Is your home in trouble and not sure which option to choose?

You are not alone! Finding help for your mortgage troubles can be overwhelming. The Lee Law Firm is here to help you learn about your options and develop  a plan to find mortgage relief

Big Decisions

If you have defaulted on your mortgage and experienced the realization that you cannot financially keep up payments on your home, you must decide how to proceed with getting out of your mortgage loan.  When deciding between a short sale and a foreclosure, you should consider the different consequences of each process.

Short Sale

Ownership and possession of the property.  In a short sale, you retains ownership and possession of the property until the property is sold. The lender agrees to accept less than the amount owed on the loan in order to satisfy the loan. Because a short sale is deemed voluntary, the stigma of the process is much less than in a foreclosure.

Buying after a short sale.  Federal lending guidelines will allow you to purchase another property immediately after the short sale is complete if (1) your payments were never more than 30 days late and (2) the lender did not require you to payback the full loan or delinquency fees. However, it is often difficult to find a lender that will fund a mortgage loan immediately after a short sale. The average wait for funding for a primary residence using an FHA lender is 3 years.

Credit standing after a short sale. Your credit report will most likely state that you “paid in full for less than agreed” or that the” lender settled for less”. However, the biggest impact to your credit standing will result from a default status on your loan, not the short sale itself. As with any negative mark on your credit report, the “settled for less” status can be reflected on your credit status for up to 7 years.

Taxation after a short sale. You are responsible for paying tax on the amount received from selling your home in a short sale. At the federal level, they allow exemptions from paying this tax as part of the Mortgage Forgiveness Debt Relief Act. The Act allows for debts forgiven by a lender between 2007 and 2012 to exclude from income a discharge on a debt up to $2 million on a primary residence. The Act does not allow this exclusion for second homes, credit cards or car loans. The borrower is excluded from paying tax on income of a short sale if (1) the borrower was financially broke before the debt was forgiven, (2) the debt was discharged in bankruptcy or (3) if the debt was accrued on a primary residence between 2007 and 2012.

Foreclosures

Ownership and possession of the property.  In a foreclosure, you forfeit your rights to the property and the lender takes ownership of the property. Typically, you must immediately vacate the property and the lender takes possession of the property. The stigma associated with a foreclosure is much higher, and it is not uncommon for people to leave the property dirty or damaged. Borrowers found guilty of leaving the property damaged can face fees and costs associated with the repair and are more likely to be required to pay the deficiency balance on the property.

Buying after a foreclosure.  Federal lending guidelines for buying property after a foreclosure are more strict than those for a short sale. Many people find it very difficult to obtain a mortgage loan for at least 5 years. Mortgage loans after a foreclosure will probably require a higher down payment, will impose higher interest rates and may significantly limit the amount they are willing to fund. For second, or investment properties, a borrower is likely to have to wait 7  years before obtaining another mortgage loan.

Credit standing after a foreclosure. As in a short sale, the late or missed mortgage payments has the most impact on your credit score. However, unlike a short sale, a foreclosure makes it’s own impact on your credit standing. A foreclosure will remain on your credit report for up to 7 years and could have detrimental effects on certain aspects of your future, such as gaining employment.

Taxation after a foreclosure. When a lender forgives a loan balance over $600, they are required by law to send the borrower a 1099 form. This form indicates the amount of tax liability the borrower is responsible for. However, the responsibility for tax liability on a property that enters foreclosure is handled the same as in a short sale.

Having a hard time deciding? Don’t stress!

The Lee Law Firm attorneys are highly experienced in foreclosure and the short sale process. We want to see you find relief from your mortgage without suffering negative side effects. We are on your side and will do everything in our power to develop a plan that you are confident in!