Determining When a Debt Is Cancelled

A debt is cancelled (in whole or part) when any of the following occur:

• discharge in bankruptcy under Title 11 of the U.S. Code;
• receivership, foreclosure, or similar federal or state court proceeding makes the debt unenforceable;
• the statute of limitations applicable to collecting the debt expires (if so determined by a court and any appeal period has expired), or expiration of the statutory period for filing a claim or beginning a deficiency judgment proceeding;
• foreclosure remedies by law end or bar Fannie Mae’s right to collect the debt (e.g., foreclosure by exercise of the “power of sale” in the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. );
• probate or similar proceeding cancels or extinguishes the debt;
• Fannie Mae and the BorrowerBorrowerPerson who is the obligor per the Note. agree to cancel the debt at less than full consideration;
• a decision or defined policy of Fannie Mae causes collection activity to be discontinued and the debt to be cancelled; or
• expiration of a “non-payment testing period”.

The Internal Revenue Service presumes that a debt is cancelled during a calendar year if no payment has been received on the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. during a period (the “non-payment testing period”) of 36 months, plus the number of calendar months when collection activity was precluded by a stay in bankruptcy or similar bar under state or local law.  The presumption may be rebutted, however, if there has been significant, bona fide collection activity at any time during the calendar year, or if facts and circumstances, existing as of January 31 of the calendar year following expiration of the 36-month period, indicate that the indebtedness has not been discharged.