How Can We Get the Bank to Not Report the HELOC Short Sale? – Teresa

“Dear Steve,

House was paid in full. Took out a HELOC that got under water. Bank has accepted a short offer. Payment on HELOC was never late. Credit score currently very, very high.

We took out a HELOC a few years ago that was used toward building costs of the new house we live in now. The original house became seriously under water, and our Realtor was only able to get one offer at about 60% of the debt.

The bank is willing to accept that sale and cancel the rest of the debt. (We know about the 1099-C we will receive.) My question is, how will that be reported to the credit bureaus? What are their options? Can this reporting be negotiated as well? My husband has near perfect credit and was never late on the HELOC payment. Have you heard of any banks negotiating how they will report?


Real Estate Concept

Dear Teresa,

You can certainly try but keep in mind the lender has an agreement with the credit bureaus that prohibits them from reporting false or inaccurate information.

Depending on what state you live in, you want to make sure the forgiveness agreement also states they will not pursue the collection of the forgiven amount.

The part of the debt written off to profit and loss may appears on the credit report, just exactly what it is, a write off.

In the short run his credit score may take a hit but so what? You are getting the benefit of the bank being willing to take a reduction. They don’t have to and the reporting would be accurate. In the long run, as long as you maintain a good track record of making on time payment on your other lines of credit and obligations, it will bounce back.

Keep in mind that a credit score is not an indication of how well you do with your personal finances but a measurement of how profitable the lender projects they will be when they lend to you as measured by risk.

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If you are insolvent after you receive the 1099-C, you can fill out IRS Form 982 to avoid the tax liability.

Please post your responses and follow-up messages to me on this in the comments section below.


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Steve Rhode

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