Steps to Avoid Foreclosure
1. DO NOT IGNORE THE LETTERS FROM YOUR LENDER
If you are having problems making your payments, call or write to your lender's Loss Mitigation Department without delay. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help.
2. STAY IN YOUR HOME FOR NOW
You may not qualify for assistance if you abandon your property.
3. CONTACT A HUD-APPROVED HOUSING COUNSELING AGENCY
These agencies are valuable resources. They frequently have information on services and programs offered by Government agencies as well as private and community organizations that could help you. The housing counseling agency may also offer credit counseling. These services are usually free of charge.
A short sale in real estate occurs when a lender agrees to accept a discounted payoff on a loan. In most cases, the home owner owes more on the mortgage than the home is currently worth.
If you are "under water" or if your home is worth less than the amount you owe, you might be a candidate for a short sale. Through a short sale the lien holder (your mortgage company) will allow the property to be sold for less than the amount owed on the loan. The lender will usually agrees to forgive the deficiency balance or the balance left after the property has been sold.
Although a short sale will affect your credit ; it will not have the permanent adverse effect of a a foreclosure.
Some lenders are very open to a short sales because they do not want to own the distressed property.They would much rather see the owner sell the property and lose the deficiency balance than be forced to take the property through foreclosure, as foreclosure is a costly and time-consuming process.
There are potential tax liabilities with either, a short sale and a deed-in-lieu
Under federal law, a creditor is required to file a 1099C whenever it forgives a loan balance greater than $600. This may create a tax liability for the former
property owner because it is considered "income."
However, the Mortgage Forgiveness Debt Relief Act of 2007 provides tax
relief for some loans forgiven in 2007 through 2012.
The key issue is if the lender is willing to forgive the deficiency balance
amount of forgiven debt in a short sale, but only if all of the following
requirements are met:
*The forgiven debt was used to buy, build, or substantially
improve your home or to refinance debt incurred for those purposes.
*The debt was forgiven between 2007 and 2012.
*The discharge was directly related to a decline in your home's value
or your financial condition.
Not sure if a Short Sale is right for you ?