I would treat it as not reportable. If they don't pay off the loan from the sale of the current home, they will either need to refinance the balance or pay it off some other way (such as from savings). If they refi, you will report the refinancing. Otherwise, the loan won't be reported at all.
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John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8