Particularly in the case of a second mortgage, a lender may send a Form 1099 to a taxpayer/mortgagor, to report cancellation of debt income. In effect, a lender is reporting to the Internal Revenue Service, that it has written off the loan as uncollectible for tax purposes.
Many taxpayers who receive a Form 1099 mistakenly believe that with a Form 1099, the taxpayer is automatically entitled to a Mortgage Release.
However, the truth is different.
- The Form 1099 is issued by the lender so that it can take a loss, for tax purposes. This is a tax issue.
- A Release of Mortgage is given when a mortgage is satisfied. The filing of a Form 1099 does not automatically release a Mortgage. The Mortgage remains a lien on the subject property.
In order to get a lien release, a taxpayer/mortgagor still needs to negotiate with the mortgage holder to obtain a Release.
(Note, in many cases, a mortgage is assigned/transferred to a third party “assignee.” The payment needs to be made to the assignee).
If you have any questions concerning your mortgage, please feel free to contact
Attorney Robert M. Singer
2572 Whitney Avenue
Hamden, CT 06518