Lender says I need to pay a Charge Off but OC just sent me a 1099-C

[HeatherButtons]

The mortgage lender told me my approval was contingent on my paying off an old Charge Off  for $1700.  When I called them, they told me they mailed me a 1099-C, which is Cancellation of Debt. 

Will the Lender accept this since it's no longer a debt I owe but now part of my Taxes?

I even offered to negotiate payments but they wouldn't accept. 

And do I have to wait for it to drop off my CR or is my 1099-C enough?

My approval is good until Jan 13, 2023

Thanks!!

[Shooting-For-800]

Pretty sure the 1099 does not release you of owing the debt.

The are writing it off for their books, but you still owe the money.

You will have to pay taxes on the debt unless you prove you are insolvent.

GL!

[HeatherButtons]

I understand that I need to now declare it as income. I'm ok with that. 

But the OC wouldn't take any payment arrangement.  They told me the 1099-C should be sufficient for my Lender to accept this as it shows that the OC is no longer pursuing the debt. 

That's my main question.  Will the lender, or does the lender have v to accept it?

[SouthJamaica]

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@HeatherButtons wrote:

The mortgage lender told me my approval was contingent on my paying off an old Charge Off  for $1700.  When I called them, they told me they mailed me a 1099-C, which is Cancellation of Debt. 

Will the Lender accept this since it's no longer a debt I owe but now part of my Taxes?

I even offered to negotiate payments but they wouldn't accept. 

And do I have to wait for it to drop off my CR or is my 1099-C enough?

My approval is good until Jan 13, 2023

Thanks!!

---

I think you should ask the mortgage lender if they will accept that.

[HeatherButtons]

Okay!  Thanks..i thought maybe there was some general rule of b thumb. 

I'll reach out to the Lender.

Happy Thanksgiving!

[SouthJamaica]

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@HeatherButtons wrote:

Okay!  Thanks..i thought maybe there was some general rule of b thumb. 

I'll reach out to the Lender.

Happy Thanksgiving!

---

I have found that bankers make their own "rules". 

Happy Thanksgiving to you too

[HeatherButtons]

Update: Well, they are asking for a letter from the creditor saying the debt is forgiven and canceled.  But I called and they b don't do letters.  I then asked if they will update my credit report to reflect the balance as zero.  They said they would. 

Now I wait for the update on the credit report. 

[moto4man]

This is not the first time I have seen a post exactly or very similar to this.  And the best response that I seen was "I hate lenders overstepping their boundaries".  Making you pay off a debt has already been forgiven is ludacris!

[pizzadude]

The 1099-C is an IRS document that states the lender is cancelling the debt.  There should be a reason code on your form in box 6, guessing it probably is "G", see below.   Maybe if you point your lender to the IRS guidance on this it will be helpful:  

https://www.irs.gov/instructions/i1099ac

When Is a Debt Canceled

A debt is deemed canceled on the date an identifiable event occurs or, if earlier, the date of the actual discharge if you choose to file Form 1099-C for the year of cancellation. An identifiable event is one of the following.

1. A discharge in bankruptcy under title 11 of the U.S. Code. For information on certain discharges in bankruptcy not required to be reported, see Exceptions,later. Enter "A" in box 6 to report this identifiable event.

2. A cancellation or extinguishment making the debt unenforceable in a receivership, foreclosure, or similar federal nonbankruptcy or state court proceeding. Enter "B" in box 6 to report this identifiable event.

3. A cancellation or extinguishment when the statute of limitations for collecting the debt expires, or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Expiration of the statute of limitations is an identifiable event only when a debtor's affirmative statute of limitations defense is upheld in a final judgment or decision of a court and the appeal period has expired. Enter "C" in box 6 to report this identifiable event.

4. A cancellation or extinguishment when the creditor elects foreclosure remedies that by law extinguish or bar the creditor's right to collect the debt. This event applies to a mortgage lender or holder who is barred by local law from pursuing debt collection after a "power of sale" in the mortgage or deed of trust is exercised. Enter "D" in box 6 to report this identifiable event.

5. A cancellation or extinguishment making the debt unenforceable under a probate or similar proceeding. Enter "E" in box 6 to report this identifiable event.

6. A discharge of indebtedness under an agreement between the creditor and the debtor to cancel the debt at less than full consideration (for example, short sales). Enter "F" in box 6 to report this identifiable event.

7. A discharge of indebtedness because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. A creditor's defined policy can be in writing or an established business practice of the creditor. A creditor's established practice to stop collection activity and abandon a debt when a particular nonpayment period expires is a defined policy. Enter "G" in box 6 to report this identifiable event.

8. Other actual discharge before identifiable event. Enter "H" in box 6 if there is an other actual discharge before one of the identifiable events listed above.

[HeatherButtons]

Thanks PizzaDude!

I actually DID point this out to my Lender, and the Underwriter is saying "nope".

But.... this may end up being totally removed because the 1099-C DOES NOT MATCH what is being reported on my CR (and the code they listed is G)

The amount on my 1099-C is $400, but my CR still shows the debt (not closed) with a balanced of $1,700.

I opened a dispute with them asking for a full accounting. It's been 2 weeks so far.