Posted by John Corey on May 17, 2006 at 06:51:12:
They do not report it as anything other than paid as agreed.
The lender is agreeing to a voluntary reduction in the debt in exchange for a pay off so there is nothing much they can say. Having the loan paid off will not remove the late payments prior to the pay-off.
What they can do is send a notice concerning the debt relief. It is an IRS 1099 I think. Many lenders do not send it. The borrower should still report the debt relief as it is taxable income to them. I suspect borrowers rarely report the debt relief if they do not get an notice.