I have experience with Short Sales - a transaction in which the homeowner’s mortgage lender agrees to let the owner sell the house for less than is owed. My experience involves properly negotiating the process and lenders agreeing to accept current conditions, regardless of the amount owed. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence in calendar years 2007 through 2012. These transactions usually take 2-3-4 months to complete after a Sales Contract is signed, therefore, if only a few to several weeks remain before the foreclosure sale then it is too late unless lienholder agrees or is included in a Chapter 13 bankruptcy plan.
But selling your home may not be right for you and there are other alternatives ..... see below.
I am a real estate agent. The only service that I am qualified to give is real estate brokerage. I am not an attorney or an accountant. I am licensed to advise and represent to the public my expertise in constructing real estate transactions using state promulgated forms; and nothing more. I am not qualified to recommend a correct or appropriate decision about your specific fact situation. My comments are for educational purposes only. You should always seek the advice of a competent attorney for answers to any legal question you may have and a tax professional for tax questions.
Do Nothing - For some people, allowing the foreclosure to happen is the best alternative. It's a long process and during this process one can live in their house rent free and accumulate cash and get prepared to transition into different housing. My observations have been that this process takes several months and involves many notifications. It will not be a surprise but at some point, a Writ of Possession is obtained that will allow the Sheriff to remove occupants and belongings from the property. Lienholders can then sue for the remaining deficiency balance. But for many people, this is not so bad. Under Texas law, much of one's property is exempt from creditor action. Some are judgment proof. The damage to one's credit score is generally considered to be the greatest with foreclosure; greater than bankruptcy.
Payoff/Refinance - Some homeowners have untapped resources in the family who are only too happy to help by paying off the mortgage and hold the note, thus allowing the homeowner to then make reasonable payments to that person or family business. Others can visit a mortgage broker and qualify for refinancing.
Reinstatement - Reinstatement is paying off the entire default amount plus interest, attorneys' fees, late fees, taxes, HOA fees, missed payments and other fees. Here again, there may be a relative or family business that would loan or give the amount needed to bring the loan current. Some people have assets that can be sold or used to secure loans to cover the default amount. Yard sales have provided such funds for some.
Partial Claim- A partial claim is a second loan from the lender for the amount of the arrearage plus accured interest and costs. A homeowner would apply for this through the customer service representative for their servicing lender. Qualifying would depend upon creditworthiness.
Deed-In-Lieu- A Deed-In-Lieu of Foreclosure is a legal document in which the homeowners merely deed the property back to the lender instead of the lender going through the foreclosure. A Deed-In-Lieu has become increasingly less common and is usually used in cases with substantial equity or with Chapter 7 bankruptcy. For the borrower, a Deed-In-Lieu may be far worse than a bankruptcy on their credit worthiness for a new mortgage loan in the future and may have the same ultimate consequences as a foreclosure. For those of advanced age and plans to never purchase a home in the future then the impact may be of no consequence to them.
Bankruptcy Chapter 7- The filing instantly halts all creditor action. The case will be administered and creditor's liens will lead to surrender of collateral. Bankruptcy Chapter 7 is a good solution for a homeowner who has a lot of other debt and is in great financial trouble. For those who quality it offers general forgiveness of their debts.
Bankruptcy Chapter 13- Also called debtor reorganization and a wage earner plan, the plan involves determining the debtors income and allowed expenses. Creditors and the debtor argue before the court and negotiate a plan to be approved by the court. If the court permits, a Chapter 13 Plan can be used to stall a pending foreclosure; halting the foreclosure sale at the moment of filing and providing for the property to be sold in short sale, consent obtained to employ the agents to work the deal, and if the lender does not object, the Plan is then confirmed and the sale is allowed.
Selling the Home- If there is enough equity in the home to sell the property for what is owed, plus selling costs then one option is to sell the home. This will protect the credit of the homeowner. If there is not enough equity then a sale of the home is still possible, with the mortgage lender taking a reduction in the amount that they will receive. This is called a short sale, pre-foreclosure sale, short payoff, or discount payoff sale.
Loan Modification- This alternative is available for some homeowners who are behind in their payments, typically 2-5 payments. Another usual requirement is that the Notice of Default (NOD) has not yet been filed in the borrower's county but it still may be possible to complete a loan modification. The goal is to reduce the payment to an amount that the borrower will be able to pay without fail from that point forward. Financial information is submitted to the servicing lender where is is checked for the necessary elements and then sent to the investor for approval.
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