As part of the settlement over bad mortgage practices the banks agreed to write down debt. Good news is, they are. Bad news is, it's debt that doesn't exist anymore.
How to Erase a Debt That Isn’t There
“You are approved for a full principal forgiveness of your Home Equity Account,” says another, from Bank of America. Jackie Esposito, of Guilford, Conn., got a letter like that. But she wasn’t elated — because she doesn’t owe the money anymore. She and her husband filed for bankruptcy three years ago. The roughly $64,000 they owed Chase has been legally wiped out.
Cast your mind back to February. Five of the nation’s big banks, including Chase and Bank of America, agreed to pay $25 billion to settle state and federal claims over questionable mortgage practices and promised to work harder to help borrowers who were in trouble. To prod the banks, the government said it would give them credits against the amounts they agreed to pay.
Neil Crane is a lawyer in Hamden, Conn., who represented Ms. Esposito and her husband in their bankruptcy. He says four of his other clients have recently received letters from banks claiming to forgive discharged debt.The banks claim it is a phrasing problem. That they are simply noting that the lien has been released.
But even this is incorrect in Ms. Esposito’s case, Mr. Crane said. Her lien was actually eliminated back in 2009, during her bankruptcy proceeding.The loan forgiveness is taxable for the former owner, so this could be a serious problem for those caught up in this.
All of this made me wonder: are the banks’ forgiveness letters a way to gain credits for debts these institutions are improperly claiming to have extinguished? The banks say no.And we can completely trust them on that.