[quote=PowayDude]
I am familiar with a company that does balance reductions. I can tell you that deeds of reconveyance are recorded for all paid off/forgiven liens. Also, many times the amount of the balance reduction is determined by current appraisals and the new balance basically leaves the borrower with a minimal equity position.

[/quote]

For a principal reduction, my guess is the modification is recorded as a “Modified Agreement”. Another example of this kind of recording is if the limits of an existing heloc are changed. You should only see Reconveyance if the entire balance is satisfied either through forgiveness or sale. My question is will the homeowner get stuck with a 1099 similar to a short sale.

Powaydude – It is interesting that the amount of reduction is based on current appraisal/comps, rather than what the homeowner can afford. This would help explain why many modifications continue to redefault. Your comment of leaving the homeowner with a minimal equity position need clarification as it implies only equity loss and no need for balance reduction.