Foreclosure and Short Sale Information

Tips for Avoiding Foreclosure

If you are unable to make your mortgage payment:

  • Don't ignore the problem. The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.
  • Contact your lender as soon as you realize that you have a problem. Lenders do not want your house. They have options to help borrowers through difficult financial times.
  • Open and respond to all mail from your lender. The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notice of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.
  • Know your mortgage rights. Find your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and timeframes in your state (as every state is different) by contacting the State Government Housing Office.
  • Prioritize your spending. After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses - cable TV, memberships, entertainment that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.
  • Use your assets. Do you have assets - a second car, jewelry, a whole life insurance policy that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don't significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.

Short Sale vs. Foreclosure:  Which is the Better Option?

Losing your home to foreclosure due to an inability to keep up with your monthly mortgage payments is one of life’s most unpleasant experiences. It is also an event that keeps on affecting you long after your home is history by devastating your credit score. Regrettably, most people cannot be 100% sure that they will remain safe from foreclosure because they can’t foresee the unexpected. Occurrences such as serious illness, a major accident, divorce or job loss can happen to anyone. So it’s a good idea to understand the available alternatives should the worst occur.

Of all available options, foreclosure is the worst

The inevitable result of a foreclosure is the lender taking your house. Not only will you lose your house, but the lender can get a judgment against you for the arrearages you owe plus the costs for the foreclosure action. If that isn’t enough, your credit report will be in terminal condition for many years to come, worsening an already bad financial situation and making it very difficult to obtain any other kind of credit. There is no upside to foreclosure. It should be avoided at all costs.

Consider a short sale when foreclosure seems inevitable

A short sale is a popular option for homeowners mired down with financial problems. In this case, you would sell your home for less than what you owe your lender; the biggest problem you will face is getting your lender to agree to a short sale. In many situations, they will not. Experts advise pursuing this option the minute you realize that you are falling behind in your payments and most likely won’t be able to catch up. The longer you wait and the greater the amount you are in arrears, the less likely it becomes that your lender will even be willing to discuss a short sale.

Short Sale has disadvantages, too

While a short sale will save you from foreclosure, it will also have a negative effect on your credit score, frequently lowering it by as much as 200 points. This can be overcome more quickly than the black mark of a foreclosure, especially if you manage to retain one or two credit cards and keep them current. Perhaps equally distressing, the Internal Revenue Service frequently deemed the difference between the mortgage balance and the amount realized from the short sale to be taxable as income despite the fact that the debtor never saw a dime of it. There is new federal legislation called the Mortgage Forgiveness Debt Relief Act 0f 2007 that just went into effect on January 1st, 2008. The new act essentially eliminates this problem.

Almost any option is better than foreclosure

Simply stated, do everything you can before foreclosure occurs and do it as quickly as humanly possible. Don’t sit back and keep thinking, “What can I do?” Instead, consider a short sale and check with your lender before your options become more limited. Talk to them, and how to handle all the paperwork to get the deal done.

The One Best Tip: Don’t Do This Alone

Having someone who can work on your behalf is a big help. Facing foreclosure is a scary thing. Don’t just get any real estate agent to help you! An agent with lots of short sale experience makes all the difference. They know who to talk to, when to talk to them, and how to handle all the paperwork to get the deal done.

What You Need To Know About Short Sale Tax Issues

In the past, there were definite tax consequences from escaping foreclosure through a short sale. Avoiding foreclosure has always been the best thing to do since it prevents a black mark on your credit report that might keep you from being approved for future loans. Most financial experts will tell you that even today, keeping a foreclosure off your credit report is more important than any added tax liability.

First, consider the credit problems

Whether you are foreclosed or choose an option such as a short sale or a deed-in-lieu of foreclosure, you will have to deal with the tax man. And most real estate professionals will advise you that a short sale is your best option if preserving your credit is important. There are a number of potentially-costly consequences of foreclosure, deed-in-lieu of foreclosure and a short sale. Most of these are the impact on a debtor’s credit rating. The first two, foreclosure and deed-in-lieu, have about the same impact—reducing your FICO score by 200 points or more. With a short sale, this reduction is more in the order of 100 points. You can also expect it to be impossible to get a new loan for 36 months or more with the first two, and around 18 months with a short sale. This means that you will be able to recover from the credit impact much faster with a short sale. Nevertheless, there will be credit consequences no matter which solution you select.

Mortgage Forgiveness Debt Relief Act of 2007

The new Mortgage Forgiveness Debt Relief Act of 2007 all but eliminates the extra financial ‘hit’ a debtor would take due to tax liabilities. It was first introduced in the House in September 2007 and finally signed into law by President Bush on December 20, 2007. Now, the act is law and is termed Public Law No. 110-142.

Prior to the Mortgage Forgiveness Debt Reliev Act of 2007, a debtor would suffer the loss of his home, negative impact to his credit rating and additional debt arising from federal tax laws that made the difference between what the home sold for and what he owed on his mortgage, taxable as income. The only escape from this new financial liability was to file bankruptcy which, regrettably, makes one’s credit terminally ill.

Public Law No, 110-142 (H.R. 3648) amends the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income and for other purposes. It does not, however, apply to homes purchased for investment and subsequently rented out. It only applies to homes where the owner has been in residence.

There are some limitations under the new act.

The new law also reduces the income tax breaks on most gains from the sales of non-primary residences based upon a formula that considers the amount of time that the taxpayer actually lived in the property during the five years preceding the sale. And it limits the excludable amount of the indebtedness to $2-million and forbids the inclusion of indebtedness arising from services performed for the lender. There are other benefits and penalties as well. Perhaps most important, however, the new law keeps insolvent homeowners form taking an additional financial beating on a 1099 IRS gift of their short sale or foreclosure which only bankruptcy could do until this year.

Foreclosure vs. Short Sale Homeowner Consequences

Click here to see the consequences of foreclosure and short sale including impact on credit score, credit history, future loans, security clearance, employment and deficiency judgment.

Sandy is a Certified Distressed Property Expert® 

This means Sandy has had comprehensive training and market experience to help you understand the complex issues that confront homeowners in distress. As an agent with the CDPE® Designation, she has a strong and unique appreciation of the factors affecting the market, and know that there are options available to you.  Click here to learn more about your options. 

We’re Here To Help!

We know times are tough! There are thousands of people in America dealing with situations similar to yours. Facing the fact that you are about to lose your home is a scary thought. Today, Sandy and her team want to offer you their help at no cost. To discuss your options and possibly avoid foreclosure, you have to call them at 904-899-6454.

Whether you want to try to keep your home, or you are simply "done and want a fresh start", Sandy's team can help you. You still have options. While they are not attorneys, they communicate with them on a daily basis. They can provide you with the facts and enough resources to help you make a decision about your current situation.

This is their full time profession. They have an 93% success rate with the cases that they accept.

Take the first step and call them today at 904-899-6454. There is no obligation. They are local, and will work for you to stop your lender from foreclosing on your home! Please, for your own peace of mine, do not just sit back and do nothing. Take control back. Know your options and be educated for free. You still have time to put an end to your foreclosure nightmare!

I hope you call them today at 904-899-6454 or e-mail Sandy.

 

*Information provided above is deemed reliable but not guaranteed and derived from various published sources on the world wide web.