Yesterday I got a letter from my bank, they are offering me to pay about half of my second mortgage loan and saying that, if I do it, “my loan will be considered payed in full”. They also say they will give me an IRS 1099-C form for the amount forgiven.
I have never been late in a payment but I have a terrible loan (balloon), I don’t trust my bank and I was considering refinancing soon (it might not be possible as my loan is higher than what my house is appraised for).
Should I take the offer? Will this inflate my income and kill me at taxes time? What questions should I be asking? Is it as good as it seems?
Professional advice is very welcome.
Ok, the answers up till now seem really good but I want to put a little bit more detail to see is it can help me get even better answers:
$ 189,000 30 years (5 years interest only)
6.5% APR for the first 5 year, then it will go up
$ 45,000 30 years fixed
***offered to pay only $ 20,000 to pay it off***
My loans total: $ 234,000
My house is now worth: about $ 220,000
My mortgage bank is Aurora Loan Services, just do a search for their company name online and you will know why I don’t trust them. I called them today and they said there was no more information that I could get, just the letter, that’s it. They were kind but not helpful at all and I have only 30 days to take the offer and send my money order… because they will not take a bank wire or any other more secure kind of payment.