crush my credit even more (which it is already in the toilet). Additionally I am guessing that the company XXXXXX will "sell" the balance for pennies on the dollar and I will start to get calls from a new collection agency saying they purchased the debt and are now trying to collect it. Or is this a legit off the books move by the company and I am free and clear of this 2nd mortgage 100%? My guess is no, however it sounds like the lien will be gone which the lawyer I consulted said would happen during bankruptcy as the 2nd mortgage no longer could be considered secured debt based on the house being "underwater". Thoughts? Have you seen this before?



You may discover that the mortgage lien is being released but the promissory note is being sold to a collector, in which case your scenario is correct & you will soon be hearing from the collector. But the promissory note is unsecured so unless the creditor obtain a money judgment, they cannot take action to collect it beyond asking you for payments. To confirm that the mortgage has been released, you should obtain a copy of the Release of Mortgage which must be filed at the county clerk's office by the lender. If you also receive from the lender a 1099-C cancellation of the mortgage debt, I believe this is evidence of the cancellation of the promissory note (double-check this with a local real estate attorney).


Senior Member
The first thing I would do is verify that the letter is genuine. I've never seen communication from any respectable financial institution open with an exclamation. This could be an advertisement of some sort.
I have a client that got a similar letter a couple of years back only it was in regards to their PRIMARY mortgage. I didn't believe it at first either, but it was genuine and at least so far, no debt appears to have been sold to any junk debt buyers. We came to the conclusion that the mortgage company felt that they would be throwing good money after bad to foreclose on it, and it was cheaper to just release the lien. The house did need work and the neighbor was a bit iffy.

It would honestly surprise me if any junk debt buyers would be interested in those kinds of loans. Even at pennies on the dollar it would tend to be more money than they would be willing to invest. They generally go for the smaller stuff that they can attempt to intimidate low/moderate income people into paying.

After all, those junk debt buyers count on putting out next to nothing to buy the debt, and then hope that they will collect on enough of the debts to make a profit.

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