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that petitioners held five notes that were secured by four
different properties.
Petitioners, as secured creditors, could have instituted
foreclosure proceedings on the four properties securing the
debt.8 In June 2003, petitioners were informed by Thomas F.
DeCaro, the trustee in the bankruptcy matter, that they could
enforce their security interests in the respective properties.
Petitioners did not take any action to enforce their security
interests.
According to the debtors’ bankruptcy records, petitioners
had an enforceable, secured claim against the debtors in 1997;
however, petitioners took no foreclosure action to collect the
debt. A holder of a secured note and a deed of trust is not
entitled to a bad debt deduction where the note is a bona fide
debt that has become due and the noteholder has failed to
establish that the debt has become worthless. Robertson v.
Commissioner, T.C. Memo. 2004-217. By failing to exercise all
their rights with respect to the secured property, petitioners
8 Petitioners received approximately $34,000 from a senior
lienholder for one of the notes secured by the 3513 property.
Three of the five notes were satisfied. The property
securing the note for 4413 Hemmingway was released on Mar. 25,
1997. The property securing the note for 1235 Hilltop Drive was
released on Nov. 23, 1990. The 3532 property was the security
for these notes. The property securing the note for 14470
Filarette Street was released on Nov. 23, 1990. The 3513
property was the security for this note.
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