Unforeseen Mortgage Forgiveness: Notification of HELOC Lien Release

by Luis from Miami, Florida

Ask Kate about unforeseen mortgage forgiveness with notification of HELOC lien release: Out of the blue, Luis' lender forgave his home equity line of credit (HELOC). How does Luis find out? A 2nd mortgage lien release based on total principal forgiveness appeared in his mailbox. He asks me if it's safe to contact the lender to ask about this staggering development!

Ask Kate: Why Did I Just Receive a Notification of HELOC Lien Release

By Luis from Miami, Florida

Unforeseen Mortgage Forgiveness: Notification of HELOC Lien Release
Hi Kate,

I hope that you can help me.

My mom filed for chapter 7 bankruptcy (approved)in March 2015. She had a first mortgage thru Chase and a home equity line thru HSBC.

My mom is retired and on a limited income. I mainly pay the mortgage for her plus other bills. With her retirement, she was responsible for paying the HOA and HELOC.

When I lost my job, my mom stopped making payments on HSBC's HELOC and instead began paying the 1st mortgage. We were (and still are) struggling financially and have not paid the HELOC since before the bankruptcy was approved.

In October 2015, my mom received a letter from HSBC titled Notification Of Lien Release and it stated the below:
This letter serves to inform you that HSBC Mortgage Svcs has decided to no longer accept payment on the loan associated with the above-referenced account number and will release its lien on your property. After the lien release is issued, your ownership interest on the property and your right to occupy the property will no longer be subject to our lien.

Since we received this letter, no other communication has been received. However, I am checking daily on the website for my local clerk-of-courts county recorders office, and don't see anything has been filed by them.

As it seems that the 2nd mortgage has been forgiven (from what I've interpreted from the letter), is it wise for me to reach out to HSBC and ask what is the status for them 'filing' the mortgage release? I am afraid to approach them thinking that they might rescind their offer. Is it possible for them to do so?

Lastly, I have access to a legal plan (that I pay on a biweekly basis at work), would it be prudent if I do approach HSBC, for the letter to come from a lawyer? I am hoping you can help. Please let me know if you have any questions.

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Kate's Answer: Why Did I Just Receive a Notification of HELOC Lien Release

Hi Luis,

Well, I'm with you in that I am a bit perplexed. Normally, a lien is released after a mortgage has been paid off via cash, refinance, or sale of the home. But if it is true that the HELOC debt has been forgiven, a lien release would make sense.

Notification of Lien Release: Ask Kate's Questions

Even so, I am sitting here asking myself if HSBC Mortgage Svcs could have sold the HELOC to another lender. Or did they fail to remain in business? (However, in both of those cases, one would think you'd get a notice of loan servicing transfer, not a lien release.)

Of course, I'm also wondering, just a bit, if the letter is even from the actual lender!

Also, why didn't the lender give you the option of accepting the forgiveness since it's possible that you could incur a federal tax liability from the potential forgiveness of mortgage debt.

See more on tax liability after mortgage forgiveness at Mortgage Forgiveness Debt Relief Act of 2007 with 2015 and 2016 Update.

Or was the HELOC included in the bankruptcy without triggering a foreclosure?

You will also want to read Deborah's story at Reaffirm or Not to Reaffirm a Mortgage after Bankruptcy.

Credit Report and Title Report Could Hold Answers

I can't guarantee that any action taken would not be stirring the pot, similar to your concern. But ordering a credit report might hold some answers as would ordering a report from a title company that could research the lien release.

See my helpful Quick Facts that break down the mystery of credit history and credit scores at Major Credit Reporting Agencies
Contact Information

Notification of Lien Release: Questions to Ask an Attorney

If your legal plan is not able to adequately assist you, I recommend consulting at least three attorneys for advice before contacting HSBC. Many attorneys will offer the first visit for free. (But make sure you get their offer in writing or you might end up with a bill in your mailbox.)

At the consultations, be prepared with questions.
  • When will the lien release be recorded at the county recorder's office?
  • How can I get a copy of the release?
  • When will the mortgage debt come off my credit report?
  • Is it risky to contact the lender?
  • Who should make the contact and how?

I wish you and your mother the best of luck. Please let me know of the outcome.


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