BANK OF AMERICA
As part of Bank of America’s ongoing efforts to help customers in need of mortgage assistance, this company is in the process of mailing approximately 150,000 letters to pre-qualified homeowners offering automatic extinguishment of their second-lien mortgages. The intention of the program is to place homeowners in an improved financial situation by reducing their monthly debt obligations and, potentially, help them create equity in their property.
The full forgiveness of second-lien balances on eligible loans is being extended under Bank of America’s participation in the 2012 national mortgage settlement among the five largest mortgage servicers, 49 state attorneys general and the federal government.
Letters that began mailing in July 2012 and continue through the end of this year inform predetermined eligible homeowners that the full balance of their Bank of America-owned and -serviced second-lien mortgage will be forgiven and the bank’s lien on the collateral property will be released free and clear, unless the customer opts out of this relief offer within 30 days of receiving the letter.
As of September 30, 2012:
- Homeowners with eligible home equity loans or lines of credit owned by Bank of America have received about $2.5 billion in relief.
- Nearly 45,000 Bank of America customers have benefited from second-lien extinguishment or modification within the settlement terms.
- The average financial relief provided to these customers is about $56,000.
Questions and Answers
1. What did the second-lien mortgage elimination offer do?
It gave eligible customers who were behind on their home loan payments the opportunity to have their remaining second-lien mortgage debt eliminated. Under this program, the full unpaid principal balance on the customer’s second-lien mortgage (also known as a home equity account) was eliminated, and the lien on the customer’s property was released. This action effectively removed any current or future claim the bank may have had to the customer’s property through the second lien.
2. Who was eligible for the offer?
To qualify, customers needed to have a second-lien mortgage owned and serviced by Bank of America that met certain threshold delinquency or distressed property value criteria, or a second-lien mortgage associated with a first-lien mortgage that was severely delinquent. Only second-lien mortgages owned and serviced by Bank of America were eligible for this extinguishment program. It did not matter who owned and serviced the first-lien mortgage. The vast majority of the second-lien mortgages eligible for this program were in default. A small number of second-lien mortgages that were paid current also were extinguished once it was etermined they were associated with a first-lien mortgage that met our criteria.
3. How did you contact eligible customers?
Eligible customers received letters from Bank of America via Federal Express or certified mail, explaining the process to have their second-lien mortgage debt eliminated. If they elected to decline the offer of second-lien extinguishment, we asked them to notify us within 30 days of receiving our letter. Otherwise, the debt and associated lien were cancelled after the 30-day period. Only customers who received letters from us were eligible for the program.
4. What happened if a customer was in foreclosure?
If a customer’s first-lien mortgage was in foreclosure, the second-lien extinguishment did not stop foreclosure proceedings on the first mortgage. Foreclosure activities likely would have continued. We urge our customers to continue to answer and reply to all foreclosure communications from their first-lien lender.
5. What are the income tax implications of the bank’s second-lien extinguishment and debt forgiveness?
Bank of America is required to report the full amount of forgiven principal debt above $600 to the Internal Revenue Service, which could then become taxable income to a taxpayer. Current federal law provides for certain exceptions to income tax liability when mortgage debt is forgiven in connection with a foreclosure prevention transaction for some customers; however, debt forgiveness or elimination may trigger state and federal income tax liabilities for some customers. To understand whether they qualify for an exception, or what tax implications this kind of transaction may have with the Internal Revenue Service (IRS), we urge customers to contact a tax professional for advice. IRS guidelines can be found at http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation.
6. What other details can you provide about exceptions to tax liability and tax reporting related to debt cancellation and or forgiveness?
IRS publications provide that borrowers may exclude from tax liability any debt reduced through a mortgage restructuring, or mortgage debt forgiven in a foreclosure. For second-lien mortgage debt to qualify for an exclusion from tax liability, the loan proceeds must have been used to buy, build, repair, maintain or improve a principal residence. Proceeds used for other purposes generally do not qualify. When debt is reduced or eliminated, homeoners generally receive a year-end statement from their lender, IRS Form 1099-C, Cancellation of Debt. Lenders are required by law to show the full amount of debt forgiven above $600. We urge customers to consult with a tax professional for advice on potential IRS tax implications from debt forgiveness or extinguishment. More information on this subject can be found at http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation.
7. Where can I go to find answers if I have further questions about the second-lien mortgage extinguishment program and process?
You may call a Bank of America associate at 1.800.496.7831.
8. For a home mortgage loan, what is the difference between principal reduction or forgiveness and lien extinguishment?
If a lender forgives a portion of a home loan’s principal balance, the borrower is responsible for the remaining balance due and the lender retains its lien on the borrower’s property as collateral for the loan. In a lien extinguishment, the entire balance of a mortgage loan is reduced to zero, the lien securing the loan is released and the mortgage note is cancelled. The lender thus has no further legal claim to the borrower’s property as collateral, and no further monetary claims against the customer for that particular mortgage loan.
9. Will a customer benefit if second-lien mortgage debt has been discharged in a bankruptcy filing?
Yes. While customers who have filed for bankruptcy and receive a discharge of their second-lien mortgage debt obligations are no longer personally liable for the debt itself, the bank still retains its lien on the property to secure payment of the remaining balance on the second lien mortgage. So despite a bankruptcy discharge, the bank as lien holder can require payment as a condition to releasing the lien in the event of a sale of the property, or, under appropriate circumstances and with court approval, proceed with a foreclosure of the second lien if the debt is outstanding. When mortgage debt is discharged in bankruptcy, the bank is not required to report such debt forgiveness to the IRS.
10. Will this affect the customer’s credit rating?
Through our extinguishment program, we report to the major credit bureaus that a customer’s second-lien mortgage is now “paid and closed” and has a zero balance. This could affect a customer’s credit rating. Credit scores are determined by a number of factors regarding the customer’s credit history and are not controlled by Bank of America. Customers should review information on credit scores at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre24.shtm.
11. If a second-lien mortgage debt is discharged in a bankruptcy filing, what are the credit reporting implications?
Bank of America does not ultimately control what the credit bureaus actually reflect on a customer’s credit report. In the event debt is discharged through bankruptcy, the credit bureaus normally reflect that event as a “loan or a debt discharged in a bankruptcy filing.”
12. How will Bank of America help customers still in need of assistance following the elimination of their second-lien mortgage with the bank?
We want to work with customers to address their financial needs. Customers can visit one of the bank’s 50 Customer Assistance centers in cities around the country or call 1.800.669.6607 or visit http://homeloanhelp.bankofamerica.com/en/home-equity-modification.html to find out about available programs.
Bank of America
Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 56 million consumer and small business relationships with approximately 5,600 retail banking offices and approximately 16,200 ATMs and award-winning online banking with 30 million active users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.
Reporters May Contact:
Dan Frahm, Rick Simon, Jumana Bauwens, Bank of America, 1.800.796.8448