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BofA: Free second mortgages

By Polyana da Costa · Bankrate.com
Monday, October 1, 2012
Posted: 3 pm ET

If you get a letter from Bank of America offering to eliminate the second mortgage on your home, don't laugh. It's not a joke. The bank is in the process of mailing letters to 150,000 homeowners, offering to wipe out their second mortgages.

Homeowners who want to accept the loan forgiveness don't need to reply to the letter. The loan will be automatically forgiven, unless the homeowner contacts the bank to reject the offer within 30 days of receiving the letter.

It sounds too good to be true, but the lender says eligible homeowners will have their second mortgages eliminated and reported to the credit bureaus as "paid and closed."

This offer is a result of the National Mortgage Settlement signed this year. The bank says it has eliminated the second mortgage of more than 50,000 homeowners as of August 21, totaling $5.8 billion in debt relief. That translates into an average of $116,000 in forgiven debt per homeowner.

Who's eligible?

To be considered for the program, your second mortgage must be owned and serviced by Bank of America. You may qualify even if your first loan is not owned by the bank. The majority of mortgages eligible for the program are in default, according to Bank of America.

Only borrowers who receive the letter from Bank of America via FedEx or certified mail are eligible for the loan forgiveness.

Tax implications?

Lenders have to report forgiven debt to the Internal Revenue Service. You must report the amount forgiven to the IRS when you file your taxes. As long as the loan forgiveness is completed by the end of the year, you may claim a tax exemption under the Mortgage Forgiveness Debt Relief Act -- if the loan is backed by your primary home and the loan was used to purchase or make improvements to the home. The exemption is set to expire Dec. 31. Unless Congress extends the law, any debt forgiven in 2013 will be taxed as income.

Have you received a loan forgiveness letter from Bank of America? I'd love to hear from you.

Follow me on Twitter @Polyanad.

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13 Comments
Kirk Niverson
September 24, 2013 at 10:11 am

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Polyana da Costa
November 30, 2012 at 2:31 pm

Hi Patricia,
It doesn't hurt to call the bank to make sure the letter didn't get lost in the mail but the lender is only mailing letters to selected borrowers who meet the criteria for the program. Is your second loan owned by Bank of America? This offer is only for loans owned by the lender.
Good luck.

Patricia Roberts
November 30, 2012 at 1:08 pm

Hello: I was surfing and found your letter about 2nd mortagge forgiveness...I have a equity loan with BOA and I have not received a letter yet? What should I do please?

guest
November 28, 2012 at 11:03 pm

Too good to be true? Right. Do you have any idea what the IRS will bill you for the "forgiven" debt? I already lost my home. They wouldn't work with me then, and now, I should say Thank You Bank of America?

If you think forgiveness is good, see what the IRS will make you pay. Basically I see it as a possibility to recoup money by the feds.

Of course, make your own decision--but do consult with someone about the legalities of it to protect yourself.

josephine
October 30, 2012 at 10:54 pm

Home Equity Forgiveness in 2012, but filling income tax in 2013
I got second mortgage principal balance forgiveness (home equity account) by Bank of America. I am a co-borrower and my husband is a borrower. They sent us a letter via FedEx on October 27, 2012. Both my first and second mortgage are owned by Bank of America. The total principal on second and first mortgage exceeded home value over 44000 dollars (estimated market value for the similar homes in the area). My first mortgage which will not be forgiven and which was modified (interest rate reduced) still exceeds the home market value by at least 5000 dollars approximately. The second mortgage owned by BofA is forgiven in in its entirety of 38300 dollars. Home value is around 125000 dollars. First mortgage principal is around 131000. Total principal on both mortgages was around 169300 dollars.
Question: is there any tax liability and if so are they any exceptions when I file for my income tax in 2013? I am unemployed for the most of the 2012. However, only my husband works in a household of 5 in which there are 3 dependents. Is there going to be any tax shock/liability when I file for 2012 income tax in 2013? We are planning on filling jointly??
Thanks!

pawel
October 23, 2012 at 12:43 am

I owed 3 family house where i live .i did not received any any letter .should i stop making payments second morgage to BOA ?

Tien Hua
October 10, 2012 at 12:19 am

Hi I need a advise
I did not receive a mail from Bank of America to forgive a 2 nd loan. Please tell me what I should do now ? Thank you very much

ann
October 09, 2012 at 3:41 pm

I just got one of these letters from BOA on saturday. We are in the process of having our 1st mortgage modified. I called and verified that it was real and they said yes and it wouldn't effect the 1st mortgage modification in any way. What I don't understand is the tax implications. We live in the Atlanta area and most everyone is underwater on their home value. How do you show that you qualify to not pay taxes on the forgiven 2nd loan . We lost our business and that is when our mess started and the housing market here went bust as well. We would not be able to sell our home for what we owe on our first mortgage much less what we still owed on the second---so this is a true God send for us but worry still about the taxes.

Home Loan
October 03, 2012 at 11:34 pm

Realizing the importance of owning a home is the first step in buying one. That is why options and methods suitable for your ability to pay are available for you to take advantage of. Brokers are helpful in making your dream to own a house come true. It is all up to you to make it into reality.

Home Loan