Edward and Inez Purchased Their Home in 2001 for $600,000

Edward and Inez purchased their home in 2001 for $600,000.They financed the purchase with a $550,000 mortgage.In 2013,they fall upon hard times and cannot make the mortgage payments.They sell their home for $425,000.At the time of the sale,the mortgage balance is $450,000 on their home.The mortgage company cancels the remaining debt.Which of the following is true?
I Edward and Inez will recognize no income on the cancellation of the mortgage loan.
II Edward and Inez will realize a loss on the sale of their home.

A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.