Deed In Lieu Of Foreclosure vs. Short Sale

What are the pros and cons of accepting a deed in lieu of foreclosure in comparison to a short sale?

I need some advice on the pros and cons of accepting a deed in lieu of foreclosure in comparison to a short sale.

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Highlights


  • Understand how a deed in lieu of foreclosure works.
  • Compare a deed in lieu of foreclosure to a short sale.
  • Be aware of possible tax liabilities that relate to any forgiveness of mortgage debt.

Editor’s note: See the Bills.com resource Home Affordable Foreclosure Alternatives Program for an updated discussion of deeds in lieu of foreclosure and short sales.

Foreclosure Alternatives

Deed in lieu of foreclosure and "short sale" are alternatives to foreclosure. Because foreclosure is so devastating to a credit score, almost anything is better than foreclosure, and both of these alternatives result a somewhat lighter impact on a credit score, especially if you negotiate a resolution to the deficiency balance.

A deed in lieu of foreclosure and a short sale are very similar but there are some key differences that depend on the details of the situation. I will compare and contrast both in just a moment.

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What is a Deed in Lieu of Foreclosure?

As mentioned, a deed in lieu of foreclosure is an alternative to foreclosure. In a deed in lieu of foreclosure, the property owner gives the property to the lender voluntarily in exchange for the lender canceling the loan. The item transferred is the deed to the property. The lender promises not to initiate foreclosure proceedings, and to terminate any foreclosure proceedings already underway. The lender may or may not agree to forgive any deficiency balance that results from the sale of the property.

Potential Tax Liabilities

An overlooked downside to a deed in lieu of foreclosure is the possible forgiveness of the deficiency balance. 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 2013.

The key issue in a deed in lieu of foreclosure is whether the lender is willing to forgive the deficiency balance. Read the contract carefully to see how the deficiency balance issue is handled. If the document is unclear, take it to an attorney with experience in property law. An attorney’s time is not cheap, but will be a bargain compared to signing an agreement you do not understand and are surprised later to realize its implications.

Here is the typical list of deed in lieu of foreclosure or short sale requirements: a) the residence must already be on the market for a certain number of days (90 days is typical), b) there can be no liens on the property, c) the property cannot already be in foreclosure, d) the offer of a deed in lieu must be voluntary, e) for a short-sale, the seller must have a hardship, f) the house must be priced reasonably.

Is a ‘Short Sale’ a Better Option?

Underwater home

On the other hand, the property owner and lender may choose to do a short sale on the home. Through a short sale the lender agrees to accept less than the balance owed on the mortgage at sale. The deficiency balance may be forgiven.

Bills.com readers report that mortgage companies ask borrowers to accept liability for the deficiency balance. The lesson here is if you are considering either a deed in lieu of foreclosure or a short sale you must review the terms and conditions carefully and make certain you understand whether the deficiency balance is forgiven.

Unlike a deed in lieu of foreclosure, the ownership of the property is not transferred to the mortgage holder, and remains with the owner.

Lenders choose short sales because they do not want to own distressed properties. 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.

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Whether the lender picks a deed in lieu of foreclosure or a short sale depends on how the lender balances its risks and how it wants the distressed properties to appear on their books. Local laws may have an impact on the decision, too.

One last point regarding short sales: Like deeds in lieu of foreclosure, a lender is required to file a 1099C if the debt forgiven exceeds $600. As mentioned in the deed in lieu of foreclosure section above, The Mortgage Forgiveness Debt Relief Act offers former homeowners relief for forgiven debt.

ach state legislature created unique foreclosure and anti-deficiency laws. Follow the links just mentioned to learn the foreclosure rules relevant to you.

What If the Lender Rejects a Short Sale Or a Deed In Lieu Of Foreclosure?

If the lender will not allow a short sale or a deed in lieu of foreclosure, foreclosure is the last option, although it presents major problems. Foreclosure auctions tend to bring significantly less money than a normal sale would bring. If the sale brings less than the amount owed on the loan, the remaining balance of the loan is called a deficiency balance.

If the home falls into foreclosure, it is possible to mitigate the negative impact of a deficiency balance by filing bankruptcy. Generally speaking, deficiency balances are treated like any other unsecured debt in bankruptcy, meaning that they can be wiped clear by Chapter 7, and repaid over time through a Chapter 13. Although bankruptcy does not sound like a positive alternative, it may be the best solution if the mortgage lender will not allow the home to be sold through a short sale or a deed in lieu of foreclosure.

Lastly, I urge you to consult with an attorney experienced in bankruptcy law to understand all of your options to resolving your mortgage debt.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

317 Comments

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  • 35x35
    May, 2013
    Randy
    I moved from my home last June and rented the home out and now this renter is being transfered and I can't afford to pay two payments I talked to the bank and they want to do a short sale I have great credit and need to know how much my credit will be hure and if I am applying for other Jobs how will it affect that also. Thanks
    0 Votes

    • 35x35
      May, 2013
      Bill
      Fair Isaac released information describing the impact a foreclosure, short sale, or bankruptcy has on a consumer's credit score. Follow the hyperlink I just mentioned to learn the details.

      How your credit history impacts your credit score depends on the type of job you apply for and your future employer's policy. The vast majority of jobs do not require a person to have a spotless credit score, and as a consequence, employers do not check an applicant's credit history when making a hiring decision.
      0 Votes

  • 35x35
    Apr, 2013
    Kathy
    I am over 20 mos behind in my mortgage. My lender stopped sending me mortgage statements once I was about 3 payments behind. At the time I had financial problems which are now over. I would like to save my home and wonder what options I have if any?
    0 Votes

    • 35x35
      Apr, 2013
      Bill
      Contact the mortgage servicer immediately and share what you explained in your comment here. Learn what, if any, options you have to remediate your loan.

      If you get nowhere with the servicer, get a free foreclosure avoidance consultation with a HUD-approved counselor, such as one at HOPE NOW. Its telephone number is 888-995-4673.

      It may also make sense to consult with a lawyer in your state who has experience in negotiating modifications, short sales, and settlements with mortgage lenders.

      If you call the servicer, take accurate and complete notes of your conversation. Place all of your notes and correspondence to and from the lender in a file, which you keep in a safe place. You may needs this file later if the lender breaks a promise, and you need to file a lawsuit against the lender.
      0 Votes

  • 35x35
    Apr, 2013
    Dee
    We live in Home #1. We bought Home #2 (separate mortgage) and owned it 3 yrs. We regraded the property, landscaped, new roof, and fixed the garage. Time came to remodel inside and assumed only kitchen and minimal in two bathroom(s). Although noticed health (difficulty breathing) whenever working inside house ... we pulled off the drywall on back side of bathroom. Black mold (large section) and insulation was blown in. House built around 1979. Mid to late 1970's when asbestos came off market. Husband and I both allergic to mold. We have now encountered a huge problem that will cost thousands of dollars to fix ... which we don't have. What are our options? Will bank take the house back? Can we stop making payments on House #2 with these serious problems?
    0 Votes

    • 35x35
      Apr, 2013
      Bill
      Before you stop paying your mortgage on House 2, take these two actions:
      1. Bring in a contractor with mold remediation experience, and ask him or her to give you an estimate of the cost to repair the damage. What you described may be the tip of the iceberg, so to speak, or a very localized issue. Ask him or her to describe in the report the cause of the damage. Was it due to poor maintenance? Or was it a construction defect?
      2. Take the contractor's report to a lawyer with experience representing homeowners in construction-defect litigation. Believe it or not, this is a lucrative legal specialty.

      A construction-defects lawyer will explain any cause of action (legal reason to file a lawsuit) you may have against the previous homeowner or the home builder. He or she will also describe the consequences of a strategic default in your state.

      0 Votes

  • 35x35
    Apr, 2013
    S
    I had a Chapter 7 discharged in August of 2010 and my first and second TD's were included. I have not reaffirmed either loan and I am considering letting the home go. We owe $56,000 and the house is worth $45,000 at the most. If I let the house go into foreclosure will it show up on my credit as a foreclosure or will only the BK appear? Would it be better to short sell or deed in lieu instead of foreclosure in my case?
    0 Votes

    • 35x35
      Apr, 2013
      Bill
      A bankruptcy discharge removes a borrower's personal liability for a home loan. That is why mortgage servicers are not permitted to report activity on a home loan from the moment the discharge including the loan is issued by the bankruptcy court. From a credit report perspective, it is as if the loan ceases to exist from that moment forward.

      Some lenders report foreclosures on home loans discharged by bankruptcy. This is an error based on the lender either not understanding the homeowner's personal liability for the loan was discharged by bankruptcy, or not caring it should not issue this information to the consumer credit reporting agencies.

      If the consumer credit reporting agencies publish a foreclosure after bankruptcy, file a dispute with each of consumer credit reporting agency that publish this information and the lender that made the report. Consult with a lawyer in your state who has consumer law experience if the consumer credit reporting agencies do not remove the foreclosure from your credit report(s).

      You asked about a deed-in-lieu-of-foreclosure and short sale. From a legal perspective, you need not consider these options for the reason I mentioned several times above. From a financial perspective, you may wish to consider a deed-in-lieu or short sale if you plan to apply for a mortgage in the foreseeable future. See the Bills.com article Mortgage After Bankruptcy, Short Sale or Foreclosure to learn the rules lenders follow when considering an applicant who experienced a recent financial mishap.
      0 Votes

  • 35x35
    Apr, 2013
    Jamia
    We need a bigger home as we have a new child. The neighborhood is no longer what it once was and we really need to move. We are under water as we purchased in the height of the bubble paid 126,000 homes around us selling for 40 max. My husband has great credit and wants the least impact to it. Even though I lost my job. We are making the payments on time and have never been behind. We are worried we wont be able to buy a new home if we short sale or deed in lieu our current property. What is our best option?
    0 Votes

    • 35x35
      Apr, 2013
      Bill
      Your options are limited, as the article above explains. Unfortunately, the FICO and VantageScore credit scoring models offer harsh treatment to consumers who elect a short sale or deed in lieu. If your highest priority is maintaining a high credit score, then your only option is to avoid a short sale, deed in lieu of foreclosure, or foreclosure.

      If you are considering a short sale or deed in lieu, then make sure that you work with your lender in an attempt to minimize the harm to your score. Explain your circumstances and your need to move. Most likely your credit score will be harmed, and even more so if you make late payments. (Some lenders will not consider a short sale if there is no late payment, although that is not a necessary condition for a short sale).

      If you want to buy a home after a short sale then you will need to wait between 2-7 years, depending on the type of loan (FHA, Fannie Mae, etc) and your LTV. For more information about getting a mortgage after the short sale, read the Bills.com article mortgage after foreclosure and short sales.
      0 Votes

  • 35x35
    Mar, 2013
    Arturo
    My situation is similar to Ella's. I filed for Chapter 7, discharged in 2010. Initially I did not include my home nor a car loan with the filling (it was to get rid of a second home). Recently when I checked my credit with the three credit agencies, they all have the home loan and the car loan as discharged through bankruptcy. The car is already paid off and I did continue making payments on the mortgage, but no longer am able to and I just want to get rid of the property. When I contacted the mortgage company to ask them why my credit reflected that way, they did say it was because I didn't reaffirm the loan. So at this point, am I able to just walk away from the home and not have a deficiency balance?
    0 Votes

    • 35x35
      Mar, 2013
      Bill
      When it comes to determining your legal liability for a debt, ignore what you see in your credit reports at Equifax, Experian, and TransUnion. Think of the consumer credit reporting agencies as specialized newspapers — what you read in a newspaper may be 100% accurate, partially accurate, 100% wrong, or silent on a certain fact or event. The best person to ask about your liability for a debt is a lawyer you hire, who is working as your advocate and has a duty to advise you accurately. Here, do not look to Equifax, Experian, or TransUnion for legal advice about your liability for your mortgage.

      Consult with your bankruptcy lawyer about your liability for the home loan and car loan. Let us assume your recollection is accurate and your personal liability for your home loan was discharged in a successful chapter 7. Under federal law, both you and your lawyer would have to sign a reinstatement contract for this loan. Unless you have some unusual circumstances, I doubt any bankruptcy lawyer would advise you to sign a reinstatement contract for a home loan, especially one filed in 2010 at the height of the recession. If you did not sign a reinstatement, then you have no personal liability for the loan and can walk away without liability for any deficiency balance resulting from a foreclosure. However, consult with your bankruptcy lawyer to learn an answer based on fact, rather than my series of speculations here.

      Back to your credit reports for a moment. Let us assume your home loan lender reported your status to Equifax, Experian, and TransUnion accurately. The month your personal liability for the home loan was discharged in the 2010 bankruptcy, reporting of this loan should have stopped. For a homeowner with a mortgage, the upside to a successful chapter 7 is, as mentioned, their personal liability for the loan ceases. The downside is, because there is no personal liability for the loan, the consumer credit reporting agencies must stop reporting the loan on the consumer's history. It's as if the loan was paid. The loan is not included in the consumer's credit history as a tradeline, and no longer helps boost a consumer's credit score.
      0 Votes

  • 35x35
    Mar, 2013
    Ella
    I did a chapter 7 in 2011 and it was discharged. I continued to pay the loan, yet I did not sign anything for the house not to be included in Bankruptcy. I am no longer able to pay the mortgage and I have moved out. I tried to sell the house and had two offers. The lender did not work with a short sale. I asked the lender to foreclose on the property. They sold the loan to another company. The new company wants me to do a Deed in Lieu. Would I be liable for the difference of what they sale the house for and what I owed?
    0 Votes

    • 35x35
      Mar, 2013
      Bill
      I assume that when you use the word "discharge" here you mean your your mortgage was included in the in the bankruptcy court's final order, and your personal liability for the home loan was discharged. This is common in chapter 7 bankruptcies. However, double-check with your bankruptcy lawyer to make sure you have no liability for the home loan.

      Sometimes, home loan or automobile lenders will ask a borrower who files a chapter 7 to sign a reaffirmation agreement. A reaffirmation agreement reinstates the borrower's personal liability on the home mortgage, as if no bankruptcy case was filed. If you reaffirm a debt and then do not pay it, you owe the debt as if you never filed bankruptcy. By law, both you and your bankruptcy lawyer must sign a reaffirmation contract.

      Here, let us assume for the sake of argument your personal liability for the home loan was discharged in 2011. Let us also assume your lender either did not ask you to sign a reaffirmation agreement, or it asked you to do so and you did not. If so, you have no personal liability for your home loan. You can walk away from the property and not be responsible for any deficiency balance following a foreclosure and auction of the property. (Again, consult with your lawyer to learn if the assumptions here are correct in your case.)

      The potential danger in a short sale or deed in lieu of foreclosure contract is the lender may slip in language similar to a reaffirmation agreement. If it does so and you sign the contract, you may restore your personal liability for the deficiency balance unwittingly. As mentioned, talk to your lawyer now to learn your rights and liabilities.
      1 Votes

  • 35x35
    Mar, 2013
    Dan
    Hello good people ...my mortgage is behind 4 months due to my becoming disabled and unemployed. I have retained a real estate agent for a short sale and there is a cash offer for my condo that's just $16,000 less than the balance owed. My lender however is not being very cooperative, go figure; any ideas? Would it be best to just let my lender foreclose if they remain uncooperative? What about the property taxes; will the county hold me responsible when they're overdue? Thank you!
    0 Votes

    • 35x35
      Mar, 2013
      Bill
      It would be improper for me to state clearly what would be best for you, as I don't have enough facts to say. For instance, if your loan was a non-recourse loan, giving up your home would not expose you to any responsibility for a deficiency balance. If you are going to end up on the hook for the deficiency balance, then you need to assess your exposure to collections. If you receive only SDI, then your income could not be garnished by this type of creditor, but you could have bank accounts and other assets at risk.

      Regarding property taxes, I believe you would be liable for taxes up to the point that you're no longer on title to the property.
      0 Votes

  • 35x35
    Mar, 2013
    Michelle
    We have an income property that is under water. We tried to refinance, but couldn't because it's not our primary residence. We began a short sale offered at $205,000. The bank counter offered at $235,000. Our buyer agreed to buy it at $235,000. The bank rejected the offer and now wants $245,000. The comps in the area are around $200,000. Is this legal for the bank to do this?
    0 Votes

    • 35x35
      Mar, 2013
      Bill
      Consult with a lawyer in your state who has experience negotiating mortgages with lenders. The key issue here is whether the bank is negotiating in good faith. Given the facts you presented, it appears the bank is attempting to scuttle your short sale deal. Why it would be motivated to do so is a mystery, and the answer to that question may be found in the short sale contract and the contract it has with the investor and any incentive it may have to push borrowers into foreclosure. I'm speculating on both of those points, of course. As I mentioned, consult with a lawyer now. If it turns out later you are forced into foreclosure, you will want to have all of the evidence possible to show the bank acted contrary to your interest.
      1 Votes

  • 35x35
    Feb, 2013
    Tia
    I have a rental property (bought in 2005) in SC but live in MD. The rental has a $78k mortgage but is unlikely to sell for more that $55 and may be less based on the number of foreclosures nearby. I am losing ~$60 a month on rental income but have had terrible renters which has caused excessive refurb costs between tenants that I have had difficulty getting re-couped. I have had two different instances of root rot on the pipes which have cause back-yard escavation and I have just been told the whole house needs to be rewired (tenant lost partial power in the house). I am no longer willing to put money in this money pit when I have my own home and bills and emergency needs to be funded. No electrician will touch the place without a re-wire which will need to be permitted. Luckily, the lease is almost up so I may be able to get by putting the tenant in extended stay until her lease is up in less than 30 days (at which point she will be on month to month) but I don't think the house is livable with partial electricity. I want the property gone. Is a deed in lieu a realistic option for me? I just want to be done with this place. I am even willing to print the extra money to the table for piece of mind to have it gone from my life.
    0 Votes

    • 35x35
      Feb, 2013
      Bill
      You have nothing to lose by talking to the lender about a deed in lieu of foreclosure.

      Consult with a lawyer in your state about your state's disclosure laws for defects. Under common law, you as a seller are required to disclose significant defects to the property, such as the electrical problems you mentioned. Your state's laws may vary on this subject. Either way, make sure you know your rights and liabilities on this matter.
      0 Votes

  • 35x35
    Jan, 2013
    Michelle
    Two years ago I divorced, and part of the divorce settlement was that my ex-husband had to refinance a commercial property I co-signed on. He was unable to refinance it. Now, he has defaulted on the loan, and the bank did not notify me of the problem until it was already 65 days in default. Today, he removed most of the business property, moved out of state, and said he plans to declare bankruptcy. He claims he will wait to file for bankruptcy to give me some time to possibly sell the building or work something out with the bank. He also claims he is willing to sign a quit claim deed to enable me to deal with the property. I talked to the bank about my options. Deed in lieu of foreclosure is a possible option. The property according to the assessed value (I haven't gotten an appraisal yet) is $160,000, there is a $92,000 balance on the loan. I consulted two real estate attorneys regarding this, they have not offered much advice on the best possible solution. I do not have a lot of hope the building will sell in a timely manner, it has been on the market for close to 90 days. The bank has not started foreclosure proceedings yet. I'm trying to figure out my next course of action. I do plan to liquidate what is left in the building. At this point I am not concerned about making a profit on the sale, I am just hoping not to owe any additional money. In such a situation, do you have any advice? I have come to terms with the fact that my beautiful credit score of 813 will be trashed. I want to do whatever I can to ensure the bank cannot pursue my home and get the best possible outcome to a terrible situation.
    0 Votes

    • 35x35
      Jan, 2013
      Bill
      The appraisal will tell the tale here. Keep in mind an appraisal is not the same as an assessment, and that an appraisal is meant to provide an opinion about today's market value of the property.

      Think twice about accepting the quit claim deed to the property. As the owner of the building, you have liability should someone be harmed on the property, such as a slip and fall. On the other hand, it will be more convenient for you to handle the property's sale if you reside in the same county as the building than your ex-spouse who lives in another state. On balance, overnight delivery can handle the back-and-forth of signed sale documents.

      A deed-in-lieu-of-foreclosure gets the property out of the owner's hair, so to speak, so I think that's a route for you and your ex-spouse to pursue. Take the DIL contract to one of the lawyers you mentioned and ask them to review it for its basic terms and conditions. The key issue to understand is who has liability for any deficiency balance.

      Credit scores come and go. If the worst thing that happens from this mess is your credit score taking a tumble, you should consider yourself very fortunate, indeed.
      0 Votes

  • 35x35
    Sep, 2012
    Eric
    This was very helpful. Does the debt relief act work if an attorney was not involved?
    0 Votes

    • 35x35
      Sep, 2012
      Bill
      Whether an attorney was involved has no bearing on the eligibility for the Mortgage Forgiveness Debt Relief Act.
      0 Votes

  • 35x35
    Sep, 2012
    chinita
    Thanks very much,Bill
    0 Votes

  • 35x35
    Jun, 2011
    Tom
    Thanks for having this blog. I read most of it, but I still don't know how to start solving my problem. My mother passed away on June 16, 2011. Seven years earlier, I moved in to help her out when she had to have a back operation. Meanwhile her finances were in shambles, so she asked me to help her refinance her home. She needed me to co-sign. I reluctantly agreed, not really knowing what I might be getting myself into. Anyway, now that she's gone, I'm left with the house in my name and the mortgage in my name. The amount owed is about $85,000. I had a real estate agent look at it, and she said she would list it for $96,000, but with all the low-ball offers, closing costs, and what-not, there is probably little breathing room. Either way, I don't have an entrepeneurial bone in my body, and I just want to be done with. I don't want a dollar, but I don't want to pay anything either. The payment is already late. I would really just like to give the house back to the bank and be done with it clean and square. What should I do first, and then what?
    3 Votes

    • 35x35
      Jun, 2011
      Bill
      The worst course of action for a homeowner with a property above water (worth more than the balance of the mortgage[s]) is to allow a foreclosure. Why? Foreclosures sell for 25% less than non-foreclosure homes, and an above-water homeowner is causing significant harm to themselves by allowing foreclosure.

      My advice? Clean up the property and be ruthless in disposing of old and out-of-style furniture, draperies, and carpeting. Scrape together some funds and hire a painter (there will be a dozen vying for your business) to paint the inside and outside in a neutral set of light, inoffensive colors. Hire a landscaper to trim any trees and bushes, and plant a few nice flowers. Hire a real estate agent and price the house competitively. An appealing property priced right will move quickly.
      4 Votes

    • 35x35
      Jul, 2011
      Peggie
      Bill, we are getting very near retirement and in preparation, purchased a condo in Florida. Our condo in Michigan (our current residence) is now appraised at $62,000. Back in 2001, we purchased it brand new for $155,000. Our current mortgage remains at just under $97,000. Our goal is to move to our place in Florida within the next 4 years. The economy in Michigan is the second worst in the nation and expectations are that the state will take up to 14 more years to recover; although the housing market is never expected to be anywhere close to what it was in 2005-06. We don't want to rent, as we've had a neighbor who has tried to rent 3 separate times with disastrous results (the last tenant set the kitchen on fire and never reported it). We're concerned about the fact that we will owe more than $30,000 on the property than we could sell it for. I know we have a few years to go but we want to start preparing. What is the best way for us to go with this? We're both over 60. Thanks!
      3 Votes

    • 35x35
      Jul, 2011
      Bill
      Consider an FHA Short Refinance to whittle-down the principal balance to the market level. This program may improve in the future, be dropped, or stay the same — who knows? Apply now to see if you qualify.
      0 Votes

    • 35x35
      Jul, 2011
      Marie
      Bill - thank you so much for your help. Here is our long back story. We bought a home in Michigan in 2004 for $125K. In 2008, Unemployment forced us to move to Colorado. Rented the Michigan home to tenants (-$100 per month rent vs. mortgage) In 2010, purchased new home in Colorado for $300K (with $60K down). The renters in Michigan were terrible, and when the lease expired after 2 years, we returned to find the property completely destroyed - damages estimated at $15K+. We decided to short sale. Immediately stopped all payments. An offer was made for $27K (about $112K remaining on loan). Mortgage company denied the offer and will not entertain any short sale because 'we have not lived in home for more than 18 months.' We just had twins. Husbands company just closed (least week) suddenly and unexpectedly! We are both now unemployed. We would like to sell the house and move from Colorado (we were here for his job, and now we have no reason to stay). Currently the plan is: A. Foreclose on the home in Michigan. B. Sell home in Colorado and hope to recoup some of the $60K down payment back. C. RENT INDEFINITELY!! My questions: 1. If we foreclose in Michigan, will this affect our Colorado home sale? Can they come after any monies earned from the sale of the Colorado home? 2. Does this seem like a good time to consider bankruptcy? Note: In 2010, our credit ratings were excellent (above 800 for both). We have tried to do everything correctly – but, like many, things keep getting worse!!
      0 Votes

    • 35x35
      Jul, 2011
      Bill
      Find my observations regarding your situation below:
      1. I do not see how a foreclosure on one of your homes will impact the sale of another. Let us say for the sake of argument that the same mortgage servicer handled both loans. The servicer may work on behalf of two different investors, so it has a fiduciary duty to the investors and not its own interests. However, if the same investor and same servicer are involved in both properties, you may see the servicer connect the dots and try to discuss both transactions in the same conversation. If that occurs, then I urge you to consult with a lawyer in Michigan or Colorado to assist you in the negotiations.
      2. Consult with a bankruptcy lawyer in Colorado to learn if you pass the Chapter 7 means test.

      Please return here to tell us how the foreclosure and the home sale occurred, and how the servicer(s) acted.

      2 Votes

    • 35x35
      Jul, 2011
      Sri
      Great site. Thanks for keeping this going. I have a problem I am hoping you can guide me with. I bought a home in Dallas, TX in 2007 whose value has since tanked quite a bit. I moved from Dallas to Chicago last year (for work reasons). I tried to sell the house with no luck and ended up renting it out. My rental income after expenses (from a property management company) is about $800 a month lower than my monthly mortgage payment. My current tenant has decided to renew the lease and i havent found a new one yet. So far, i have lost about $9000 in the last one year with situation looking like it is only going to get worse. What are my options? I make decent income and am not struggling to make ends meet or anything but defintely living frugally and not able to save anything for the future and we just had a newborn son. I am struggling to figure out if i should just walk away or try a short sale or a deed in lieu. I am not sure where to even start any of these processes. Any guidance you can provide will be of great help.
      3 Votes

    • 35x35
      Jul, 2011
      Bill
      Contact your mortgage servicer — the company you send your loan payments to — and ask it about a short sale.
      0 Votes

  • 35x35
    Jun, 2011
    Dionne
    Hi Bill. My spouse and I are very confused and need to know what our rights and options are as tenants. Our landlord who lives right downstairs from us told us 2 weeks ago that he was putting the property up for sale because he was having a hard time paying the mortgage. We found out early last week that the property was in foreclosure by going on Milwaukee Circuit Court. We found out that the first hearing was 11-10-2010 and that the judgement for foreclosure was issued 1/12/2011 giving the owner 6 months from this date for redemption which we found out expires next month on the 12th of July. We contacted the attorneys listed for the bank and the information they gave us was that a sheriff sale has been set for 7/18/2011 6 days after the redemption expires. The landlord is trying to do a short sale and listed the house for 34,000 when the market value is 90,000. Our questions are: Why did he wait so late to start trying to do a short sale? Will the bank and the attorneys give him more time since he is trying to sell since the redemption expires in 2 weeks? What does that mean for us as far as the time we have to move?
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      Regarding your questions:
      1. I think you are asking why some people procrastinate. Answer that, and you will help solve many significant world problems.
      2. If the landlord can convince the mortgage servicer that it is in their best interest to delay the foreclosure sale, then the mortgage servicer will ask the court to postpone the sale. Whether this occurs is not for me to say. If the landlord has credibility in the eyes of the servicer, then sure, a postponement may be granted.
      3. You have rights as a tenant. See the Bills.com resource Protecting Tenants at Foreclosure Act of 2009 to learn more. In my opinion, a property with existing tenants who pay their rent on time is much more valuable than a vacant rental property or a rental with deadbeat tenants.

      If you have a lease contract, and are not month-to-month, and are paying on time, your contract is valid. If you are a month-to-month tenant, then you would be wise to start looking elsewhere for different housing.

      0 Votes

  • 35x35
    Jun, 2011
    Rob
    My wife and I divorced in 2009 shortly after I lost y job in AZ. I found contract work quickly in CA and have been commuting between the two states since then. My Ex moved back into the house in DEC 2009. In the beginning I cared for the house financially. When she moved back in we shared. She recently informed me she can no longer afford her share as her hours have been cut. I can not afford her share and my other obligations. I am unsure if I can short sale financially as I think on paper I think I can swing the payment. I just can not the actual care of or other expenses necessary for the house as I am looking to relocate to CA for more permanent work. I am afraid to commit to a new job in CA with the AZ house as a liability I can not control. Short sale, deed in leiu? What do I do?
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      Readers? I welcome your thoughts to Rob's dilemma. I think he should try a short sale. What do you think?
      1 Votes

    • 35x35
      Aug, 2011
      Fran
      Definitely Short Sale. You should be considered because there was a change in marital status. I'm a Realtor and have handled many here in AZ.
      1 Votes

  • 35x35
    Jun, 2011
    Mark
    Both my inlaws passed away late last year. The wills have been probated and the only remaining item to address is the house. We have been paying the mortgage company for the last 7 months while we empty the house, so the mortgage is current with balance of $131k. Homes in the area are selling for about $175k, but in truth, the house needs a lot of work and we'd be lucky to get $131k for it. We've had one offer for $100k. We simply ready for the house to go away but don't have the funds available to fix it up to get full market value (let alone continue paying the mortgage and property taxes). What possible options do we have? If we simply stop paying the mortgage and let it go into foreclosure, what is the potential impact? Would there be impact on our credit since the mortgage and title are in my inlaws' name? Is a short sale an option? Looking for solutions...
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      You have no liability for the mortgage, which means you will not see a change to your credit score if there is a default on your in-law's mortgage.

      Consult with your probate lawyer to learn what, if any, recourse the lender has if you stop paying the mortgage. If, as you suggest, the property is worth the same or less than the balance of the loan, I do not see a financial reason for you to continue to pay the mortgage.
      0 Votes

  • 35x35
    Jun, 2011
    Stan
    We owe 240,000 on the first mortgage and 82,000 on the second on a home in CA. After the second rejected the short sale attempt because of the low pay off required by Fannie Mae loans the first suggested a deed in lieu. We have not paid the first or the second for 9 months. We are considering bankruptcy due to a large amount of credit card debt and the second mortgage. As I have heard the second becomes the primary after a deed in lieu. But I do not understand if the chapter 7 can wipe the second as a primary and any of the deficiency balance from the original first mortgage. Should we wait on bankruptcy after the deed in lieu or do it before to wipe the second and see if we qualify for the Mortgage Forgiveness Debt Relief Act of 2007? Thanks
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      The short answer is, exactly when you file in the foreclosure process — either before or after — does not matter because the result is the same financially. Consult with a bankruptcy lawyer in your state. He or she will review your situation in detail and give you a more precise and nuanced answer.
      3 Votes

  • 35x35
    Jun, 2011
    Barbara
    I owe $131,000 on my house and it will probably appraise for about $140,000. Although it is currently on the market, it will cost approximately $21,000 to sell it because of the high closing costs. (I cannot afford to pay all of the closing costs.) Because I owe less than what it is worth, would I be eligible to do a "Deed in Lieu of Foreclosure"? Since I want to buy a different house in a different state, would my credit score be negatively impacted too much if I did the Deed in Lieu of Foreclosure?
    1 Votes

    • 35x35
      Jun, 2011
      Bill
      Before I answer your question, I confess I am a bit taken aback by a $21,000 closing cost for a $140,000 property, and am curious why it would be so high.

      Either a deed-in-lieu-of-foreclosure or a short sale are voluntary agreements on the part of the mortgage servicer (which is representing the mortgage's investor) and the borrower. There are no universal qualification criteria for either — each mortgage servicer negotiates deals separately.

      Deeds-in-lieu are not as common as short sales, and the impact deeds-in-lieu have on a credit score are not discussed by Fair Isaac & Co., creator of the FICO score. My guess — note that word choice — is that if the homeowner remains current on their payments, a deed-in-lieu will cause a minimal impact on a credit score. I welcome comments from readers with deed-in-lieu experience to share below what impact it had on their credit score.
      47 Votes

  • 35x35
    May, 2011
    Penny
    We bought our home for 279,000.00, it is now valued at 198,000.00. We owe 237,000.00. We no longer work in the state where we own the house. There are several empty, foreclosed, bankruptcy, bank owned homes in our subdivision. We are not behind on our payments but feel like we are handcuffed to this house. We just need for this house to be gone. What would you recommend for our situation.
    0 Votes

    • 35x35
      May, 2011
      Bill
      Your options are limited, from what you described. A short sale is difficult to do, when you can't demonstrate an inability to make the monthly payments. Have you spoken with your lender? That is a good first step, as you will get a lay of the land.

      Your options are further constrained because the home is not your primary residence. Was it your primary residence for two of the past five years? If so, you may be able to avoid having any deficiency balance considered as income, though you should speak to a tax professional about this.

      If you can avoid the deficiency balance being considered as income and costing you in income tax, then you may want to consider a strategic default. If that is something you want to consider, review these two articles:
      1. Strategic Default on an Investment Property
      2. Strategic Mortgage Default

      Also, I recommend that you speak with an attorney who has experience working on this kind of case, if you are going to pursue a strategic default.

      2 Votes

  • 35x35
    May, 2011
    Debbie
    Bill, we are also unfortunate people; we bought our house in 3/2006 at the height of the housing situation. We wanted to sell our house in 2007, after I became a cancer patient, but in our agreement it said we couldn't sell until we had the home for two years or face $18,000 in pre-pay penalty. So we stayed. Now it's years down the road and we have had an 8 1/2 % all this time, only because of my hardship. We can't refi, because we are underwater by about $18,000 we have had our home for sale for a year with no bites. These last two months we stopped paying. Partially, we need to be paying for ourselves. We can't go anywhere and do anything and this year we couldn't afford the insurance. So, we have opted for the DIL and have sent the paperwork, except we have done this through our computer and it spits back. We put in when we bought the house a $30,000 pool and I can't tell you all the way from Sunday we are the ones losing but have really no choice and that pool wasn't a second mortgage. We are with BOA. Any suggestions? We're paying the pool off through or 401K. The thing is, at this time we don't want a foreclosure to kill our exceptional credit. Except we can't sell nor get out of this mortgage.
    4 Votes

    • 35x35
      May, 2011
      Bill
      Talk to your real estate broker about lowering the price. The fact that you had no nibbles in 12 months tells me the property is overpriced.

      If you want to stay in the property, but at a lower monthly cost, consider an FHA Short Refinance.
      4 Votes

  • 35x35
    May, 2011
    Laura
    My husband and I purchased a house 19 years ago in hopes to fix it up and sell it five years later. 19 years later we are still trying to get out of it. It's been one major repair after another. Luckily, we have made the majority of the repairs ourselves with the help of professional advice and input. Almost two years ago, we had a supporting beam in our livingroom rot away and dropped our livingroom floor by two inches. Water had been leaking in around the chimney for years but we never knew it until the floor issue. The rotten beam was just the beginning to the major issues and huge repair bills. We spent over $24,000 to fix the issue. Insurance wouldn't cover any of it since it was not an immediate issue (ex. water line break) so we had to use credit cards to fix the issue. We haven't been late on the mortgage yet but I feel it's getting close. I have already worked with all our credit cards to set-up hardship programs but I am struggling to make those payments. Now with the housing market, our house is valued less that what we owe. We are up to our eyeballs in debt now and am barely getting by. We are going to go see CCC for help but I don't know where else to turn. We are a two income family with good jobs and good income but are stuggling for something that was out of our control. We both are looking for better jobs to help out or part-time income to help. There doesn't seem to be help for people like us. When I inquire about with our mortgage company or other companies, I am told they can't help me until I go 30 days past due. Is this my only option? We are to the point of just wanting out. No, we don't want a bankruptcy on our credit but I don't know what to do. I have a son getting ready to go to college next year so that is another worry with our financial issues. Any suggestions?
    0 Votes

    • 35x35
      May, 2011
      Bill
      My sense is that your household budget is overwhelming you. Try to break up the problem into three components. Each is big, but easier to handle separately.
      1. Mortgage: You mentioned the balance of your loan exceeds the market value of the property. Consider an FHA Short Refinance to knock-down the mortgage principal and cut your interest rate. A successful short refinance will make your mortgage payments less.
      2. Credit Card Debt: You mentioned hardship programs. Consider Chapter 7 or 13 bankruptcy, or a debt settlement plan, which would be more aggressive than a credit card issuer's hardship program. See also the Bills.com Debt Coach online application that will help you find the right debt resolution program for you.
      3. Household Budget: Revisit your household budget and look hard at all of the expenses you might be taking for granted:
        • Cable TV: If you have premium channels, get rid of them. Or, get rid of your cable TV altogether and watch what you want when you want with Hulu and Netflix.
        • Land Line: How often do you use it?
        • Cell Phone Plan: When your current plan expires, cancel it and use a pay-as-you-go plan.
        • Car Insurance: Raise your deductible. Cancel collision if the car is worth less than $2,000. Also, shop your insurance every year or two.
        • Common Sense: Make a household budget and stick to it. Make saving a priority, and so on.
        I mention budgeting because little things add up, and sometimes it pays to review household expenses with fresh eyes.

      You asked about mortgage servicers requiring homeowners to become delinquent before discussing any hardship plan. Unfortunately, some have that requirement, which wreaks havoc on a credit report and score. Do look into an FHA Short Refinance, but also continue to talk with your servicer, and explain you are contemplating a short refinance. That disclosure may open up a door for you to a modification.

      0 Votes

  • 35x35
    May, 2011
    Jules
    My husband and I live in Florida and recently filed bankruptcy. We own a second house which was included in the bankruptcy as being surrendered. That home also has a second mortgage on it. The primary lender wants to do a deed in lieu of foreclosure on it, which we are fine with. However, they want us to complete all the Making Home Affordable forms first. This seems like a waste of time since we just want to sign over the property to them. Is that really necessary? Also, I read on your website that we could receive a 1099C form for any deficiency. How does that work since we filed Chapter 13? Will we still have to claim as income? Unfortunately we have had trouble getting answers out of our bankruptcy attorney, and no other attorney in Florida will talk to us because we already have a retainer with an attorney. We don't know what to do to get answers to our questions. As part of the bankruptcy we are not allowed to apply for credit for 5 years, by completing all of these Make Homes Affordable forms, I'm sure they will have to check our credit and we certainly don't want this getting back to the bankruptcy Trustee at the court. What do we do?
    0 Votes

    • 35x35
      May, 2011
      Bill
      Send a written letter to your bankruptcy attorney that outlines your questions. Be business-like and factual. Explain that you have attempted to discuss these issues with him or her, to no avail. State that if you do not receive answers in a week (or whatever time is reasonable) you will terminate your relationship, and take your business elsewhere. Then, if he or she does not become responsive, you can assume he or she is unwilling or unable to provide you legal services. Send a follow-up letter demanding a return of the funds you paid. There are many, many honest, smart, hungry lawyers looking for business who would love to serve you.

      Regarding your central question, you never want to surprise a bankruptcy trustee, or do anything with your personal finances without the trustee's approval. Apply for a short sale or deed in lieu after you receive the trustee's explicit approval only. Your failure to do so could scuttle your bankruptcy filing.
      0 Votes

  • 35x35
    May, 2011
    William
    I had lost my job back on March 1st and had enough money to survive for the next few months, but when I went online to pay my mortgage it had gone up $250. I could not afford the increase and called the bank to ask them what the increase was from. They have yet to figure out what the additional $13,000 of escrow was for and are uncooperative as far as resolving this issue and will only accept the total monthly payment, not the original mortgage payment. I was never notified of the change and they have sent me a notice of intent to accelerate. They will not let me renegotiate my loan because I haven't had it for a year. I have found another job, but out of state so my family and I are relocating. I can't afford to hire an attorney to handle this for me and I am leaving on 5/15/2011 to begin working out of state. Is there any way to force the bank into modifying the loan or should I just transfer the deed to them?
    0 Votes

    • 35x35
      May, 2011
      Bill
      Neither the mortgagor nor the mortgagee can change the terms or conditions to a contract unless a) the other party agrees, or b) the contract allows the change. For example, if you have an adjustable-rate mortgage (ARM), the monthly amount the homeowner pays may vary over time.

      Here, you did not mention if you have an ARM. If so, perhaps the change is due to a rate change. You mentioned escrow — perhaps there is a change to the amount going into your escrow account. Call the mortgage servicer, and get someone on the phone to explain why your mortgage increased by $250 per month. Do not accept "I don't know" for an answer. If your mortgage servicer has no good explanation for the increase, then your next stop is at a lawyer's office to discuss filing a lawsuit against your mortgage service provider for a breech of contract.

      There is no way to "force" a mortgage servicer to accept a modification. Mortgage modifications are voluntary on the part of both parties.

      If you need to quit the property because you want or need to relocate, then reread the original answer above regarding short sales and deeds in lieu of foreclosure. Like a modification, a short sale or deed in lieu is a voluntary agreement between the parties. Your mortgage servicer is not a landlord in that you cannot just send it the keys and leave. If you do so, you should expect legal and financial ramifications.
      0 Votes

  • 35x35
    May, 2011
    Priya
    Bill, I am writing on behalf of a relative in Stevensville, NY (outside of Albany). She is in the middle of a divorce where her husband is soon to be out of a job, and she is a teacher making a decent income, but not sufficient to keep the house. The house was appraised several months ago at about $320K, but they only owe about $250K. It's been on the market a few months so far, but no bites yet. She really wants to get out of the house and doesn't completely trust her soon-to-be-ex not to trash it. Given that they are not underwater (i.e., no short sale), is deed in lieu of foreclosure a good option, and can they pursue that ASAP? Really, the question is, if the house has only been on the market for a couple months, will a bank be more or less likely to take a deed in lieu quickly? Thanks, pn
    0 Votes

    • 35x35
      May, 2011
      Bill
      I cannot speak for the mortgage servicer, but if I had to guess, my answer would be no, a mortgage servicer is probably unwilling to take on a deed in lieu of foreclosure unless it really needs to. If the spouse can provide some evidence that the other spouse will cause damage to the property if the servicer does not take possession of the property, then that is a separate issue. In that case, it might consider accelerating the deed-in-lieu process.

      The property is worth what a buyer is willing to pay. The homeowner should drop the price to find a willing buyer.
      0 Votes

  • 35x35
    May, 2011
    Tom
    Bill, I have a small house in SC that has been on the mkt for about a year. There is a 45,000 equity loan on it. We were asking for 60.000 which was realistic at first but the value dropped drasticaly, then the house was robbed of all the copper plumbing and all the electrical wiring was remove and the HVAC. A police report was filed but because the property was vacant the Ins.co,(Nationwide) refuses the claim. This leaves me with an upside down loan and living on S.S. I cant afford the repairs or the Ins. We are making int payments. Would it be reasonable for me to ask for a short sale or deed in lieu agreement? Thanks
    0 Votes

    • 35x35
      May, 2011
      Bill
      Consult with a lawyer who has experience in civil litigation to learn if it was proper under your contract for the insurance company to deny your claim.

      You have three choices:
      1. Keep the house and continue to make payments
      2. Sell it via short sale or deed in lieu of foreclosure
      3. Allow a foreclosure

      I think it is reasonable to ask for a short sale.

      0 Votes

  • 35x35
    Apr, 2011
    Lisa
    I have a problem I co-owner of my son's home in Ohio. I live in VA. His wife had to quit her job so that lowered their income. He coundn't make the payments so I have paid the payment for 3 years. They recently moved out of the house because it was too small for them. My husband and I went up painted and fixed up the house and talked with a realor about selling it. We owe 69,000 she said we could only get about 47,000 at the most out of it. I'm stuck with the payment because my son has 4 kids and works for Walmart for 10.00 an hour and they are talking about lowering his hours at work. How can I get out of this debt?
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      Reread my original answer above concerning short sales and deeds in lieu of foreclosure to learn two possible solutions to your problem.
      0 Votes

  • 35x35
    Apr, 2011
    Carey
    Hey there! we purchased 2 land lots in a gate community right before the market fell. our intention was to build, but we could not get jobs in the area. we've had it off and on the market for 4 years now. other lots are listed for $20,000 less than our purchase price. a lot hasn't sold in years and only 2 homes are built since its opening 5 years ago. our "help" with making these payments is ending and we are unable to afford them together. we are also tired of watching our money disappear to an endless problem! we have considered a deed in lieu of foreclosure or short sale. my concern is our primary residence. if we do the above options, can they come after our home? is it smart to go to the bank before we are unable to make the payments to try and work this out? thankyou.
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      The answer to both of your questions is "yes." For an overview of the issues surrounding your first question, see the Bills.com resource Collections Advice. For the second, see Negotiate a Mortgage Settlement. Ask any follow-up questions you may have on the appropriate page.
      0 Votes

  • 35x35
    Apr, 2011
    Moneake
    Very informative article. One question regarding "deed in Lieu of..." How does the lender calculate what percentage of the outstanding balance of the loan is defficient? Is an appraisal value the basis?
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      Mortgage servicers use their own short sale and deed in lieu contracts, which makes stating specifics about all contracts foolish. The key component in a deed-in-lieu-of-foreclosure is that the agreement is voluntary on the part of both parties. Therefore, the fair market value is by agreement, which could be set by the parties looking at comps or allowing an appraiser to set the value.
      2 Votes

  • 35x35
    Apr, 2011
    Morton
    Can you do a deed in lieu of foreclosure if you are not behind (may be about to me 1 month behind and don't forsee being able to pay the mortgage any longer)? The loan is in me and my sisters name. She doesn't live in the house and her credit is currently bad and therefore she's told me to find out what I needed to do. If I file for the deed in lieu, I know it will affect her credit even more but because this is an co-signed loan will they go after her to pay the mortgage, instead of granting the deed in lieu? Basically, can you fill a deed in lieu of foreclosure on a co-signed loan?
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      Yes, a joint mortgage may qualify for a either a short sale or deed in lieu of foreclosure, or a mortgage that is co-signed.
      0 Votes

    • 35x35
      Apr, 2011
      Morton
      For years now, I've been living in the house and paying the mortgage myself. Me and my sister both have jobs. Will they consider both our incomes to qualify for the deed in lieu? And do you know if I file the deed in lieu on my behalf, with it being a co-signed loan, if they will go after my sister since she is on the loan?
      0 Votes

    • 35x35
      Apr, 2011
      Bill
      There are no hard-and-fast rules for short sales and deeds in lieu of foreclosure. Each mortgage servicer makes them up as they go along. You will need to talk to your servicer to learn what the terms and conditions are of the contract offered you.

      If there is a deficiency balance you do not negotiate away in your contract negotiations, then all co-signers on the mortgage have liability — unless you negotiate that in your contract, too.
      1 Votes

  • 35x35
    Apr, 2011
    Elle
    My exhusband and I own a home together-joint tenants in common. Our divorce never stated who got the house. The mortgage is completely in my name. He was a deadbeat who never paid bills. He will nt quit deed it. He will not help pay for it or allow me to refinance it so I can. He will not let me sell it unless it gives him a high profit and this market just is not selling. He will sell his house to me for lone large lump sum payment he knows I could never afford. It is my promary resident but I cannot keep him from trespassing because his name is on the deed. For years, I have tried to escape him on this deed paper and in person. I have considered deed in lieu of foreclosure. I know this gives my portion of the deed to the bank. But I don't know if it would successfully go through with him on the deed. He did sign a paper for the mortgage that said he knew if I did not pay it, he lost it. But, I don't know what those 2pages he signs meant. Any advice?
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      Consult with a lawyer who has real estate law experience. Ask him or her if a quiet title action is the answer to your needs.
      0 Votes

  • 35x35
    Apr, 2011
    Tomas
    I live in CA, and have a second home in MO. We are current on our MO house but are struggling to make payments. We owe 260K. It had been listed as a short sale since December for 245K. About a month ago we found out our pipes burst and flooded the home. We have full insurance coverage, and already got the fist 25K and got the house demo'd and dried out. The reconstruction should come out to around 100K and the check will be made out to me and my bank. I am wondering if you've ever heard of a bank accepting a deed in lieu and taking the 100K. I am obviously not too interested in rebuilding a house that I will lose, especially if the settlement money could help me get out of the house. Is this a good idea tax and credit wise, or is there something else I should look into? Any advise will help!
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      Consider the damage to the property and your possible foreclosure or short sale/deed in lieu as two separate issues. I realize the two involve money and the bank, but they really are different. Someone needs to pay for repairing the house. If you sign the insurance settlement check over to the bank and walk away, the bank will need to use the $100K to make the house meet the area's building code for habitability. That still leaves you potentially liable for the deficiency balance.

      Consult with a Missouri lawyer before you decide on the strategic default route so that you understand your potential liabilities completely.
      0 Votes

  • 35x35
    Apr, 2011
    Lori
    I need some advice, our family relocated out of state do to a job offer and we are currently renting. Our house in PA has been on the market for about a year with no viable offers. We had our house built in 2007 for 372,000 we currently owe 325,000, we had it listed for 350,000, we had an offer for 318,000 but with the relator costs we would have ended up owing 32,000. We are at the point now of considering foreclosure what would be the way to go about doing this. We have not made a late payment, but the 3000. mortgage payment and 1250. rental payment are starting to be too much.
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      The original answer above discusses two options. See also the Bills.com resource Strategic Default to learn the pluses and minuses of that approach, and its alternatives.
      0 Votes

  • 35x35
    Apr, 2011
    Angelina
    Hi. I'm pleased to have found your site. I am alittle confused. I still owe $96,000 on my mortgage and am a couple of months behind. A yr ago my husband departed and I was left on my own with my 4 children (1 being a newborn). I have struggled to keep my home but it is becoming to overwhelming. I contacted the bank to explain that I will no longer be able to live there and am going to have to move to a different state with family. They said that if I decided to do a deed in lieu, that they would give me $3,500 to help me relocate. They said I could do a short sale too but if I am going to get money from the bank regardless, I see it as pointless to drag months trying to sell it I really need to leave town now. Why are they giving me money? Also, are they gonna charge me the money they are giving me later? They said that they will forgive my past debt and forgive my loan and give me the $. (Per the bank,I have already paid $61k and my house is valued at $54 or $58, cant remember). It sounds so easy, just give them the key, and they give me some money...is it possible?
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      I have two somewhat contradictory responses to your questions:
      1. The $3,500 payment you described may be part of a voluntary program called "Cash For Keys," which some states and mortgage servicers are involved in. The program is designed to encourage homeowners to quit a property gracefully. The program has a couple of strings attached: You must agree to depart as agreed, and leave the property intact and "broom clean." The $3,500 is a good deal for everyone because disgruntled, evicted homeowners often leave more than $3,500 in damage or missing fixtures from a property. Obviously, I cannot comment on the specifics of what is offered because I have not read your mortgage servicer's plan.
      2. Consult with a lawyer in your state who has real estate or consumer law experience. Ask him or her to review the deed-in-lieu-of-foreclosure and the Cash For Keys proposals. I realize a lawyer's time is not cheap, but if there is a hidden surprise in the proposals that the lawyer uncovers and negotiates away, the money you spend will be well worth it.

      Let us know what you learn and how you resolve your situation.

      0 Votes

    • 35x35
      Apr, 2011
      Angelina
      Thank you. I will look into that. I actually called my accountant to ask about something else and mentioned to him that I was going to do a deed-in-lieu and move to a diff. state. He said DO NOT do that. He encouraged me to just let it go into foreclosure. He said that regardless of the fact, my credit was gonna be messed up and if I did the deed-in-lieu that I was going to end up paying around $10,000 in taxes and the $3,500 was not worth it. He strongly encouraged me NOT to even consider the short sale or deed-in-lieu and just stop making mayments and let it go into foreclosure. ??? How can I find out before making the decision if I will qualify for the tax break that IRS offers?
      0 Votes

    • 35x35
      Apr, 2011
      Bill
      Get a second opinion from a lawyer in your state who has experience in real estate law. Unless your accountant is also your lawyer, I think the advice you received is incomplete or based on an incomplete understanding of deeds-in-lieu and short sales. Of course, each deed-in-lieu or short sale contract is different, and a bad deal is a bad deal no matter what the contract is called. But the accountant is not serving you well by telling you categorically that a foreclosure is preferable to a short sale or deed-in-lieu without, I surmise, reading your offer from the mortgage servicer.

      It may turn out that the deals offered you by the servicer are so bad that a foreclosure is in your best interest, but before you take the foreclosure path learn more about the other two options.
      0 Votes

  • 35x35
    Apr, 2011
    Michelle
    My husband joined the army in 2009. We put our house on the market shortly after. We have yet to sell the property. We owe 138,000 and the house is only worth roughly 110,000. I tried going through the HAFA program, waiting 5 months only to be declined because I didn't have an offer on the house, but they would never give me the BPO. They told me I could start the process all over again but then told me the BPO was 125,000. I am at my wits end, we haven't made a payment on the house since June of 2010 due to relocation. What, if any, are my options at this point?? Please advise. The lender is Bank of America, and they also said we would be responsible for the difference if we sold.
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      If you want to sell the property then consult with Bank of America about a short sale. If you want to keep the house, you have nothing to lose by contacting NACA.
      0 Votes

  • 35x35
    Apr, 2011
    concerned
    If you have mortgage insurance (PMI) on your loan, can this help with your deficient balance?
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      Private Mortgage Insurance (PMI) protects the lender in case of a foreclosure, and not the borrower. If there is PMI, and the PMI is paid to the lender, the insurance company may have a cause of action against the borrower to collect what it paid to the lender.
      0 Votes

  • 35x35
    Feb, 2011
    John
    This is our situation. My wife is the bread winner of the family. She grosses about $140K annually. We bought our home back in 2005 for $420K with a $335k balance on 1st and about $77k on 2nd loan. This is a 10YR IO loan. And same with the rest of the country, we are upside down on our mortgage. We are currently paying about $3500 a month for both loans. And due to bad decisions, we have about $15k 0% interest deferred payments on some of our credit cards. We currently have a pending application for a HAMP (Home Affordable Modification Program) with IndyMac. It 's now really a burden to us. We are always short. We would like to stay but we can't afford it anymore. We can't even have repairs on our home. But this HAMP application is taking forever. I am thinking of going bankruptcy. I don't like deed in lieu and may consider short sale. Please advise to what to do best.
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      I am a strong believer that information is power. I advise you to speak with a bankruptcy attorney, so you can get a full idea of how a bankruptcy may help you. I believe that a Chapter 13 bankruptcy will provide you with a way of staying in your home. Can you please explain to me why you don't like a deed-in-lieu of foreclosure but do not feel as negatively disposed towards a short sale?
      0 Votes

    • 35x35
      Feb, 2011
      John
      It's only because the lender can opt not to forgive the deficiency balance. Otherwise, it's better than short sale, from what I've heard is taking forever, if someone wants to get rid of the property right away. I guess everything will depend on what you and the lender will agree upon. Am I correct? I am still not sure which route will be best for us. If HAMP can bring our monthly payments down to $2500, we will be able to stay for good.
      1 Votes

    • 35x35
      Feb, 2011
      Bill
      There are no rules for short sales and deeds in lieu of foreclosure. Well, that is not quite true. Outside of the HAFA program, there are no rules except for the opaque, secret, and ever-changing rules each mortgage servicer creates, seemingly on a case-by-case basis. The mortgage servicer can choose to forgive the deficiency balance for either a deed-in-lieu-of-foreclosure or a short sale. Alternatively, if the homeowner's state laws allow it, the mortgage servicer can choose to hold the homeowner personally liable for the deficiency balance, which is a standard condition in all mortgage/deed of trust loan contracts I have seen.

      If the modification is really going nowhere, which obviously I have no insights on, then talk to your mortgage servicer about a deed-in-lieu or short sale. One is not by definition superior to the other; it all depends on the terms and conditions you two agree to and what your state laws allow. Take whatever contract the servicer sends you to an lawyer in your state who has experience in property or contracts law. He or she will explain your rights and liabilities, and offer you ideas for proposed changes to the contract to make it equitable.
      0 Votes

    • 35x35
      Mar, 2011
      Stephanie
      Bill, My boyfriend has a mortgage of 80k he lives in Indiana and he is trying to get out of the house is falling in and he can no longer afford to fix it up or make the payments on the property and the property is only worth 50k now what do you think he should do to get out of this quick. He has talked to the lender several times and they are no help should he just file bankrupsy on the whole thing and move on?
      0 Votes

    • 35x35
      Mar, 2011
      Bill
      There is no quick way to extricate oneself from a mortgage because they are simply not designed for a fast exit. Before considering bankruptcy, the homeowner should talk to the mortgage servicer — the bank he sends mortgage payments to — about a short sale or deed in lieu of foreclosure. Reread the original answer above to see an overview of these options.
      0 Votes

  • 35x35
    Feb, 2011
    Moenic
    We are debating to do a deed in lieu or a shortsale. However, the mtg company has us tied up in the never ending review process of getting a loan modification. With that in mind should we just move forward and pick an option? Getting the MHA Mod is a no go so we are only awaiting an in-house decision. Can we get some sound advice here please?
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      The original answer on this page discusses the distinction between a short sale and deed in lieu of foreclosure. Talk to your mortgage servicer about what it can offer. Take whatever contract is sends you to a lawyer in your state who has experience in contract or property law to understand what the contract obligates you to.
      0 Votes

  • 35x35
    Feb, 2011
    Zoe
    Good morning, So am I right in thinking that a deed in lieu has about an equal impact on one's credit score as a short sale? What about in terms of being eligible for a loan in the future? Thanks so much!
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      In isolation and in theory, the two are identical and in and of themselves have a relatively minor impact on a credit score. The problem is the path mortgage servicers require homeowners take to qualify for a short sale or deed in lieu of foreclosure. Some require a homeowner default on their payments for several months before the homeowner qualifies. The defaulted payments have an enormous impact on a consumer's credit score. Unfortunately, there are no industry-wide rules or laws that control these requirements. Also, the mortgage servicers do not publish their rules, and change them constantly.

      Consult with your mortgage servicer, and go over the contract with a fine-toothed comb to learn its terms and conditions.
      0 Votes

    • 35x35
      Feb, 2011
      Zoe
      Hello, I am already in default on my mortgage--by many months. I have just been approved for the MHA program, but will be moving and so need to work out a different solution. Given that is one better than the other, or will it be up to my lender to decide? Also will my credit score have an additional loss due to the deed in lieu/short sale or is the main effect on my credit score due to the delinquency? Thanks again!
      0 Votes

    • 35x35
      Feb, 2011
      Bill
      Given that you are already in default, the damage is done to your credit report. Do not concern yourself if a short sale or deed-in-lieu-of-foreclosure causes more credit score damage. You have far more significant issues to worry about.

      Ask your mortgage servicer what, if any, differences there are to qualify for a short sale or deed in lieu. If the servicer says, "It's up to you" then ask for the terms and conditions of each, and bring that document to an lawyer with real property or contracts experience. He or she will discuss the pros and cons of each contract.

      You may be thinking, "Well Bill, which one is better?" The problem is there are no standard short sale or deed in lieu contracts. Each mortgage servicer is making this up as they go along. It would be folly for me to make a statement about which is superior without seeing the terms and conditions.
      0 Votes

    • 35x35
      Feb, 2011
      Lillian
      If taking equity out of my home, can't I use that toward the principal of the home to bring down the mortgage payment to make the notes more affordable. Should I stop making payments for several months as others have to afford and move from the resident? How long does a short sale take? Can any agent handle a short sale?
      0 Votes

    • 35x35
      Feb, 2011
      Bill
      Regarding your first comment, what you are suggesting is not possible. Here is why. Let us say for the sake of argument, that your property's assessed market value is $200,000. Let us say that you have a mortgage loan balance of $80,000, which means your equity is $120,000. Let us say you do a cash-out refinance whereby you take $50,000 out in cash. Your new loan balance is $80,000 plus $50,000, which is $130,000. Now you take the $50,000 in cash and use it to pay-down your mortgage balance. Your balance is back to $80,000. You just chased your own tail. On the other hand, if you have a high-interest mortgage, refinancing to get a lower interest rate might be a great idea. See the Bills.com mortgage refinance calculator to see a customized report showing how much you can save by refinancing.

      Regarding stopping your payments, I would not recommend taking that course of action without talking to your mortgage servicer to learn if that action will qualify you for a mortgage modification, short sale or deed in lieu of foreclosure.

      Short sales take months to complete. I would be surprised if anyone completed one is less than two months.

      Any smart real estate agent you meet will know short sales inside and out.
      0 Votes

  • 35x35
    Feb, 2011
    john
    I am upside down on my home(condo)I purchased it for $125.000 4 years ago. its now worth $29.000. I want to walk away from it. and go purchase another home while the the market is so low.. what can i do besides walking away and letting it go into forclosure..
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      What you contemplate is called strategic default. The flaw in your plan is default results in foreclosure, which knocks down a consumer's credit rating. A less damaging course of action is to try a short sale, which I discuss in the original answer above.
      0 Votes

  • 35x35
    Feb, 2011
    Perry
    I accepted a Deed in Lieu of Foreclosure from Marriott Vacation Club for a timeshare that I couldn't afford when the recession hit. Now I've received a 1099-C for 16,621 of canceled debt. The problem is that the FMV in Box 7 is listed as zero. Marriott claims that they are not required to appraise the properties. Does this mean that I am required to pay tax on the entire amount forgiven despite the fact that Marriott received the timeshare back and will resell to someone else?
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      I find timeshares, and their intersection of contract law and property law, fascinating to study. I also admire the creativity marketers use to sell timeshares. However, I do not recommend the purchase of timeshares, and your message offers one piece of evidence why.

      As we all know, the value of a piece of real property rises and falls, but never falls to zero. Even the most unusable acre in the most remote corner of Arizona or Nevada is worth a few dollars, but not $0. Timeshares grant the title holder the right to use a piece of property for a week or so per year. The timeshare owner is also liable for maintenance fees and other costs relating to the property. These fees are staggeringly high, in my opinion, and are a big factor in the reason why the used timeshare market is essentially non-existent. It is common to see timeshare owners sell their titles for $1 just to be freed of the annual maintenance fees.

      What Marriott admits in your 1099-C is the market value of your timeshare is $0 -- you and your fellow owners are fortunate to give them away. If you pay the imputed taxes relating to the 1099-C, and then if Marriott sells your timeshare, you have the right to sue Marriott in small claims court to recover the taxes you paid relating to the 1099-C.

      The first thing I would do in your situation is to see if you can excuse the need to pay taxes on ANY forgiven debt. You may be eligible to use the IRS Form 982 to avoid declaring as income the forgiven debt. Speak with a tax professional to see if you meet the test for insolvency that would allow you to use the Form 982. If it turns out that you don't need to pay taxes on the forgiven debt, then it is moot whether Marriott Vacation Club put down the proper amount or not.

      If you are not eligible to use the Form 982, then it is important to try to get Marriott to change the amount listed. What Marriott reported may or may not be accurate based on its expectation for selling your timeshare. I think an experienced tax professional, one who has dealt with forgiveness of debt issues previously, would be the best person to ask. Alternatively, you can speak directly with the IRS. Keep in mind, however, that if the IRS gives you bad information and comes back after you down the road as a consequence of your following their errant advice, it is solely you who is responsible for the matter.
      0 Votes

  • 35x35
    Jan, 2011
    Laura
    Hello I see my self confused about this whole foreclosure, short sale etc. My father and I owe a duplex that was purchase almost three years ago. Due to hardship difficulty no payments have been made to the loan or the mortage for almost two years and the home has been abandone since then. We tried to do a short sale but it didn't go through I contact the bank and they let me know that the forclosure is due next month. I have decided to deed-in-lieu and return the property. Reading your web page and comments it sounds like a long process. We live in california by the way. What will it happen if we are accepted? what if we are not accepted what is the best thing to do? HELP!
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      A successful short sale or deed-in-lieu-of-foreclosure get the homeowner to the same place. Taking either path is a long road. You have nothing to lose by asking the mortgage servicer if you can avoid a foreclosure by asking for a deed-in-lieu now.

      If your creditor proceeds with the foreclosure, you should receive notices that are required by law. See the Bills.com article California Mortgage Foreclosure Process for more information. Please ask any follow-up questions you may have about the process on that page.
      0 Votes

  • 35x35
    Jan, 2011
    Michelle
    I'm a little confused on this law that allows you to not have to pay taxes on a deed in lieu of foreclosure. Does the lender have to agree to forgive the deficiency or under the law, is it justifiable? I've been in a short sale situation for over a year. I had two buyers-one after 5 months, their bank didn't approve their loan. The 2nd was a cash buyer, and MY bank did not accept the amount. I'm now in the position of offering the property deed in lieu, but need to know if I'm going to get hit with tax ramifications. I cannot seem to get a straight answer. Under the bill it says you are forgiven, but in reading the IRS site, it's iffy. Can you be a little more clearer on this? I've heard from some people that it is forgiven, and some people that they DID get a tax bill.
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      Whether any tax law applies to you depends on your circumstances. Do you meet all of the requirements for the Mortgage Forgiveness Debt Relief Act? If the property is your principal residence, is worth less than $1 million (or $2 million if you file jointly), and the debt was canceled in the years 2007-2012, then you probably qualify. See the Bills.com hyperlink I just mentioned to learn more. I invite you to ask any follow-up questions you have on that page.
      0 Votes

  • 35x35
    Jan, 2011
    Eric
    We have not been able to make a payment on our house since March 2010. Two mortgages on house 1st is with Litton Loans, and 2nd with Saxon Mortgage. Owe a total of about 150K and, the market value may be 120-130K. The house needs a lot of work. We have a place lined up to move to and can move in a matter of a couple of weeks if needed. We tried a short sale option, the real-estate agents dripped the ball and after I called them to find out what was going on, they informed me that they had decided not to carry the property and that my best course was foreclosure or deed-in-lieu. How would I approach the banks with a deed-in-lieu since there are two of them? Currently we can afford utilities and food with 8 kids and a mortgage payment is just not there anymore.
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      Each servicer has a different process. Call your two mortgage servicers, the companies you sent payments to, and ask the customer service representatives how to start the deed-in-lieu-of-foreclosure process.
      1 Votes

  • 35x35
    Jan, 2011
    Andi
    Does an investment property in IL qualify for a Deed In Lieu? And does the lender require the spouse's financials when considering allowing DIL and forgiving the difference in the loan (my spouse isn't listed on the Mortgage Note, but is listed on the Deed of the rental property). Our mortgage is with Bank of America, and although I've contacted them for the DIL option-they have not called back as of yet. Our rental property has not been fully rented, and it's been very hard for us to make the mortgage payment. It's been listed for sale for way over 90 days without offers. I have been laid off for nearly 2 years now, but my husband makes a good living-and our tax returns are filed together. I am the only one on the Note, although both my husband and I are on the deed for our rental property. I've heard rumors that the financial information the banks ask for can be later used by them to go after you for the difference in the loan-in case of DIL or Short Sale. Is that true, are they fishing for additional info, and could they reject my DIL request due to my being unemployed but my husband making too much $ in our situation? Thank you.
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      Mortgage servicers ask for household financial information because they can. There is no requirement you provide the information, but then again there is no requirement the mortgage servicers give you a deed in lieu of foreclosure or short sale if you do not. The servicers need to provide information to the investor to show that the homeowner really is in financial distress. I would not be surprised if the servicers used the information to determine if it was worth their while to pursue a deficiency balance. However, I have no knowledge of that.
      0 Votes

  • 35x35
    Jan, 2011
    James
    Hello sir, my question is what do you mean by liens against the property, does that mean a "second mortgage" i am considering what BOA has offer me as a "HOFA" short sale, or a deed in leiu. But i see through several comments you make reference to the "there cannot be any liens on the property" statement and was looking for clarification as i think this makes a big differnece in a short sale or deed of leiu. I have a first and second mortgage.Thank you much for your help.
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      It is a confusing issue. In some states, a second mortgage creates a lien on the property. In others a second does not. However, a second mortgage is not the intent of the "there cannot be any liens on the property" statement. In this context, a lien refers to a mechanic's lien (if, for example, you hired a painter you never paid and he or she filed a breach of contract lawsuit, received a judgment, and filed a lien on your property), or another lien related to a judgment, such as a tax lien or delinquent HOA dues.

      Second mortgages are so common that the existence of a second does not automatically disqualify a distressed homeowner from HAFA or non-HAFA short sale or deed-in-lieu programs.
      0 Votes

    • 35x35
      Jan, 2011
      James
      Thank You Bill for your response and help. I have come to realize that a short sale or deed in lieu is the best choice to make, but if i understand correctly it's easier or more acceptable on a single loan, but appears it may be harder to get if you have a second mortgage.From your statement "a second doesn't disqualify you" for a HAFA sale or deed, apparently there's a difference in a regular short sale or deed versus a HAFA? Finally once again thank you for your help.
      0 Votes

    • 35x35
      Jan, 2011
      Bill
      The Home Affordable Foreclosure Alternatives (HAFA) Program offers homeowners, their mortgage servicers, and investors an incentive for completing a short sale or deed-in-lieu of foreclosure. With these options, under HAFA, a homeowner leaves their home to transition to more affordable housing and alleviate the mortgage debt they owe. These options are available for homeowners who:
      1. do not qualify for a trial mortgage modification under the Making Home Affordable Program;
      2. do not successfully complete the trial period for their modification;
      3. miss at least two consecutive payments during their modification period; or
      4. request a short sale or deed-in-lieu of foreclosure.

      Short Sale

      In a short sale, the servicer allows the homeowner to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage.

      Deed-in-Lieu of Foreclosure

      Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a deed-in-lieu of foreclosure. With a deed-in-lieu, the borrower voluntarily transfers ownership of the property to the servicer — provided the title is free and clear of mortgages, liens, and encumbrances.

      The HAFA Program streamlines both of these options to make them easier for a homeowner to work with their servicer. Under the program, a homeowner can receive $3,000 to help with relocation costs. Mortgage servicers and investors write their own guidelines under the Federal requirements to determine how to implement the program. If you have questions about the program, or want guidance about how these options may impact your personal situation, you may wish to speak to a HUD-approved housing counselor for free.

      0 Votes

  • 35x35
    Jan, 2011
    Larry
    Hello. I am in desperate need of help and hope you can offer me some clarity and advice. I entered into a sales/purchase lease agreement in 2005 on a commercial property (restaurant/pub). My monthly payments are $1500 and I am on the mortgage so, I imagine I have gained equity. At the time of the lease, I purchased the liquor license and all of the contents, furniture, fixtures, etc; outright. So, the only thing i don't own is the shell of the property itself. The property was appraised at $250k at the time of the sale but we agreed to a price of $180k after said equipment and liq license purchase. It was owner financed. Here is the problem...I was current until mid 2010 but continued to make enough of a payment for her to pay the mortgage (around $1000/mo). In September, I paid her enough to get caught up. Also, in September, i received a knock on my door from a sheriff serving me papers that started the foreclosure process. It stated that payments haven't been made by the owner since April, 2010! I tried to call and talk to both the mortgage company (turns out the mortgage was bought by another company) and their attorneys, to no avail. I either received no return calls or was told I wasn't the primary on the mortgage so I didn't have a say. Although, I was served in front of my neighbors by a sheriff! The amount owed was $90k but with all the fees, it totaled $102k. Now, I have been in business for over 5 years, own everything in the building, but am scared that it will be padlocked and i will lose everything. I am a husband and a Father of 2, soon to be 3. I have nothing else as I am disabled as well. The business supports itself but is no cash cow. My question is, what do I do? I can't go for a loan to purchase it bc my ex business partner took me over pretty well and ruined my credit. I'm at my wit's end here and was informed that it will be foreclosed on this month. Please advise. I am in Pennsylvania. Thank you so very much.
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      Do not despair; your situation may not be quite a dire as you conclude. Take these actions:
      1. Consult with a Pennsylvania lawyer who has experience with real property or contract law. Bring all of your documents regarding the lease and the option to your meeting. The option may give you more rights than an ordinary lease tenant -- or not depending on your state's laws.
      2. Contact the party foreclosing. A property with a tenant paying the rent on time is much more valuable than a vacant building. You and your attorney may be able to negotiate a new, more favorable lease and option than your existing lease and option.
      3. Talk with your lawyer about any cause of action you may have against the soon-to-be-ex-owner for breach of contract.
      4. Talk with a real estate agent about finding a new location for your business. Consider this your Plan B in case negotiations with the party foreclosing fail. The fact that you have the skill and knowledge to operate a viable business at this location tells me you have what it takes to continue your business in a different location.

      You may have heard of the "Protecting Tenants at Foreclosure Act of 2009." This law allows residential tenants to remain in their homes should the landlord default and the lender foreclose. As I read this act, it does not apply in your situation unless your business location is also your residence.

      0 Votes

  • 35x35
    Jan, 2011
    Dana
    We are not behind in our payments yet, just paying the "lowest" payment every month. Once the loan balloons we will no longer be able to make the payments, not even the lowest one. Do you have to be behind in your payments before you apply for a deed in lieu of foreclosure? I was thinking that we should keep paying the lowest payment, as we are now, until the time it balloons, then get an attorney, and proceed with applying for the deed in lieu of foreclosure. Of course, over that period of time the mortgage balance will increase every month. Can you explain the tax law that ends in 2012 that might help with preventing be taxed after completing the deed in lieu of foreclosure. That might help to determine when we should start this whole process. Also, a friend of mine said that we should take all the appliances, window coverings, lighting fixtures, etc. out of the house when we move. Can we do that? It would help to have all those items when we find another place to live.
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      A deed in lieu of foreclosure is one alternative to a foreclosure. A deed in lieu of foreclosure requires that you forfeit all your rights to the property, sign it over to your lender, and you are then released from your mortgage obligations. Your lender is most likely to agree to a deed in lieu of foreclosure when it is obvious that you can't possibly make the mortgage payment and the property can't be sold for more than you owe. If your lender will not be able to recoup the costs of a foreclosure, it makes sense for the lender to accept a deed in lieu of foreclosure instead. The deed in lieu of foreclosure process takes place outside the court system, so it is faster and less expensive than foreclosing on your property. I think that you should consult with an attorney with experience working with deeds in lieu of foreclosure right away, so you can plan an effective strategy. Your attorney will also advise you about the pros and cons of taking fixtures and appliances with you when you move. You asked about the Mortgage Forgiveness Debt Relief Act of 2007. The law allows taxpayers who qualify to NOT declare as income the amount of debt that was forgiven by their mortgage lenders. Normally, forgiven debt needs to be included on your income tax return, requiring you to pay taxes on the amount forgiven. Check with a tax professional to see if your forgiven debt meets the law's requirements, making it so you don't pay taxes on the debt. Even if your mortgage debt does NOT meet the requirements of the Mortgage Forgiveness Debt Relief Act, you may not need to declare it as taxable income on your return, if you meet the standards of financial hardship that will allow you to use the IRS Form 982. Again, check with a tax professional, to see if you can use the Form 982.
      0 Votes

    • 35x35
      Jan, 2011
      Matthew
      Bill, I have another hardship situation out of Las Vegas. I bought a house in 2006 and owe 460K on my mortgage. My ex wife abandoned the house in 2007 and I have been making the payments ever since. My job is ending this March and can no longer make payments on the house and am in preforeclosure. The house has been on the market for 3 years. I attempted to do a short sale with B of A but the buyers walked away after 6 months because B of A's appraisal of the house was probably too high and more than 50k more than the offer. I am leaving the state and will leave the house empty in three months from now. Should I continue to try and short sale the property knowing that there are probably few buyers out there who will accept this price or just try to do a deed in lieu of foreclosure before the house actually goes into foreclosure? In your experience will B of A be more negotiable with a short sale when I'm in preforeclosure? Thanks
      0 Votes

    • 35x35
      Jan, 2011
      Bill
      My personal experience in attempting to buy a short sale home serviced by Bank of America was unsuccessful due to the bank's unresponsiveness. I am a sample size of one. Bills.com receives many messages from other dissatisfied Bank of America potential and existing mortgage customers as well. However, we do not receive messages, generally speaking, from people who have much better outcomes doing business with Bank of America, so it is not fair or scientific to base an opinion on Bank of America's mortgage business on the people who complain to Bills.com.

      If you can negotiate a deed-in-lieu-of-foreclosure, by all means do so. Your other option is a strategic default. I wish I could offer you a successful Bank of America negotiating formula.
      0 Votes

  • 35x35
    Jan, 2011
    Pete
    I have a home I purchased in Az in 2006. I owe $500k and its worth 250-300k. Its an interest only loan that expires in about 4 years. I have a 1st and a 2nd mortgage. I'm currently having difficulty making payments, but always seem to dig enough money up to pay. I have borrowed from my retirement twice and have taken on other jobs to make more money, but cannot keep up. I have a good steady well paying job, but I'm held hostage by this mortgage. According to the bank I make enough money to pay the mortgage, so they are not able to help. I sacrifice many other things in life in order to make the mortgage payment. I don't know what qualifies for a short sale and what doesn't... advice on getting out of this home ...please... thx
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      Contact the mortgage company to learn the what standard it uses to classify a homeowner as distressed. Each lender has its own rules for approving a short sale or deed in lieu. Typical requirements are
      1. The residence must already be on the market for a certain number of days (90 days is typical)
      2. There can be no liens on the property
      3. The property cannot already be in foreclosure
      4. The offer of a deed in lieu must be voluntary
      5. For a short-sale, the seller must have a hardship
      6. The house must be priced reasonably.

      See also the Bills.com resource Home Affordable Foreclosure Alternatives Program for more information on avoiding foreclosure.

      0 Votes

  • 35x35
    Jan, 2011
    Sandra
    Hello question regarding about my case. Two years ago my spouse and I filed bankruptcy and we didn't reaffirm our current house right now. Now, we are having issues because my husband will be station in the other state. I called the lender and asked what's the best option that we can do, and they prefer to do short sale for 90 days and if there is no offer, we can do deed in lieu. We plan to stay in the house for 6 more months until the kids were off at school then follow my husband at Rhode Island. Can we stay in the house without paying monthly mortgage for 6 months? What is the best option for us deed in lieu of foreclosure OR foreclosure? We really don't care about credit score because it is messed up already. Please give advise. Our bankruptcy lawyer said if we put the house into foreclosure still included in our bankruptcy.
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      If a mortgage was included in a Chapter 7, and the Chapter 7 was discharged and the mortgage was not reaffirmed, then the homeowner has no liability if there is a foreclosure. Consult with your bankruptcy attorney before signing any short sale or deed-in-lieu contract.
      0 Votes

  • 35x35
    Dec, 2010
    Jason
    I have a primary residence in Michigan I financed via a 30 yr fixed. It was worth 100,000, which is the financed amount. Today my home is worth 65,000 (I owe $95,000 on the mortgage). I am seeking to eliminate this mortgage ( I am getting married and am moving into her home). What would be your suggestion to get out of such a situation? What would be the preferred order of options? I'm thinking 1) short sale; 2) deed in lieu; 3) foreclosure (which would probably include bankruptcy if the bank tried to recoup any monies from me). From reading all of the great info on this site, I feel like I'd be ok if the bank approved a short sale or deed in lieu IF they would wave any deficiency balance. If the deficiency balance can not be waved foreclosure may be the best option. Does that sound correct to you? Thanks for the help!! Jason
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      For all intents and purposes, the short sales and deed-in-lieu get the homeowner to the same place. Work with the mortgage servicer and learn if there are any difference in qualifications for either. As you mentioned, anything is better than a foreclosure.
      0 Votes

  • 35x35
    Dec, 2010
    Tabi
    We are residents of Las Vegas, NV and bought our house in 2005. Our mortgage is with Bank of America and currently the house is worth 40% or less of what we owe last I looked. After being laid off 18 months ago and having my husband activated and deployed overseas (at a much lower salary than his civilian job provided), I started down the route of seeking a loan modification. We also have a 2 year old which added to the hardships list qualifying us for the modification on top of our drastically reduced income. I have cut costs/bills wherever I could to make our monthly mortgage payments. I contacted B of A religiously for the first year (every 30-60 days is what they would give me to expect an answer by) to get the same story over and over again and grew sick of it. Once I even asked to speak with a supervisor who then suggested I begin missing payments or make partial payments to make the process go faster and bring more attention to my application for a loan modification. I am fortunate to have my husband back home and he is easing back into his civilian job finally with dramatically reduced hours from before his deployment while we continue to dig into our savings. We are current on our mortgage with B of A (ignoring the supervisor’s advice) and have been throughout the entire process. I am nearing the end of my unemployment benefits with little hope of finding a job in my occupation here and we are looking to move back near family (in another state) so that I have better chances of finding a job. My husband has security clearances with his civilian job and the National Guard which prevent us from considering a foreclosure. Which path would be best to start down first given our situation, a Deed in Lieu of Foreclosure or a Short Sale?
    0 Votes

    • 35x35
      Dec, 2010
      Bill
      The devil is in the details for short sale and deed-in-lieu-of-foreclosure contracts. Some short sale and DIL contracts are written in such a way that the impact on the homeowner's credit score is minimal. Other contracts stipulate that the bank will make a derogatory entry on the homeowner's credit report. Your spouse should talk with his commanding officer about your situation. I would be flabbergasted if the US military was not making some exceptions for its employees with security clearances who have, through no fault of their own, been caught up in the US mortgage mess and corresponding drop in housing prices.
      0 Votes

  • 35x35
    Dec, 2010
    rodrigo
    I've been trying to do a modification over two years on my home with first franklin,they gave me trial period 3 payments of $1756 and 3 payment $1356 because my escrow had a negative balance.I did what they wanted after 15months of starting this process,durng the last payment they asked for some paper work to sent to by 5.20.10 i fax it to them on 5.19.10 they cancel everything because for some reason the fax did not get to the modification dep on time ,i have the confermation and conferm they got to and that sup would take care of this.process has to star all over again and my loan was sold to another bank.IM affraid to much time has passed and not qualify for it so many months of not paying.what can i do the mod is being handle by a lawer my family and I are very worried
    0 Votes

    • 35x35
      Dec, 2010
      Bill
      What does your lawyer say? It sounds like you need to go up the chain of command with your lender, showing that you sent in your paperwork on time.
      0 Votes

  • 35x35
    Dec, 2010
    Julia
    Due to financial hardship, I have had my property listed for 18 months (short sale). During that time, I have had 5 contracts on the house. All of these buyers backed out due to the bank taking so long. It is maddening! I'm now attempting a "deed in lieu" and not sure what the future hold. If they would have accepted the original offer it would have been resolved for all of us 14 months ago and the offer was $45,000 higher. The house and yard are now declining, theives are stealing AC units, and I'm totally frustrated! Is there any recourse for the homeowner against the institution for their complacency?
    0 Votes

    • 35x35
      Dec, 2010
      I think you have an excellent argument for negligence on your bank's part. Consult with an attorney in your state who has experience in civil litigation. He or she will research your facts, and advise you accordingly.
      0 Votes

  • 35x35
    Dec, 2010
    Velma
    I have a mortagage on a townhouse 77,000,but now, it is worth only 15,000 on the sale market. I make payment like I suppose to. I will not mess with my credit to do a foreclosure. I would like to get out from under it. I need help on what to do.
    0 Votes

    • 35x35
      Dec, 2010
      If your highest priority is to do no harm to your credit score, then your best option is to sell the property for the market price and pay the deficiency balance (the balance of the loan minus the sales price) to the lender. The least-damaging option is to short sale or agree to a deed-in-lieu-of-foreclosure sale. The most damaging option is to allow a foreclosure.
      0 Votes

  • 35x35
    Dec, 2010
    Regina
    Bill, I recently got divorced in June 2010. I left my husband and the house three years ago, but I continued to pay the mortgage.I purchased another home in 2009. My ex-husband lost his job June 2010.The marital property was put on the market in June 2010 with only 2 showings to date.We have not paid a mortgage payment since Aug 2010. I received a foreclosure letter from the mortgage company attorney in Nov.2010.How will a short sale or deed in lieu affect my new property?
    0 Votes

    • 35x35
      Dec, 2010
      Regina: Please read the Bills.com resource Collections Advice to learn more about your rights and liabilities if the creditor forecloses and sues you to collect the deficiency balance. Please ask any follow-up questions you may have on that page.
      0 Votes

  • 35x35
    Nov, 2010
    Jen
    My husband and I bought a condo in California in 2005, and it is currently ~$100K underwater. We have 1st & 2nd mortgage loans, and (unfortunately) they were both refinanced. We tried twice to sell it, once in 2007 (5 months on the market), and now it has been listed since last Feb (10 months on the market so far). It is priced as low we can possibly afford to lose, but is still listed above market value. We moved out of the place 3 months ago and are currently renting, and haven’t been able to rent out or sell our condo. Even if we do find a renter, we will be losing ~$1000/month. We clearly do not want anything to do with this place, but are at a loss on what to do. Since we can afford payments & have some money in savings, we don’t think we qualify for loan modification/short-sale etc., and are afraid that if we let it foreclose, the banks will sue us for the difference. Are there any options that we are missing??
    0 Votes

    • 35x35
      Nov, 2010
      Bill
      Talk to your mortgage servicers, the companies you send your mortgage payments to, about a short sale. Each has different rules for short sales, and yours may not require you to be in dire straits. Alternatively, ask them about mortgage modifications.
      0 Votes

  • 35x35
    Nov, 2010
    lisa
    we are in a short sale process that hasnt been approved yet. Can we stop the short sale process and do a loan modification?
    0 Votes

    • 35x35
      Nov, 2010
      Bill
      The answer depends completely on where you are in the short sale process. If you accepted an offer from a buyer, my guess is no. If there are no pending offers, I see no reason why you could not withdraw from the short sale agreement and negotiate with the bank about a modification.
      0 Votes

  • 35x35
    Oct, 2010
    Amanda
    Bill- My husband is in the military and just got orders for us to relocate to Florida on Jan 1st. We currently live in Georgia and had our house up for sale for 6 months with no bites. Once we move in January we will not be able to make any payments on the house because we will have to use the money to live in our next place. We also do not qualify for HAP because we bought our home in 2008. I spoke with our Mortgage company today and they said we qualify for a short sale, however, they also told us we need to sale our home by January (when we can no longer make payments)in order to not affect our credit. I know it will not sale in the next 2 months. There are so many foreclosed homes in our neighborhood listed so cheap that have been on the market all year. We were told after 30 days of default (even a dollar short) we are sent to a creditor and after 90 days they start foreclosing proceedings. Do you think it would be better for us to try to do a deed in lieu of foreclosure since we will not be able to afford full mortgage payments while the house is trying to sale with a short sale? If we did that how bad would it (deed in lieu) affect my husbands credit? will it affect mine too if I am not on the loan? My husband has the type of job in the military that needs security clearance, would his credit be bad enough to lose this clearance? We just had twins and are in a extremely bad financial situation, do you know any other avenues other than renting? So many questions, sorry!
    0 Votes

    • 35x35
      Oct, 2010
      Bill
      I cannot answer the security clearance issue; that is a question for your spouse's commanding officer. I imagine the military must be making exceptions for people in your situation because of the tremendous drop in housing prices, stagnant home sales, and the wave of foreclosures. The damage to your spouse's credit report due to a foreclosure has nothing to do with character, responsibility, or trustworthiness and everything to do with the housing market and the reassignment to another base.

      If you can convince the mortgagee to accept a deed-in-lieu of foreclosure that would be a positive outcome. You have nothing to lose by asking. A deed-in-lieu of foreclosure has little if any effect on a credit score if the mortgage payments were current.
      0 Votes

  • 35x35
    Oct, 2010
    Karen
    For the past year I have been trying to get a loan mod with my lender Bank of America. I am about 8-9 months behind. I was recently served with foreclosure papers. No sale date. I live in Florida. I bought my home at 152,000 and is now worth about $90K, so yes we are upside down. The irony is I started the loan mod before I was late on any payments. It doesnt make sense to once again come up with a couple thousand for an attorney and then any pending moving costs or costs to become current on the loan. My questions: Would I initiate the offer of a short sale or DILF to my lender? Or is it better received from an attorney? Am I just as well off with not for profilt foreclosure mediators working the courts handling the case? Should I wait for answer on my loan mod? Aside from the looking for the paperwork, DO I ABSOLUTELY practically have to sell a bodily organ to pay for an attorney? Thx!
    0 Votes

    • 35x35
      Oct, 2010
      Bill
      Bills.com readers with whom I have corresponded have negotiated mortgage modifications on their own. It takes a willingness to disassociate one's emotions from the negotiations to be successful, which is difficult when you are arguing about your shelter. What I remind people negotiating debt is that this is nothing personal to the person on the other end of the telephone. This is business to them, and their only personal incentive is maybe a bonus if they make a quota at month's end. Otherwise, it is just numbers to them, and you should try to have the same mindset. Regarding the mediators, I have no experience with them, and consequently have no opinion of their effectiveness.
      0 Votes

  • 35x35
    Sep, 2010
    Bill
    Do not dismiss either a deed in lieu of foreclosure or short sale out of hand. You are assuming a deed in lieu of foreclosure or short sale will get you to the same place as a mortgage foreclosure. They may not depending upon the details of the contract you and the mortgagee negotiate. You may not have liability for the deficiency balance for a deed in lieu of foreclosure or short sale, and you almost certainly will with a foreclosure unless your state has an anti-deficiency law and your mortgages qualify. Pursue a a deed in lieu of foreclosure or short sale and learn whether the mortgagee will forgive the deficiency balance. If so, this is a far better option than foreclosure. You mentioned your credit score. The potential deficiency balance is a far larger concern than your credit score.
    0 Votes

  • 35x35
    Sep, 2010
    Jim
    I own a second home (previously main home) with a HELOC of $101,500, the home is now valued at around $65,000. We had been paying interest only at 3% ($250 per month). The line had a maturity date of June 20, 2010. The bank offered a 30yr mortgage at 9% ($900 per month) which I cannot afford. They then offered a 3yr extension at 6% ($500 per month interest only) which I cannot afford. Since the loan is in default, my previous excellent credit has been hurt. My options now are deed in lieu or foreclosure. Since my credit is already damaged and I have no intention of buying anything on credit, is there an advantage to the dil when I will owe the deficiency and have no control over the selling price of the home? I am very uncomfortable handing over the deed when the bank is going to unload it as quick and cheap as possible. It seems to me that a foreclosure would protect me better, and I have heard the dil hurts credit almost as much as foreclosure. Any thoughts would be appreciated.
    0 Votes

  • 35x35
    Sep, 2010
    Bill
    A first step to take, if the property is not moving by the time you find yourself unable to cover the mortgage and rent at your new location, is to speak to the mortgage holder. See if the mortgage holder will accept a lower price. If so, reduce your asking price. The fact that you first listed it at a higher price demonstrates that you did not rush to sell at any price you could, but were trying to get the bank as much as possible. Remember to be aware of any tax liabilities that may come your way. Once the home is no longer your primary residence, you may have forfeited your ability to get relief under federal law. I encourage you to read about the Mortgage Forgiveness Debt Relief Act of 2007.
    0 Votes

  • 35x35
    Sep, 2010
    Dave
    Hi Bill. Last month, my employer gave me the option to relocate to another state or look for a new job. My income is greater than my wife's income so we decided it would be best to relocate. We purchased our home only 4 years ago and have never missed a payment but the reality is such that the only way we will be able to sell our home is to short sell it. We got a realtor who is experienced with short sales and put the house on the market today for less than we paid. We have two mortages from the same company and are hopeful we will be able to find a buyer and reach agreement with the bank to short sell the house. My question is this: I have to report to my new work location at the beginning of the year. I plan to continue making my mortgage payments but if we are unable to sell by Dec I will be unable to pay rent AND my mortgage. What is the strategy then? Try to negotiate for deed in lieu? What if that doesn't work?
    0 Votes

  • 35x35
    Sep, 2010
    Bill
    It is common to see people use this method as a strategy, and there are cases where banks will accept a deed in lieu or a short sale when the borrower is financially capable of making the payments. However, every case is different so it would be advisable to speak with a representative of your mortgage bank and discuss this option with them.
    0 Votes

  • 35x35
    Aug, 2010
    Jim
    We have a home in Ohio with a mortgage of $175K. It's fair market value is somewhere around $100K. We can afford the payment and are not behind on the mortgage nor any other bills. We need to move within the next two years and the value of our property will certainly not recover within this time period. We have tried to sell our home for the past three years and have had no offers. Can we use a deed in lieu as a strategic default option even though we are financially capable of making the payments? Generally, will banks accept a deed in lieu when the borrower is financially capable of making the payment? Thanks.
    1 Votes

  • 35x35
    Aug, 2010
    Alan
    We have been ensnared for a full year battling BOA and Deutche Bank over a short sale proposal we have had ready to go and on the table for 12 months. The buyer has been financially qualified and accepted the FMV price set by the bank's own appraisers. In short, it has been and continues to be a disaster in progress due solely to the utter incompetence of the banks by hiding the identities of the bank's negotiators, constant lies about not receiving documents our attorneys and broker have sent them on 3 or 4 occasions, the bank agreeing to something then denying there was an agreement, and an endless list of denials, outright lies and the left hand not even knowing the right hand exists. I am surprised the buyer we have is still on board. My message is simple: Countrywide/BOA/Deutsche Bank are so inept and dumb that they would rather foreclose and get back property rather than letting us do all the work and accept a reasonable short sale! I may join the multitude of class action lawsuits against these banks based on the successes borrowers are having in court. ANYONE ELSE HAVING THESE ISSUES?
    0 Votes

  • 35x35
    Aug, 2010
    Bill
    Talk to an attorney in your state about your rights and liabilities, and whether you qualify for bankruptcy. If you do, take careful notes of what the attorney tells you regarding what will happen to the mortgage and deficiency balance on the mobile home if you file for Chapter 7 or Chapter 13. Call the mortgage company for the mobile home. Get someone on the phone with authority. Explain what the attorney told you should you decide to file for Chapter 7 or Chapter 13. Be non-emotional and business-like, and tell them their behavior will dictate your decision: short sale or bankruptcy. If the mortgage company is stupid or evil, they will tell you to go ahead and file for bankruptcy. However, if they are smart and believe you that you are willing to take bankruptcy as an option, they will relent and negotiate a short sale where you will not need to pay the deficiency balance. I realize that foreclosure and bankruptcy are frightening subjects that push emotional buttons in most consumers. You need need to work though that and realize this is a business decision to the mobile home mortgage company (it is not personal to the people at that company at all), and a financial decision for you.
    0 Votes

  • 35x35
    Aug, 2010
    Nicole
    4 years ago my family and I had to move (bunch of reasons). We bought a house thinking someone would by our mobile home. Well we were sure wrong about that! It's been listed the entire time but we owe way more than it's worth and my mortgage company just won't budge. The mortgage is killing us financially, I don't know what to do.
    0 Votes

  • 35x35
    Aug, 2010
    Bill
    Two months is no time at all for short sales. If you can convince the bank to move to a deed-in-lieu-of-foreclosure now then you will have less legal liability if you default on payments.
    0 Votes

  • 35x35
    Jul, 2010
    Shantell
    Hello, My home has been on the market in West Tennessee for three years and in Short Sale for 18 months. How long should I keep my home in short sale status before I request to change to a Deed in Lieu? They have been negotiating the sale price of the house for two months. I'm trying to remain current on my house notes, but it's hard because I've moved to another state for a job and I can't afford another house until this one is sales. What should I do?
    0 Votes

  • 35x35
    Jul, 2010
    Jack
    I contacted greentree and told them that I want to turn the condo back to thenm using deed in lieu. They service the loan for fannie mae. They said i do not qualify since I am current on my payment, WHAT???????. How can I verify that this is true.
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    Other Bills.com readers have reported similar policies by loan servicers. The unfortunate downside to this is that homeowners who do so harm their credit score when they default on their payments. Speak to another customer service representative and ask the same questions. Ask if they can send you that policy via e-mail or fax. Do not expect them to, however, but it is worth asking.
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    Wells Fargo participates in the voluntary Home Affordable Foreclosure Alternatives Program, which sets for guidelines banks must follow when negotiating short sales. Under the rules, the proposed payments you described are not allowed. However, there seems to be no oversight to determine if the banks are following HAFA's guidelines or if there are consequences for their failure to do so. (There seem to be none.) Your Wells Fargo negotiator does not care if the seller, buyer, real estate agent, or man on the moon pays the arbitrary amount of funds he or she invented. It is all negotiable. Unfortunately, if the Wells Fargo negotiator does not feel like negotiating then you are out of luck and the deal will not be approved.

    Regarding credit score impact, foreclosure is very bad and if you can avoid it do so. Short sale will have a moderate to minimal impact depending on whether you defaulted on your mortgage payments.
    0 Votes

  • 35x35
    Jul, 2010
    Betsy
    My soon-to-be ex-husband and I have two loans on our house 1 at 500k and the other at 126k both with the same bank (Wells). The house is underwater and my husband and I are separated. We are short selling the property and received an offer for 460k on the property which the bank has accepted for both loans. The stipulation is that they want a good faith payment from us of 8k for the big loan and 10k for the smaller loan. Our realtor is trying to see if the bank will allow the buyer to help us pay this. Questions - can we negotiate this amount down with the bank? is this common that the bank asks for a 'good faith payment'? why can't we have the buyers pay for this amount if they are willing to? We'd like to get this over with and move on but 18k is a lot of money and what happens if we can't/don't pay it? What is the impact of a foreclosure vs. short sale on our credit records? Thanks!
    0 Votes

  • 35x35
    Jul, 2010
    Richard
    How long are my credits scores going to be negatively effected from doing a short sale as opposed to a deed in lieu of foreclosure or bankruptcy or actual foreclosure. I've heard that a bankruptcy can stay on your credit report up to ten years and that a foreclosure is only seven. Is this true?
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    Depends on the facts in your situation. Did you default before the short sale took place? If so, the default will appear on your credit report and degrade your score. If you were current in your mortgage payments and not late, a short sale will have a negligible impact on your credit score. Bankruptcy will appear for 10 years, and most other derogatory entries will appear on a credit report for seven years.
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    I am surprised and disappointed in your attorney's response. Once you sign the deed-in-lieu, the mortgagee is responsible for the property because it has taken title to the property. In a short sale contract, the title remains in the homeowner's name until a sale is complete. Therefore, in your situation, a deed-in-lieu is your Plan A. Plan B is a short sale. Plan C is foreclosure. Regarding liability, if you are offered Plan A or Plan B, take the contract to your attorney and ask him or her to advise you regarding your rights and liabilities under the contract. The devil is in the details, and it is impossible for anyone who has not read the contract you are offered to know its terms and conditions.
    0 Votes

  • 35x35
    Jul, 2010
    Fran
    Bill, I have a question and hope you can help. We filed a Chapter 7 bankruptcy (discharged last year). We are working with the bank to return property discharged (a home, not primary residence). They told us we had to list the property with a realtor for 90 days before we could return it. The bank has now sent us paperwork for a deed in lieu of foreclosure (warranty deed, lien affidavit, Estoppel affidavit). There were no liens on the property at the time of the bankruptcy. Since the bankruptcy the insurance lapsed and the bank instated a policy. This isn't covered in the deed in lieu paperwork-are we liable for this? Also, the realtor we listed with contacted us to say the bank has been working with her on a short-sale. We can't get any info from the bank on this. I just don't know which way to go. What is better-foreclosure, deed in lieu of, or short sale? Can any of these impact our bankruptcy and make us liable for anything? What about our credit score and rebuilding it? Our bankruptcy attorney told us they don't handle this and haven't been much help. BTW, the house is vacant; part of the reason we lost it is the rentors ran out on us without paying and we lost our jobs. I hope you can give me some guidance. Thank you!!!!
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    Alyssa: Consider either a deed in lieu of foreclosure or a short sale. Both are good choices if the alternative is foreclosure.
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    Naomi: Neither HAMP nor HAFA apply because you do not reside in the residence. However, that does not mean your mortgage servicer will not consider a deed in lieu of foreclosure or a short sale. Call now and discuss your options. Consult with an attorney about the purchase in 2004. Ask about your state's statute of limitations regarding fraud.
    0 Votes

  • 35x35
    Jul, 2010
    Naomi
    Hi - My boyfriend and I purchased a home together in 2004, he managed all the paperwork as he was a mortgage broker. Shortly thereafter he left me and I found out that my name was on the loan, and he had stolen 40k worth of equity in the sale. I was unable to keep up on the mortgage payments on my own so I moved to my mom's house and have been renting the property for the last six years hoping the market would turn around and I could recover my equity (fortunately the neighborhood is developing nicely). Unfortunately after the 2008 crash the value of the house is still well below what I owe. I have a good tenant in there now, but due to rental values they only pay $975 of my $1300 mortgage, and then I'm responsible for water and all repairs, which have been costly. The house is consuming a great deal of my income, to the point where I can't move on with my life, and I'm losing hope that the market will ever be good enough to sell it for more than I owe. Is it possible for me to ask the bank to restructure the loan due to hardships, even though I don't live there anymore? Would I qualify for a short sale as a landlord? Should I just keep hanging in there and hope for a full market recovery?
    0 Votes

  • 35x35
    Jul, 2010
    Alyssa
    Bill, We bought our first home in central Washington 5 years ago. We've had it listed with 4 different realtors since Sept. 2008. We have had no offers on it. We have not lived in the home for over a year due to relocation of jobs over an hours commute from the residence. I have been timely on our mortgage payments but have recently considered deed in lieu? We are not set to make any money on the sale, if we can sale. It is listed just a bit over what we owe. Do you think deed-in-lieu is a course we should consider?
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    Emerson: I wish I had an insightful, helpful response. Bank of America's Equator system is supposed to help the bank handle short sales efficiently. Unfortunately, it appears there is no such system in place to handle mortgage modifications. Keep all of your records and notes regarding your efforts to contact Bank of America, and the results of each contact. One last thought: Write a one-page summary of your efforts to date regarding your failed attempts to contact Bank of America. Send that letter to the senior executive of Bank of America's mortgage division. This may or may not result in any immediate satisfaction for you. However, if there is ever a class-action lawsuit against Bank of America regarding possible negligence in handling mortgage modifications, you will have helped create an evidence trail that establishes Bank of America's senior executives knew of unresolved problems in the mortgage division that caused economic harm to consumers and mortgage investors.
    1 Votes

  • 35x35
    Jul, 2010
    Bill
    Cory: When it comes to short sales and deeds in lieu of foreclosures, assume nothing. Ask your mortgagee about its deed in lieu of foreclosure policies. Discuss your options with an attorney in your state of residence before defaulting on the Las Vegas properties. Make contingency plans now in the event one or both pursue deficiency balances later.
    0 Votes

  • 35x35
    Jul, 2010
    Cory
    We have two investor type condos in Las Vegas that are at least $100K deficient. We tried to short sale but the lendor will not forgive the deficiency. What options do we have left? It sounds like from your writeup that they probably won't forgive with a Deed-in-lieu either. Should we just foreclose or hope they don't try to collect the deficiency?
    0 Votes

  • 35x35
    Jul, 2010
    Emerson
    Hello....I live in Georgia and I have a mortgage with BOA (bought from Countrywide) for $ 250k with a monthly payment of $ 2,350 over 15 years. I am now 7 months delinquent on my payments and I have applied for the Making Home Affordable program. I submitted all of my docs to BOA on April 22nd. I have received no written correspondence from them regarding my situation. I have called many, many times and have never been able to speak with the consultant assigned to my case. Each time I have spoken with a customer service rep and they told me that I was rejected for that program, but I was being considered for other loan modification programs. I have asked BOA to modify my mortgage to a 30-year term and to add the delinquent payments to the end of my note. I even met with a credit counselor and he called BOA and proposed the same option....still no response from BOA. The home is currently valued at $ 235K and has no liens against it. I have not put the house on the market, becuase I want to keep it if possible. Unless I can get a loan modification from BOA, I will be forced into foreclosure and have to file for bankruptcy. After hearing others complain about BOA's record regarding short sale options, I feel that I have no option but foreclosure. There are 4 other homes in my neighborhood that have been on the market for almost a year with no offers yet. Any advice would be greatly appreciated.
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    With the understanding that we are still in the Wild West era of handling short sales and deeds in lieu of foreclosure, what seems to be common is that the homeowner will approach the senior first and get a tentative agreement to allow a short sale or deed in lieu. The homeowner will then approach the junior and explain the situation, submit the same information the senior asked for. It is common for the junior to agree if the senior is already aboard. That is the easy part.

    The hard part is getting the junior and senior to agree to a sale's terms. Both want to represent their investors interests vigorously. Oddly enough, the junior is oftentimes the reluctant party when closing a sale.
    0 Votes

  • 35x35
    Jul, 2010
    Ron
    In the case of a Short Sale or a Deed in Lieu, how is a second trust handled?
    0 Votes

  • 35x35
    Jun, 2010
    Bill
    Just because the mortgage insurance company wants $10,000 in cash and you to carry a note does not mean that is their last and final offer. You are in a negotiation. Negotiate. Explain that your other option is bankruptcy, in which the creditor will likely receive $0. If they refuse to be reasonable then you have no option but to consult with an attorney and explore Chapter 7 and 13.
    0 Votes

  • 35x35
    Jun, 2010
    Tonya
    Received a modification Feb 2009 after making 3 payments I was told the modification was denied. I re-applied for a modification never heard anything and in April of 2010 started the short sale asking for $245,000. Received an offer on May 7th for $255,000 and 1 week later the bank gave their approval. Then yesterday I was notified that the mortgage insurance wants $10,000 in cash and for me to carry a note for $15,000. This was a rental and the tenants stopped paying rent last year however I am so strapped I couldn’t evict but they did just moved out. So now, do I try for a modification on the rental or a deed in lieu or let them foreclose and file a chapter 7 to keep my primary home? Trying to understand the impact????
    0 Votes

  • 35x35
    Jun, 2010
    Bill
    Consult with an attorney in your state who has experience in probate or property issues. I would be curious to know exactly how your property is titled and how that affects your rights under your state's laws. Also unknown to me is if your father retains ownership interest. The answers to these questions will determine if you have the right to enter a short sale contract or a deed in lieu of foreclosure given your incomplete ownership interest.
    0 Votes

  • 35x35
    Jun, 2010
    Kristie
    Hi Bill, I currently am late on my mortgage payments by less than 2 months. My payment went up when back taxes were paid by my lender and then spread out over 12 months in an Escrow account which is at a negative balance at current. There is only a $47,000 balance on my mortgage and my home would get likely close to $80,000 if not more. The problem is, when my mother died, my dad transferred it to me and I thought I owned it outright until I tried to re-finance and the title company said it still has my mother's estate listed as co-owner. They were divorced (amicable)but my father was kept on the title in the event my mom wanted to sale the house then they would share in the sale. Now she died almost 6 yrs ago and I got my mortgage a year or so after she had died (why they didn't pick up on the title issue I don't know). So refinancing is not an option. At this point, I don't have thousands of $$ to go through a probate process considering I am having a hard time making my mortgage payments. Is it even possible to do a deed in lieu of foreclosure or short sale with my mother's estate having a third ownership? The house needs a lot of work and at this point walking away from it is more desirable. Please any information would be grateful!
    0 Votes

  • 35x35
    Jun, 2010
    Bill
    A deed in lieu of foreclosure or a short sale are your best options. Reread the article above for a discussion of these two options.
    0 Votes

  • 35x35
    Jun, 2010
    Ryan
    I am currently living in a townhouse in which I owe 195,000 and they are selling for about 160,000 because my builder went bankrupt and the neighborhood is undeveloped. I just found out my wife is pregnant and my mother has moved in with me because of her recent loss. We are planning on using my wife and mothers credit to purchase a house big enough for our growing family. What options do I have to get out of my mortgage on my townhouse?
    0 Votes

  • 35x35
    Jun, 2010
    Bill
    Foreclosure is not your best option if short sale or deed in lieu of foreclosure are available. Work with Bank of America on those two options before giving up and allowing a foreclosure.
    0 Votes

  • 35x35
    Jun, 2010
    samica
    Hey Bill, I live in Detroit Michigan and have been trying to get a mod for my home loan since Sept. 2009. My loan amount is 85k. I made trail payment from Sept 2009. until March 2010 and made all payments on time. In April I received my mod paperwork but the bank (Bank of America) did not try the making home affordable mod that was asked for instead the bank put me in a in-house mod and based on my income I am eligible for the making home affordable mod. My mortgage was with Country Wide before Bank of America bought them out. My payments would have been $465 not including delinquent taxes that was paid plus taxes and insurance. After all this was added my mortgage is 1,995 which I can not afford my husband lost his good paying job and I work part-time. We refused the mod and is attempting to start the mod procedures all over again. I am so frustrated and do not know what to do, should I do a deed in lieu or a short sale or just let the house go in foreclosure. I have not made a payment in 2mth so I need to figure out what to do fast. I also have a non-profit working with me but is still getting the run around.
    0 Votes

  • 35x35
    Jun, 2010
    Bill
    See the Bills.com resource Qualify for Mortgage to learn if your spouse alone will qualify for a mortgage.
    0 Votes

  • 35x35
    May, 2010
    Bill
    Amy: Reread my original answer above to understand two of your options. Also, read Home Affordable Foreclosure Alternatives Program and ask your mortgage servicer (the bank holding your mortgage) if it participates in HAFA.
    0 Votes

  • 35x35
    May, 2010
    Amy
    Bill, I purchased my home in 2007 for 139,900 with my finace, however we all know it is not worth near what I bought it for. In 2009 my fiance left me and the home behind. When I purchased the house, the loan officer advised us it would be best to do 100% financing and pay interest only for 5 years. Due to my finace leaving and having to pay all of the bills myself, I am ready to simply leave my home behind. I have paid my mortgage on time and in full every month until now and I have fallen $300.00 behind. I just dont even want the home anymore and I do not want to be placed in a position where I will have to pay my lender an extreme amount of money because I do not have any money saved up due to the fact I literally work to pay my bills. I am just looking for guidance as to where to go to just relieve myself of this burden.
    0 Votes

  • 35x35
    May, 2010
    Bill
    Loretta: Reread my original answer above to understand the legal distinction between your choices. Then listen to the counsel of your attorney and act accordingly.
    0 Votes

  • 35x35
    May, 2010
    Bill
    Greg: You will most likely not see any change to your credit score due to a deed in lieu of foreclosure. Same can be said for a short sale.
    0 Votes

  • 35x35
    May, 2010
    Bill
    Clayton: You may no longer be personally liable for the mortgage, but the bank still needs to foreclose to repossess the property. Consult with your bankruptcy attorney before you take any actions, such as signing any documents the bank may send you.
    0 Votes

  • 35x35
    May, 2010
    Loretta
    I have been out of work since May, 2008 and can no longer afford my home. The banks have been fighting over who holds the mortgage. I trying to make a decision on whether to accept a deed in lieu or to try to do a short sale. Either way, one or the other must be done. The house has not gone into foreclosure as yet because I've been trying to get a modification, but since I cannot find employment, at this point a modification is not possible. My lawyer is suggesting the "deed in lieu" and I'm thinking I should go along with that since I will not have any other means of support in order to keep the home.
    0 Votes

  • 35x35
    May, 2010
    Greg
    Question: I have a rental property that I am thinking of taking a deed in lieu on. I also own a primary residence that I am current with on the payments. If I take the deed on the rental, but stay current on the primary (which I have been and will), how will my credit be affected? I know I will still take a hit, but will it help me get back on track any sooner since I am current on my primary residence? I currently have a credit score above 700 but don't know how bad the DIL will affect me. Any input is appreciated.
    0 Votes

  • 35x35
    May, 2010
    Clayton
    My wife and I were granted Chapter 7 in January for this year. We included our house in the bankruptcy and moved out over a year ago. We are now getting certified mail stating that the leader is going to start forecloser. Aren't we cleared from the debt with the Chapter 7? Is a Deed in Lieu something we should pursue even now?
    0 Votes

  • 35x35
    May, 2010
    Bill
    I cannot speak for Citi, obviously. Citi is just the servicer and has a fiduciary responsibility to the investor in the first mortgage and the investor of the second mortgage. The key unknown is whether the first and second are owned by different investors. Will Citi allow the investor who own the paper for the second mortgage have an advantage over the investor who own the first? Absolutely not if the investors are different parties. For that reason Citi would never allow the second to foreclose without the first foreclosing too. However, if the same investor owns your first and second mortgage then it does not matter which forecloses. What are the chances that one investor owns both of your mortgages? I have no idea. I think the chances are slim, but that is a guess and nothing more. Regarding your second question, yes, the mortgage holder can foreclose if you are not current on your payments. Regarding your third question, that is likely but not certain.
    0 Votes

  • 35x35
    May, 2010
    Ron
    We own a primary residence in Scottsdale AZ. Balance is $341k on the 1st and $248k on the 2nd. The home is worth around $400k. We are 45 days late on our 1st, and 60 days late on the 2nd. The 1st is with CITIMORTGAGE and the 2nd is with CITIBANK....however is now serviced by another company, since we missed payments in the last year. We have recently been offered a settlement on the 2nd, to close it out, for $40k, so we put it process, with a family loan. 30 days into it, it looks like we can't come up with the $40k, and now CITIBANK is saying if we DON'T come up with the $40k settlement as planned, they (the 2nd) will foreclose on our home, even though the first in in pretty good standing. In addition to the $341k and $248k loans, we have a $30k 3rd, and a $20k 4th, and a $9k 5th. We are SO upside down. Do you think CITIBANK is trying to scare us on the 2nd foreclosure comment, or can they really do that, if we are still making payments to them? Also......is it possible they may take a LOWER settlement offer in the future ? Thanks so much. Ron / AZ
    0 Votes

  • 35x35
    May, 2010
    Brian
    Hi Bill! Brian again. I spoke with the loan manager at the bank and she is not familiar with HAFA! Also, she says to qualify for any of their programs I need to have had a "hardship," such as losing my job (which I have not - my only hardship is my naivety for agreeing to this loan to begin with). Also, I looked at HAFA and it says that it is available to "all HAMP-elegible borrowers..." and requirement #1 for being HAMP-eligible is that the "Borrower is delinquent on their mortgage or faces imminent risk of default." This would be contrary to what you said about staying current on my payments. Unless I'm reading this wrong, it sounds like my best bet is STOP paying my mortgage, and then I magically become eligible for HAMP and HAFA. And what's with the bank not knowing about HAFA? Thank you so much for your help!
    0 Votes

  • 35x35
    May, 2010
    Bill
    HAFA is voluntary, and not all mortgage loan servicers are involved in the program. I am surprised that your loan officer was unaware of HAFA -- it is a significant program that offers benefits to all parties to a short sale or deed in lieu of foreclosure. Let us assume a mortgage servicer is not in HAFA. If so, it has its own rules for short sales. In this case, the homeowner's best bet is to learn if he or she qualifies according to the servicer's rules, and act accordingly.
    0 Votes

  • 35x35
    May, 2010
    Bill
    1) Check out HAFA. Call your bank and ask if your loan and bank qualify for HAFA. 2) Yes, especially if your bank requires short-sale participants to be current in their payments. 3) Provide full and complete disclosures -- incomplete documentation gives banks an excuse to deny short-sale and deed in lieu of foreclosure applications.
    0 Votes

  • 35x35
    May, 2010
    Brian
    Hello Bill! I live in Maryland, bought my home in 2007 for $196K, I owe $171K, and Zillow says it is worth $143K and continuing to fall. I CAN afford the payments, but not well enough that it allows me to create any kind of savings, and also I could rent a similar place for about 40% less than what I'm paying to own. I have looked into government refinancing programs and I am not eligible. So I just want to get out and be rid of this horrible "investment." My questions are: 1) Where should I begin? Should I call the bank and ask if they will accept a short sale, or do I first need to get a RE agent, list the property, and get an offer? 2) Should I even bother to keep paying the mortgage in the meantime? 3) Is there anything I can do to convince the bank to accept a short sale, and thus forgive the deficiency? Thank you!
    0 Votes

  • 35x35
    May, 2010
    Bill
    Thank you for your service to our country.

    It does not surprise me to hear that a short sale or deed in lieu of foreclosure will have little if any impact on your security clearance because both are settlement agreements that are outside of the court system. The U.S. Department of Veterans Affairs Loan Guaranty Home Loan Program Web site offers two documents that may help you get started with either a short sale or deed in lieu of foreclosure. See the VA document Veteran Borrowers in Delinquency: Quick Reference Sheet, and VA Making Home Affordable Program. To gain an understanding of what banks can do for you, skim the VA document Servicer Loss Mitigation Program, which describes the steps that banks with VA loans must take in a short sale or deed in lieu of foreclosure.
    0 Votes

  • 35x35
    May, 2010
    Misty
    Bill, My husband and I are in the United States Air Force. We bought a house near Eglin AFB Florida in April 2007. We used Countrywide bank and got caught up in the transfer to Bank of America (which has been nothing but problems ever since). We paid $230,000 for our home which was worth $260,000 at the time. We thought we go a great deal! My house is worth about $180,000 now, since the market dropped so low. We put the house back on the market in February 2009, because we knew we would soon get orders to move. My house never sold, and last week we got orders. I have 2 months to get my house sold/or something else done. I can’t rent my house in this area for the amount that our payment is, and even if we could, this is a military town and people can get out of a lease with the soldier and sailors act. We live pay check to pay check and simply can’t make two payments, not even for a month. We do not qualify for the Military HAP program, the cut off for that would have been July 2006. We do not qualify for the new bill (Making home Affordable) because we have a VA loan. I tried to do a deed in Lieu or a short sale but the bank tells me I need to be 31 days late on my bank note. I get transferred from person to person and can get no help at all. Foreclosure is not an option for us; we have a top secret security clearance, and will lose it if we foreclose. However, my leadership tells me that we could do the deed in lieu or a short sale and it not hurt us. Is there any way around the 31 day late payment policy? Or do you have a better suggestion on what we should do?
    0 Votes

  • 35x35
    May, 2010
    Bill
    You have a hot prospect who wants to buy your home now in a short sale. I think you are asking if it would be wise to abandon the short sale tactic and ask one or both of your mortgagees to accept a deed in lieu of foreclosure. I must be missing some crucial facts, because I do not follow your reasoning. I suggest you consult with your bankruptcy attorney about your idea to pursue a deed in lieu of foreclosure at this point. He or she has a much better understanding of your financial picture, and will be able to ask probing questions about your idea.
    0 Votes

  • 35x35
    May, 2010
    Todd
    We declared Chap 7 Bankruptcy in July 09. Both 1st and 2nd mortgages were included. As of May 10 2010 mortgage 1 is out of bankruptcy and now in foreclosure. Mortgage 2 is still in bankruptcy. We were sent a deed in liew letter while we are pursuing a short sale to restore credit. We currently have cash short sale offer ($100K less than owed). We are not sure if the deed in liew is possible, but with a short sale pending, which way do we go? It would be nice to get some "next home" money to walk with the deed in liew, but not sure what tax or credit impact there would be. PLEASE help. THANKS
    0 Votes

  • 35x35
    May, 2010
    Bill
    We are in the Wild West era regarding short sales. HAFA is supposed to bring order to the short sale chaos and eliminate questions such as yours. Is your bank in the HAFA program? If so, it may not charge you the fees you described. If not, then this is a negotiable item.
    0 Votes

  • 35x35
    May, 2010
    Stuart
    We are currently in pre-foreclosure in the process of signing a short sale listing agreement. In there it states that the Sellers (us) are responsbile for paying the broker fees. Is that something that comes out of the proceeds of the short sale before the lender gets paid or does that come out of the sellers pocket? The broker that is working on this for us says that he just closed on a short sale where the owners owed $190k on their home, short saled it for $70k (deficiency bal would be $111k). The lender made them pay back $5k over a period of 5 years w/no interest. Do you think that $5k was what was paid to the broker out of the short sale proceeds so the lender just turned around and charged the sellers for that? Is that possible? We are just wondering what makes the lender decide how much of the defiency balance they will come after us for....
    0 Votes

  • 35x35
    May, 2010
    Bill
    A short sale is a good option for you. See the Bills.com resource Home Affordable Foreclosure Alternatives Program to learn about your options for short sale and deed in lieu of foreclosure.
    0 Votes

  • 35x35
    May, 2010
    Alexander
    Bill, My wife and I own (are paying a mortgage) on a house in Charlotte, NC. We lives in NC from June 09 to December 09 and bought a house with the intent on continuing to live in Charlotte. I resigned my salary job and picked up full time freelance work for the same company but after two weeks they decided to let me go. My wife had since moved back to MD (where we lived prior to NC) and started work for the same company she worked for prior to the move. I got the house cleaned up and moved back to MD where I too got a job. Now we live with my in-laws while paying $1700 per month on a house we don't live in. We can certainly afford to pay this as long as we don't plan to ever move out of the room my wife grew up in. We have one 20 month old and another on the way but this mortgage payment is killing us. The house is on the market and their is a home manager looking at it but we need other options as well. Is the deed in lieu of an option for us?
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    The response you received from the mortgage insurance company is absurd, and would have pleased Franz Kafka. How is a customer supposed to receive an approval from the mortgage insurance company if the mortgage insurance company does not tell its customers how to get an approval? Please report the name of the insurance company here so that we can explore this Kafkaesque situation further.
    0 Votes

  • 35x35
    Apr, 2010
    Tina
    I just recently listed my property for sale (house is in CO). I contacted lender to request approval for a short sale. They said if the house does not sale within 90 days to contact them to submit a request for a Deed in Lieu. However, there is a mortgage insurance company involved and am being told that the short sale or Deed in Lieu would require 2 approvals (from the lender and the mortgage ins co) and there is no way to contact anyone at the mortgage company for information on terms. Any advice you could give me on this?
    0 Votes

  • 35x35
    Apr, 2010
    Kevin
    Thank you for your reply. It confirms what I was already thinking but it is good to hear it from someone with knowledge of the industry. Thanks, Kevin Partridge
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    Zach: The executor or administrator of the estate needs to, with the consultation and advice of an attorney in the decedent's state of residence, send certified letters to the mortgage holders alerting them to the fact that the debtor has deceased. Without going into significant detail, explain that the estate lacks assets to satisfy the claims against it, and that you seek instruction on the orderly surrender of the property they have an interest in.
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    Kevin: This is not your problem, or it should not be if you buy the property from the mortgage holders and the title is delivered without encumbrances (i.e., liens, mortgages, or other claims). If you buy the property with one or more of the claims still on the title you are really buying a lawsuit, which I would not recommend. Regarding your question, I have been unable to discern a pattern to which debtors have been hit with deficiency-judgments. My guess -- note that word choice -- is that each servicer has their own policies. The chances of a lawsuit are higher for a defendant with assets or a high-paying job. That is how I would advise a loan servicer if they consulted with me on who to sue.
    0 Votes

  • 35x35
    Apr, 2010
    Zach
    Recently father in law passed and has two homes both underwater one on florida in foreclosure (has 1st and 2nd)and primary in Michigan (has 1st and 2nd) not far behind. The estate basically has no assets or cash to contimue to maintain homes. I am working with attorney on estate, but there is possible short sale on home available in florida as foreclosure process was never finalized. I am being asked to be personal representative and issue of 1009C doesn't matter as no Funds to pay any future tax burden. If there is no funds, no worries about credit rating, do you just call the bank and say come get the keys? Due to the houses we can not file a small estate and are looking to get an Unsupervised estate. Property axes, association fees, utilities all close to shut off and mortgage payments not paid for months. There is literally nothing as he was living off savings and 401K income as not worked for last two years. It is a rough time for my wife and her siblings and now we are just trying to clean up the mess.
    0 Votes

  • 35x35
    Apr, 2010
    Kevin
    We hav been attempting to buy a short sale since last October. The seller has a first and second mortgage with Chase. We live in, and the house is in Fl. The seller has moved to Iowa. She was making payments until last October. We signed the first contract at that time. The problem is that she does not want to be responsible for the deficiency. We have been told, but don't know, that the second has been "taken care of". However, it looks like Chase either is willing to forgive the deficiency at this time but is not giving up the right to try and recover at a later date. Or they are just trying to get her to take responsibility for it now. From reading the previous posts (great web site by the way) I assume, if they want it now, she would have to pay the deficiency at closing. She has hired an attorney to try to get her out of this. She owes about $50K between what we are offering and what she owes. I don't know what her financial situation is but she holds a very well paying job. My question is based on what you know of the climate in the current short sale market what are the odds she will have the deficiency forgiven or significantly reduced?
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    Contact your loan servicer -- the bank holding your mortgage or deed in trust. The loan servicer may for whatever reasons want to put you into a deed in lieu of foreclosure instead of a short sale or vice-versa. I cannot speak for your loan servicer. The policies for your loan servicer using a deed in lieu or short sale are not probably not published, and most likely vary by the state the property is in (the jurisdiction) and the circumstances of the loan. The point I tried to make above is that the distinction between the two approaches is technical, and what homeowners in this situation need to do is focus on the result. Since both approaches get homeowners to the same place, neither is superior to the other.
    0 Votes

  • 35x35
    Apr, 2010
    Ashley
    My apologies- I worded that wrong. I am very aware of what a deficiency judgement is. I meant to say that if they ended up waiving the deficiency judgement, then I wouldnt be worried due to being covered under the MFDR Act. In addition, being that e havent even had the house on the market at all (which seems to be a requirement for the DIL) should we just bypass and shoot for a short sale or start with the DIL and if they decline then shoot for short sale. It is to my understanding that etting up a short sale will not delay the process of a foreclosure. I am trying to figure out which option would be suitable for our situation to go for. Thanks for your assistance. Your website is geeat.
    0 Votes

  • 35x35
    Apr, 2010
    Ashley
    Bills- We purchased our FL home in 2007, our mortgage increased from $1250/mo to $1500/mo. due to changes in property taxes. As of Febuary 2009, my hours got reduced at work. As of February 2010, my husband got laid off. We are now living on one reduced income supporting a family of 5. I attempted to be proactive and call our lender to tell them we could afford to pay and she told me they would help us with a loan mod until we were 3 months delinquent. We stopped paying mortgage in Sept 2009 and never called back to do a loan mod. We would like to willingly give up the home as we will not be able to afford it any other way. We were served our summons on 3/29/10 and have 20 days to respond. We plan to not respond since we are not fighting them to stay in the home, we just want to give it back. Could we send in a letter of hardship and suggest a deed in lieu of foreclosure even though we havent put in on the market yet? Our plan was to shoot for the DIL and if they didnt accept, try a short sale. Would that be smart? We bought the home for $175k, we owe $161k and the current market value on the home is $55k-$80k. We do not have any liens of the property. We do have a second mortgage, but it was for $10k down payment assistance that we are paying back and it is thru the same lender as our first mortgage. Not sure if that matters. I am not so worried about receiving a deficiency judgment as we should be covered under the Mortgage Forgiveness Debt Relief Act since we purchased in 2007. We don’t own any other properties either. I am not sure which option is best for us at this point, Deed in Lieu or Short Sale.
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    A deed in lieu of foreclosure or short sale is preferable to a foreclosure. As the article above explains, both get the homeowner to the same place but vary in the details. If you can convince the lender to do either as opposed to a foreclosure, that will result in a win for both parties. Regarding the deficiency, watch for language in either a deed in lieu of foreclosure or short sale that gives you liability for the deficiency balance. This is a negotiable item.

    I want to correct your misunderstanding of the Mortgage Forgiveness Debt Relief Act. It does not forgive the deficiency balance on a mortgage. It does forgive any debt income realized from a mortgage forgiveness. See the Bills.com article cited above for more information.
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    Your question is devoid of facts regarding the balance of the mortgage(s), the value of the property, if your income is high enough to support a modified loan, your debt-to-income ratio, and credit score. The answer to your question will be found in the numbers.
    0 Votes

  • 35x35
    Apr, 2010
    kristen
    Hi Bill..I have been currently trying to modify the loan on my home. My husband abandonded me 2 years ago, and I have been struggling to keep my home. After plenty of run around from my mortgage company, I learned through them that my husband had filed for bankruptcy, and they have put my loan mod on hold due to this. The home is underwater, and I cannot refinance to remove his name from the loan, and I do not want to walk away from the property. do I have any options?
    0 Votes

  • 35x35
    Apr, 2010
    deed
    thanx for article.
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    A senior mortgage holder may not want to enter into a deed in lieu of foreclosure when there is a junior mortgage on the property because the senior assumes liability for the junior mortgage. A senior mortgage holder may agree to a short sale where the mortgagor (i.e., you, the debtor) have liability for the deficiency balance if the property is sold for less than the total amount of the two mortgages.
    0 Votes

  • 35x35
    Apr, 2010
    Michael
    My loan servicer, GMAC was very vague about how I can request Deed in Lieu other than mentioning the 90days on the market; my situation is not good about 60days behind; two requests have been sent since Dec for loan mod; the first disqualified at not quite the 31% needed because they dont count the second mortgage (taken to avoid PMI- one of many mistakes I made) the second got a 25 dollar reduction for two months as a trial but little help now that I have sold all my posessions to keep me afloat for the last 2 years. My question is I have a second mortgage and primary, no modifications helpful, only secured debt and short by $700-900/mnth How is a Deed in Lieu going to work if I have a second mortgage? Is that a chapter 13 or 7 after to erase the second? or is it included with the prinicpal?
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    Jake: Run the numbers for both. From a credit score perspective, a deed in lieu of foreclosure is a far, far superior outcome than a foreclosure. If your credit card debt is significant, then a bankruptcy will wipe out the deficiency and the credit card debt in one fell swoop. Again, your answer can be found in an economic analysis.
    0 Votes

  • 35x35
    Apr, 2010
    Jake,
    I'd like to ask for your opinion Bill. I'm currently in foreclosure process on my primary residence (actually end of it) My lender BofA has send me a proposal for Deed in lieu. I did talk to bankruptcy lawyer 2 months ago and i was told that chapter7 will protect me from possible deficiency judgment and will wipe out my credit card debt as well, however i was not offered a deed in lieu at that time. Since BofA reached out to me with deed in lieu and offered to cover relocation cost and i also know they will forget deficiency balance but will issue a 1099-C which i already know that there will be no tax consequences for me since it is a primary residence. My question is: Is it better to let BofA foreclose on the property and than file for chapter7 or let BofA do the deed in lieu, help me with relocation and than file for chapter7 ? Thanks in advance, Jake
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    John: Your credit rating is the least of your concerns right now. The life estate issue gives me pause. Who has the reversion? I urge you to work with an attorney who has experience in real estate before taking on any loan obligations, or executing a deed in lieu of foreclosure or short sale on your parent's property.
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    Ted: You got bad or incomplete advice from the person who wrote your reverse mortgage. Here is what I am guessing -- note that word choice -- happened: The agent looked at your age and your spouse's age, and noticed she was older. The agent may have said something like, "Based on the wife here being two years older than the husband, I can get you a larger monthly payment if we write the reverse mortgage for the wife than if we put both spouses on the reverse mortgage. Because women tend to outlive men, it is a safe bet that even though the wife is two years older, she will probably outlive the husband." Again, my quote is complete speculation. If my invention is close to what happened, then the agent gambled with your money and lost.

    I urge you to consult with an attorney in your state immediately to determine if you have a cause of action against the agent that sold you your reverse mortgage. Also discuss steps you can take to stop the foreclosure during your litigation.

    Reverse mortgages in general are effective for people who are house-rich but cash-poor. Your question illustrates clearly why the HUD requires people who are considering federal reverse mortgage to receive extensive consultation before executing the contracts. Effective consultation is not telling someone, "no problem." Effective consultation is the disclosure of all pros, cons, and alternatives.
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    Virg: I am not aware of any federal litigation that has resolved the issue you raised. Therefore, the question would need to be asked on a state-by-state basis. I would first look to your deed in lieu of foreclosure or short sale contract to see if this issue is contemplated.
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    Vanessa: The Making Home Affordable program is part of the Obama administration's Home Affordable Modification Program (HAMP). To see if you are eligible for a mortgage modification, HAMP has an easy questionnaire to help you get started.

    See my reply to Jodie above dated April 7, 2010 for a discussion on strategic mortgage default for an idea you did not mention, but seem to be hinting at.
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    Jodie: What you are really asking about is called strategic mortgage default, where a homeowner voluntarily walks away a mortgage because the balance of the mortgage(s) is greater than the fair market value of the home. Two schools of thought have emerged regarding the ethics or morality of strategic mortgage default. Former Treasury Secretary Henry M. Paulson Jr. is quoted in The New York Times saying that "any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation." On the other hand, Brent T. White, a University of Arizona law professor and author of Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis argues that the deleterious effects of foreclosure are less than people expect, and that morals and ethics should not enter into an economic decision. After all, banks use economics and not emotion when making loans, and banks are not averse to breaking leases for office space when it is to their benefit. Therefore, I will leave the ethics question up to you to decide.

    If a modified mortgage will cause you financial distress, then there is no moral or ethical issue to ponder -- you must walk away from the deal and the property. If the deal is bad, consider a short sale or deed in lieu or foreclosure.

    You did not mention foreclosure, but would be remiss if I did not point out the Bills.com resources Judicial Foreclosure, Foreclosure Advice, and Stop Foreclosure as resources for you to learn more about foreclosure.
    0 Votes

  • 35x35
    Apr, 2010
    John
    Bill, My Father passed away in Feb 2009 with a maxed out reverse mortgage. The loan is in his name, but I was the POA. Also, my name is on the deed which indicates a "Life Estate". I am in discussion with Wells Fargo as to a deed in lieu settlement (an option that was indicated at loan origination 3+ yrs ago). Because this was my dad's loan, but my name is on the deed would this effect my credit rating in any way or would I possibly be responsible for the value differance of property value vs. a 35K greater loan balance? Thank you!
    0 Votes

  • 35x35
    Apr, 2010
    Ted
    My wife and I entered into a reverse mortgage, I transfered the title into her name only, as she was 2 years older than me. Upon her signing the papers, she bought up the concern that when she passes, I would have no place to live. The mortage person said that the way the contract and will were written, there should not be a problem. My wife passed om March 10, 2010 at age 75. I am 73 and am sick over this. We have lived here for 30 years. A week after her passing, I received a letter from Financial Freedom that foreclosure would start within 6 months. Is there way I can stay here until I pass. I am not able to refinance as the amount is $125,000. My monthly income from a pension ans SS is $1845. Thanks for any suggestions and help.
    0 Votes

  • 35x35
    Apr, 2010
    Virg
    Bill - thanks for your great website. Can you tell me what the obligations are towards the condo association for condo fees if one proceeds with a deed in lieu of foreclosure. Am I still responsible for paying? I know that the condo association is filing judgements against people who are in foreclosure but I'm not sure about deeds. Thanks.
    0 Votes

  • 35x35
    Apr, 2010
    Vanessa
    Bill, My husband and I purchased our first house in 2004 for 218K. 2 years later the home appraised at well over 325k, we refinanced the home and currently owe 250k, and now our property is now worth 140K, and the neighborhood is now full of Section 8 and forclosures. We had not planned on staying there for more than 5 to 6 years since it was a small starter home where hoping to move to a larger home at this time. We have never been late on our mortgage even when I lost my job last year. I have now acquired new employment, and continue to make our payments regularly. We contacted the bank to see if they could help up with lowering our rate, etc... but we do not qualify for any sort of assitance from anyone. We do not want to have to stop making payments on our home, and have our credit ruined. We feel as if we are being punished for doing the right thing. Any suggestions, I am currently pregnant with our first child, this is now not the safest neighborhood to be in because of all the section 8 and forclosures in the community. We have over 200 renters in a community of 400, and that is only the renters the HOA is aware of, there are way to many shady individuals living in this neighborhood now, I mean last summer there was a raid on a house literally two houses from mine,for awhile the people who lived there disappeard and now they are back. I really am completely disheartened knowing that this is where I have to begin raising my child. We just dont' know what to do. We do not want to forclose, so would a short sale be worth trying? Any suggestions?
    0 Votes

  • 35x35
    Mar, 2010
    Jodie
    I live in Minnesota and purchased my condo in June 2006 for 157000. The condo's selling around me are for 125000-130000. I am 2 mo's behind on my mortgage. I did file bankruptcy and that will be discharged in April. I have a conference call with my mortgage co. and a housing advocate on Apr 9. I am wanting to work something out with my lender regarding my past due payments such as reducing my mortgage or working out a payment plan etc..but I am also wondering if it is in my best interest to hold on to my condo if I owe more than what its worth. Is it a good decision to pay a mortgage that is about 20,000 more than the value, if yes, What are the best options for resolving my past due amount, in other words if I don't get approved for a reduced mortgage should I continue to own it or should I think about relinquishing the property?
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    If the bank issues a 1099C, the bank is telling the federal government it has forgiven a debt of more than $600. If the amount indicated in the 1099C is the entire deficiency balance, then the bank is telling both you and the IRS the debt is forgiven. I am not aware of any cases where a bank has simultaneously told the IRS and the customer a debt is forgiven and then later tried to unforgive the debt and try to collect it. Foreclosure is a bad idea if short sale is an option. Talk to your bank about its requirements for a short sale.
    0 Votes

  • 35x35
    Mar, 2010
    Kathleen
    Bill, I had a home in Nevada, which I rented when I moved and purchased a home in California. I was losing about $650 a month on the rental, but I was trying to do the right thing. My tenant lost his job and moved and now I desperately want to get rid of it. I have been current up to this month. I owe $265 and it would probably short sell for about $190. I am worried that my bank won't agree to the short sale because I have a good income, credit and assets. Or that they will agree to the short sale, but not give me a full release and come after me later for a deficiency judgement. I can deal with my credit being ruined, but I don't want a judgement or have to pay $100K to clear it up or have my wages garnished. If they issue a 1099, does that mean the bank can't come after me for a deficiency? I also thought about letting it go through the whole foreclosure and read they have 6 months to come after me after the sale. What would you recommend? I really appreciate your help.
    0 Votes

  • 35x35
    Mar, 2010
    Andy
    I own two properties and underneath in both. I co-own one with a buddy and he is willing to take my name of the mortgage if I pay him $17,000. Currently, the home is valued at $38,000 less than what we owe. I own a second home that I currently rent to tenants. My renters are moving out and I suspect that I'm about $30,000 down in that one. Any suggestions on what I should do with both properties? Oh, there is a good chance that I may be moving with my job next Spring...which adds another twist! PLEASE....someone offer me some advice!
    0 Votes

    • 35x35
      Dec, 2010
      dan
      talk to the banks about a short sale and good luck
      0 Votes

  • 35x35
    Mar, 2010
    Bill
    Each mortgage servicer (customarily a bank) has its own rules for short sales or deeds in lieu of foreclosure. You do not mention that your household is in financial distress, so it is unclear to me if you may qualify for either. Regarding your credit score, there is no such thing as a joint credit score. If you have no joint accounts, your spouse can drive his credit score through the floor and yours will be unaffected.
    0 Votes

  • 35x35
    Mar, 2010
    Penny
    Bill - great website We have two houses, two mortgages. My husband is on the house we don't live in and I'm on the one we live in. The house we don't live in has been for sale for 10+ months - no offers. We've reduced the price once. He owes $75K and it's listed at $79K. We have two kids in college and one in grade school, we are both working but would like to get rid of the one house. Should we approach the lender re: deed in lieu as I'm not sure we could show actual hardship for short sale? And since he is the one on the mortgage, would any proceedings effect only his credit? Thanks
    0 Votes

  • 35x35
    Mar, 2010
    kelvin
    Thank you.
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    Either a deed in lieu of foreclosure or a short sale will get you to the same place legally and financially, as my answer above tries to explain. One is not intrinsically superior to the other. In both, the devil is in the details. In other words, review the contracts carefully so that you understand whether the deficiency balance is forgiven.
    0 Votes

  • 35x35
    Mar, 2010
    Kelvin
    My wife and I have a primary mortgage in Ft Laud,FL which is current and we also have a secondary rental property in Jx Fl $160K, Short sale listed for $50K, which is currently vacant for over a year(unable to rent due to repairs needed and area). My wife is now disabled and we have a little savings and a CD $5K. We are wondering if we should request a deed in lieu or forclose on the rental property since we are able to maintain our primary residence with our current income. Which is the best guarantee to cancel the deficiency balance - stay with the Short sale to forclosure or obtain a Deed in Lieu.
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    The junior mortgage is a separate issue and would not, generally speaking, be included as a part of a short sale because short sales are negotiated between the senior mortgagee and the homeowner. Homeowners in your situation may choose to stop paying the junior mortgage and then after 180 days when the junior mortgagee charges off the debt start negotiating a lump-sum settlement. See the Bills.com resource Second Mortgage Foreclosure for more information.
    0 Votes

  • 35x35
    Mar, 2010
    Dave
    I read through most of the responses and didn't see much about how a deed in lieu or short sale affected a second mortgage. I own a house that I do not live in any more and I cannot sell for the price of the first and second mortgage. I can probably sell it for the price of the first mortgage easily though. Can I arrange for a short sale or something with the second mortgage holder? Do I need a lawyer to conduct these discussions for me? I would love to just walk away from it but I don't want to endure months of harrassing phone calls from two banks. Thanks in advance.
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    I would not do you a service to try to summarized foreclosure in this space. Please see the Bills.com resources Judicial Foreclosure, Foreclosure Advice, and Stop Foreclosure to learn more about foreclosure.
    0 Votes

  • 35x35
    Mar, 2010
    Brian
    I recently had a parent pass away, and for health reasons have to move the surviving parent closer to family. The surviving parent owns a home in New Mexico that he would not be able to sell without substantial loss, although to the best of my knowledge he is current on his mortgage. His retirement income could not pay for the current mortgage plus the added living costs in the new location. What is the potential impact from him simply walking away from the property in New Mexico?
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    Unlikely, but bonus points for creative thinking. You are asking about an issue that is known as "conflict of laws," where you would like a Nevada court to apply California's anti-deficiency laws. I am not optimistic for three reasons. First, courts generally apply the law of the situs of the property. In other words, if you buy land in State X and a case arises from that land, State X law applies regardless if you are a State Y resident. Second, Nevada follows the Second Restatement of Conflict of Laws, which states that if the situs of the property is significantly related to the issue, then Nevada Law will be applied. Finally, California §580b requires that the purchase money loan in question must be used "...for a purchase price of that dwelling occupied, entirely or in part, by the purchaser." If you are a California resident, it is possible for you to occupy a house in another state. However, the case law is unclear what "occupying" is. I think it would be difficult for you to simultaneously argue that you are a California resident and that the Clark County court should apply a California law that requires you to occupy the property in question -- which is in Nevada -- but apply California law. However, even if you were able to complete this feat, I believe a Nevada judge will apply Nevada law given the facts you provided. That said, consult with a California attorney who has experience in conflict of laws issues, or a California attorney who also is licensed to practice law in Nevada.

    To learn more about how to handle the 1099-C, see the Bills.com resource Mortgage Forgiveness Debt Relief Act and Debt Cancellation.
    0 Votes

  • 35x35
    Feb, 2010
    George
    I am a California resident and in 2009 foreclosed on a property in Clark County, NV. I got a 1099-C for the cancelled debt but wondered what the exposure is for a CA resident. Do I pay just Federal, State+Federal or because the loan was a purchase money loan do I qualify under the non-recourse CA tent?
    0 Votes

  • 35x35
    Feb, 2010
    Randy
    I own a home in Bay Saint Louis, Mississippi and am having to work in Alabama. The home was flooded in Hurricanes Katrina (severely) and Gustav (just downstairs). Since I having to move for work and will not be able to maintain two households. I advertised the home in the paper but not with a realtor and received no interest. I have spoken with my mort. co. concerning Deed in Lieu and Short Sale. It appears that you have to prove financial hardship which I am not yet experiencing. Any advice for this depressed area?
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    Real estate that is moving today is either priced sharply or has features that make it highly desirable. Work with a real estate agent. If you had no nibbles you may have priced the property unrealistically. Stage the property, clean up any damage, make it a model home that people will want to buy.
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    I hate to be cynical about Bank of America's mortgage business, but based on my own experience with the BofA mortgage group and corresponding with Bills.com readers about the company's performance, nothing the company does at this point surprises me. The optimist in me wants to think the new systems BofA is touting can do nothing but improve the company's performance, but that is not saying much. What is my non-cynical answer? It is difficult to trust a bank that has demonstrated incompetence, but what choice do you have if you want to avoid foreclosure? Grin, bear it, keep your documents, and hope that when all this is over you will be plaintiff in a class action lawsuit against the company.
    1 Votes

  • 35x35
    Feb, 2010
    Mia
    Good morning. I am wondering if the following is typical: I have a short sale contract into Bank of America, submitted in Oct2009. Close to three weeks ago, I received a notification stating that BofA needed a signed counteroffer at $230k (original offer was $220k) in order to approve the short sale. This was submitted. After calling emailing for almost three weeks for a status update, I am told that my loan had been transferred to a new negotiator. Today, I finally hear back from this negotiator, and he tells me that my loan should have never gone this far because I was not deliquent in my payments. I am told that I now have to fall behind in my payments, and resubmit the whole file for processing, which could take up to another four months. On top of this, they supposedly have a new automated system to handle this process. So, in FOUR months, I was told nothing about deliquency as a requirement for a short sale. I since have asked for this deliquency requirement in writing from the negotiator. Is this normal? FYI, the home is a rental property in Los Angeles CA. At this point, I am considering a deed in leiu of foreclosure, but do not trust BofA at all. Your thoughts? Thanks!
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    Keep records of all of your interactions with Bank of America. If you talk with a customer service representative (CSR) on the telephone, write your notes, and ask for the name of the CSR, and note the date and time of the conversation. If BofA recommended that a customer default on your payments to enter its short sale program, and then foreclosed on the customer before the customer could enter the short sale program, the customer would have a cause of action for breech of contract or fraud.
    0 Votes

  • 35x35
    Feb, 2010
    Hazel
    We are Georgia residents and have two rental properties that have been on the market for about a year and a half. We are currently in contact with the bank (BOA) regarding a short sale and/or deed of lieu of forclosure. We inquired of the bank as to what it would take in order to consider us for either a short sale or deed in lieu of forclosure. They indicated that it would help us to qualify for either if we were deliquent on the payments. Is it customary for a bank to suggest that only by becoming delinquent on the payments the only way to be considered for a short sale? Can the bank start forclosure proceedings since at their advice we have not paid the mortgage since Nov 2009?
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    Talk with the new bank about adjusting the price. Of course, the bank may be beholden to the investors in the paper underwriting your mortgage, and those investors may not be willing to drop below a certain price. Your alternative is default, which would trigger a foreclosure. Obviously, this is not a good outcome but if the house causes you financial distress you have no alternative.
    0 Votes

  • 35x35
    Feb, 2010
    Rosana
    Hi, Bill my quiestion is that we have had our house on the market going on 1yr 1/2 and still nothing. Back in June we had a buyer who offered 165,000. for the house and just before we could get the closing on the house the bank sold our account to another bank and the new bank would not accept that offer in October. We have the house back on the market and at this point just can not get a buyer due to the price and that the house is on the side of a trailer park. What can we do?
    1 Votes

  • 35x35
    Feb, 2010
    Bill
    There is no harm in talking to your lender and learning their requirements or guidelines for a short sale. One other thought: I would be remiss if I did not mention the Home Affordable Refinance Program.
    0 Votes

  • 35x35
    Feb, 2010
    Patricia
    Hi, Bill. I live in Las Vegas and I have a house on which I owe $160k on my primary loan plus $25k on a HELOC. Current comps are around $100k and not expected to improve soon. Due to being unemployed for 4 months last year and taking a new job at 40% decrease in salary, I am running about $200 short of expenses each month. So far I have kept current by borrowing from family, but I can't continue to do that. I've looked into bankruptcy, but I make to much for ch 7. Ch 13 doesn't make much sense as my unsecured debt is less than $20k. I'm willing to give up the house as it's now a "toxic asset", but I'm not sure how to start. Will the mortgage company even talk to me if I'm current on my loan? Being a single person, I have to be very careful about how my credit is affected as I don't have anyone else to lean on in that regard. Any advice?
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    There is the old saying, "The devil is in the details," which certainly applies here. Take the bank's proposal to an attorney in your state who has experience in contracts. He or she will be able to review the proposal in detail and advise you accordingly. Yes, an attorney's time is expensive, but look at the cost of the alternative if the creditor is hiding a surprise in the contract.
    0 Votes

  • 35x35
    Feb, 2010
    Lindy
    Hi Bill, we want to sell our home and move closer to our business. We owe 170,000. We listed the home with a realitor who told us to contact our lender reguarding a short sale, which we did. Our lender sent someone out to do a BPO, which came in at 100,000. The lender is willing to do a short sale, but also asked us if we are interested in doing a short sale in lieu of foreclosure. We are not behind at all in our payments. We just hope to move. Should we be werry of doing a short sale in lieu of foreclosure? The lender also said that they will give us 2,500 when all is done. Just wanted to know what you think.
    1 Votes

  • 35x35
    Feb, 2010
    Bill
    Wayne: You are asking me to speak for your creditor, which I cannot do for obvious reasons. That said, here is the typical (although by no means exhaustive) list of short sale requirements: a) the residence must already be on the market for a certain number of days (90 days is typical), b) there can be no liens on the property, c) the property cannot already be in foreclosure, d) the offer of a deed in lieu must be voluntary, e) for a short-sale, the seller must have a hardship, f) the house must be priced reasonably. See also Should I Do A Short Sale On Our Home? Regardless if this is your primary home, if a financial institution grants a forgiveness of greater than $600, it is required to issue a 1099-A or 1099-C. Regarding your options, talk to an attorney to see if Chapter 7 or 13 is an option in your circumstances. Foreclosure is also an option, but avoid it if you can.
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    Susan: Regarding your first question, what you seem to be pondering but are not saying is weighing the risks of paying or not paying the mortgage on the El Cerrito property. Short sale is a great option if you can afford it. Talk to the bank now, give them your financials, and sign up for a short sale if you can afford it. Regarding California's anti-deficiency law, when you refinanced you removed that protection. See Is My HELOC a Recourse or Non-Recourse Loan in California?, which discusses California's anti-deficiency law in a HELOC context, but the concepts are the same for a first mortgage. Regarding your comment about the bank holding the El Cerrito mortgage filing an action against you or your property in Oregon, I think your agent oversimplified your situation to the point of inaccuracy. Take a deep breath and talk to an Oregon attorney who has experience in consumer or real estate law. There is a large amount of information you did not include in your message that may be relevant to your situation, including who is on the deed of trust/mortgage for both properties, the what I surmise is a deficiency on the El Cerrito property, your family income, and whether you have filed bankruptcy in the last eight years.
    0 Votes

  • 35x35
    Feb, 2010
    wayne
    Hi Bill I have an investment property in Florida which I purchased for $315,0000. I have a first and a second mortgage on this property. I had stopped making my mortgage payments and have recieved pre foreclosure documents. I have not put the house up for sale and i have a $2,200 lien form the home owners association on this property as well. Will the bank except a deed in lieu with these conditionsand will I be subject to pay the deficiences on the home with a 1099 since this is not my primary home? If the bank doesn't except the deed in lieu what are my other options? Thank you
    4 Votes

  • 35x35
    Feb, 2010
    Susan
    Hello Bill - I have been searching for info for some time now - your site is the best. Thanks for doing this. My husband and I own two houses - we live in our house in Oregon, we formerly lived in our other house until we moved 2.5 years ago and rented it. Last Nov our renters gave notice and we did the numbers - we would be losing about $15,000+ a year covering even a rented property ...we have a 1 year old, a 3 year old and cannot afford this loss of cash. We put the house on the market Jan. 1 at a price that will break even. It looks like we are not going to make that. Short sales are notoriously long - and when I look at how many houses in our area (el cerrito CA) are in short sale it is huge. Options seem to be try to short sell it - but we are then paying a $2850 mortgage a month, plus taxes etc...for who knows how many months - or just try to hand over the deed in lieu...other issues we refinanced our original loan on the CA in 2005 - but it is a conv. 30 year mortgage - no second mortgage...but does the fact that we refi'd after our intitial purchase loan matter? Our agent told us our Oregon home would not be in jeopardy ...the bank would not go after it. Next step is probably to go back to an attorney (we did early on but were so overwhelmed could not see straight...) but thought I would check with you first. Thanks for any guidance...
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    You will not receive both a 1099-A and a 1099-C for the same debt. See the "Specific Instructions for Form 1099-A" in the IRS document Instructions for Forms 1099-A and 1099-C.
    0 Votes

  • 35x35
    Feb, 2010
    Ken
    Hi Bill, My wife and I did a deed in lieu of foreclosre last year and we recently received a 1099A, I was wondering, will we receive a 1099C? I don't know if this makes a difference, but this house was not our primary residence as we purchased a house three years prior to the deed in lieu of foreclosure. We rented it out while we were trying to sell it, but our renters moved out and the value of the house just kept going down. Also, the house was handed over to the bank in February 2009 and they sold it in March or April of 2009. Thanks for the help.
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    The slang terms for your predicament are "upside-down" or "underwater." The creditor gave you your two best options. Of the two options, a short sale is the best available. The unspoken option, foreclosure, would result if you stop paying the mortgage.
    0 Votes

  • 35x35
    Feb, 2010
    Sara
    Hi Bill, We bought a condo in Boston in 2005 and currently owe $389k. My husband and I are both employed and have no trouble making our mortgage payments. However, we would now like to move out of state for a better job offer and to be closer to family (where we would rent). We met with a realtor who estimates we could sell for 350k. I called the mortgage company to ask if we could contine to pay the remaining balance after the sale on a monthly basis (we would be moving to a lower cost of living state and so this would be possible). They said no, our only option is to short sale or to pay the remaining balance at the time the condo is sold. Are these really our only two options? We don't want to stay put for another 10 years to wait for our condo to break even and don't have enough cash on hand to pay the balance. However, we are not interested in harming our credit which is very good with a short sale.
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    If you are on the title or deed of trust for your sister's house, and are suffering a hardship, the answer to your question is yes.
    1 Votes

  • 35x35
    Jan, 2010
    greg
    Is it legal to do a short sale on my own sisters house?
    0 Votes

  • 35x35
    Jan, 2010
    Stacy
    Hi Bill Well I would like to share our experience with you and fellow readers. My husband and i wanted to do a short sale because of low property value and because our loan to value was negative. We placed our home on the market in Maryland back in August of 09. We have a first and second mortgage. The first sends us a letter stating the necessary instructions and guidelines on how a short sale works and that we can do a short sale if the property value has gone done or if we are having trouble making payments. Well we have never been late on our mortgage since we have been in our home of almost six years. We got a contract less than 2 months later, the first mortgage company initially states that the second mortgage co. will only get $3000 from the sale; the second disagreed and wanted an additional $7000 from us to give up the title. Then the first makes a request for that the new buyers of our home should offer the full sales price of the home and the new buyers agreed. Documents were resigned with all parties. Then the first says to our realtor and short sale co. that the second will then only get a $1000.00 not $3000.00. Then the first, contacts our realtor/shortsale co.the next day and states that we were denied a short sale because the investor was uncooperative because we are not 30 days late on our mortgage. What? So then we spoke to the first ourselves and asked for this in writing, which we never received. We did get a denial letter in December 09 but no reason was stated. Then we just recently recieved another letter from the first mortgage co. stating a denial of short sale due to investor guidelines and that they recommended our option be a deed in lieu. We have lost the buyers and we don't know what to do. We refuse to be late on our mortgage and don't know how a deed in lieu will impact our credit, because we would like to get into another house. We are seeking an attorney in MD. The buyers have just recently contacted our realtor again,stating that they really want our house! Any comments, or advice?
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    Thank you for relating your experience. Unfortunately, your case is not unique. You appear to have a textbook case of breech of contract, and I hope you find an attorney who will help you recover your damages. Please return and keep us informed of your progress.
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    Talk to the bank to determine which option it prefers. The two differ from a legal perspective, but as a practical matter both get the consumer to the same place. The trick in both is to determine if the consumer is liable for the resulting deficiency balance. For that reason, it is wise to take either a short sale agreement or a deed in lieu of foreclosure agreement to an attorney for review before signing.
    0 Votes

  • 35x35
    Jan, 2010
    Suzie
    HELP! I got caught up in the Countrywide mess last year and now I owe $380K on my house. My payment are $2300/month (after a loan modification). Currently my parents are paying my mortage and I can't expect them to pay that much longer. I can't afford to live here anymore. My realtor says I would only be able to sell for $275K-$300K at the most. My question is what would be better, a short sale or Deed in lieu...I can't keep putting good money after bad.
    0 Votes

  • 35x35
    Jan, 2010
    Kathleen
    Bill, Thank you for your comments back. Much appreciated. Thanks! Kathleen
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    Taxes on the forgiven amount are not an issue if the property in question was your residence. See Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648). You may or may not have a deficiency balance following a deed in lieu of foreclosure. Review your deed in lieu contract carefully for this issue. Consult with an attorney experienced in property law regarding this matter, and let him or her review the contract before you sign it. Ask your attorney if your state has an anti-deficiency statute, and if so if you qualify.
    0 Votes

  • 35x35
    Jan, 2010
    Kathy
    We have not made a payment since June of 09 and foreclosure proceedings were started in October. We are looking at a deed in lieu of foreclosure as a possibility. Please help me understand, will we still have to pay taxes on any forgiven amount by the lender? Also, if we file bankruptcy after the deed in lieu would it wipe the debt clear if they don't forgive the difference? We need to do something very fast. Please advise!
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    Your situation is worse than you think, I regret to say. If you choose to sell your house, you will be required under Illinois law to disclose all material defects you are aware of in your residence. (Most states have these laws.) Failure to do so may result in penalties, including termination of the contract. Few buyers, especially in today's housing market, will be willing to buy a property with such severe defects and pay the market price when there is other inventory available without defects. Therefore, if you are working with an attorney regarding the lawsuit(s) against the contractor(s), consult with him or her about your options. You may want to consider quiting the property, stopping your mortgage payments, and filing for chapter 7 bankruptcy. Again, your attorney knows far more about your financial situation than I, and he or she will have a better grasp of the essential details in your case.
    0 Votes

  • 35x35
    Jan, 2010
    Kathleen
    Bill... WE NEED HELP! We purchased a new duplex up in Chicago for $485K from a builder, which ended up having major construction defects, i.e. leaks from roof, masonry and windows. Now our home has developed toxic mold and is falling apart from the water saturation. We have sued the builder and general contractor, but neither have insurance coverage or money for settlement. We have been battling them for 2 years, all the while paying our $3k mortgage every month. However, our first child is due in April, 2010. We cannot bring a baby into a leaky moldy home. The estimates we are getting to fix the defects ourselves are more than we can afford. We have tried to get a loan for the repairs, but can't, given the decreased appraisal of the property. We owe approximately $450k on our mortgage and are considering a short sale or deed in lieu of foreclosure. We feel that our backs are to the wall and we have no other choice. We would love your thoughts on the best course of action. Will we ever be able to buy another home if we do a short sale or deed in lieu? It’s not that we can’t afford our home, it’s that we can’t afford to fix it.
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    A qualified assumable loan means that a homeowner can sell the property and mortgage to a second buyer if the second buyer meets the bank's qualifications. This is in contrast to a fully assumable loan where the homeowner can sell the property and loan to anyone of their choosing. Therefore, what you are asking is if there is a way to bend Fannie Mae's qualification guidelines for the buyer you found or the circumstances you are in. I do not know of any way to do that. Readers? Let us know if you have had any experience with this and how you convinced Fannie Mae to allow an assumption.
    0 Votes

  • 35x35
    Jan, 2010
    Katherine
    To accommodate my wheelchair we purchased a home near our current one in Michigan. The first home has been on the market for 211 days. It's now listed at $249,000 and we owe $234K. We'd like to consider offering an assumable loan (it's at 5.75%). BOA services the loan, but they said that Fannie Mae guidelines prevent us from offering this as a qualified assumable loan. The only offer we've had is at about $200k, and we don't have the cash to take to the close at that level. Is there any way to get Fannie Mae to allow an assumption instead of a short sale or deed in lieu? BOA has a department to do qualified assumptions, but said that Fannie Mae is the hang up on our loan. Thanks!
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    Karla: Your son needs to contact the local USDA RHS field office (the office from which he got the loan) and explain that he wants to explore a deed in lieu of foreclosure. The USDA RHS has a procedure in place to handle this type of request. However, before taking this path, your son may have alternatives. See Helping Families Save Their Homes Act of 2009, which contains programs for Section 502 borrowers. To learn more about Section 502 loans, see "Section 502 Mortgage Deficiency Balance" and "USDA Rural Housing Service Mortgage Insurance."
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    Clark County, Nevada was the foreclosure capital of the US in 2009. It is easy to get caught up in a contagion of collective behavior when so many neighbors are walking away from their properties. However, do not allow foreclosure on your residence if you can afford the payment after selling the vacation property. The short sale will have a minimal negative effect on your credit report. A foreclosure will have a maximum negative effect on your credit report.
    0 Votes

  • 35x35
    Dec, 2009
    Ryan
    I have a home in the Las Vegas area that is now worth less than $200k than I owe and I have a vacation/rental home in Big Bear, Ca. that is now worth less than $30k than I owe. Our income has dropped by a third and we are now struggling to make ends meat. I am thinking of a short-sale or Deed in-lieu of foreclosure on the Big Bear property. If I am going to take the hit on the Big Bear property, should I just go ahead and take the hit on my home in Las Vegas and just walk away?
    0 Votes

  • 35x35
    Dec, 2009
    karla
    My son bought a home with a UDSA loan this would be a federal loan. He would like to get out of the loan because the home is worth about 70000 less than what he paid. His income has also been cut in half. With this type of loan could he ask for Deed-in-Lieu? And if it is possible how do you start the process? He only has this loan on the home. Thanks
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    Generally speaking, retirement accounts are exempt from collections. That is not the case for stocks or other non-retirement financial accounts. See Collections Advice.
    0 Votes

  • 35x35
    Dec, 2009
    gerri
    we lost our jobs. No income at all now except unemployment benifits due to end in 5 mos. We do have stocks and 401k. If our home is forclosued on will lender be able to place lein on stocks/401.We live in Ca. both are still in 50's. Not eligible for retirement yet.
    1 Votes

  • 35x35
    Dec, 2009
    Bill
    You do not mention in your message any communications with the mortgage company regarding the property in foreclosure. Contact the company now and learn why they foreclosed on a property they had agreed to short-sale. You may have a cause of action for breech of contract against the mortgage company for foreclosing on the property when they agreed not to during the short-sale process. Consult with an attorney in your state with experience in contract litigation and see if you have a case against the mortgage company.
    0 Votes

  • 35x35
    Dec, 2009
    Tony
    We had a home that we are always on time with payments and never had an issue. We both lost our incomes in June. We had been paying on the house up until August. In the time between June and Aug, we purchased a smaller home, both I got my job back, wife is on unemployment. We cannot afford the payments on both. We had a short sale offer on the table and then discovered that the home was in foreclosure. We found this out through the other realtor. As this point, all things have fallen apart. The foreclosure process has started and we have found out a lock was changed and they took items of the house. Or someone did... Is there any hope at this point to protect our new house which has a considerably lower payment and fits our new budget.
    1 Votes

  • 35x35
    Nov, 2009
    Bill
    Based on the facts you provided, I think a deed in lieu of foreclosure or a short sale are your best option. Talk with the mortgage company about its requirements for either.
    0 Votes

  • 35x35
    Nov, 2009
    Tario
    I have an investment property in Phonix, AZ. I purchased it in 2005 for $206,000 and then refinanced it for $216,000. My present loan balance of $204,000. The value of the house now is $115,000. The rent does not cover the monthly payments and I am running an negative cash flow or $500 each month. I am current on my mortgage and never late in any payment. I have a steady and decent job. My credit score is 800+. I tried refinancing and loan modification and got denied on both. I cannot hold on to this property anymore. What are my choices? Please help. Thanks
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    Contact the mortgage company to begin the process. Each lender has its own rules for approving a short sale or deed in lieu. The typical requirements are a) the residence must already be on the market for a certain number of days (90 days is typical), b) there can be no liens on the property, c) the property cannot already be in foreclosure, d) the offer of a deed in lieu must be voluntary, e) for a short-sale, the seller must have a hardship, f) the house must be priced reasonably. See also Should I Do A Short Sale On Our Home?
    0 Votes

  • 35x35
    Nov, 2009
    Isolde
    My husband and I moved to Louisiana in February 2008. We were able to rent our house until June 2009, since then it is sitting empty and on the market. I bought it for $ 118,000.00, at the moment the value is about $60,000.00 due to the comps in the neighborhood. I already dropped the selling price to 99k (short sale) however there was not one showing. Even the "we buy ugly houses" companies are not interested in buying. We do not intend to return to Georgia and honestly I just want to get the house off my shoulders. We have average paying jobs, but paying for a rental and mortgage (as well as an equity loan) is catching up on us. All mortgage payments are on time, so I was considering deed in lieu of foreclosure. The house has a 5/1 arm mortgage as well as an equity loan; what would happen with that? How do I get a deed in lieu of foreclosure started? Any advice is appreciated!!
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    Foreclosure is not a good idea if you can avoid it. If you can qualify for a modification, by all means do so now. Start at the Home Affordable Refinance Program Web site to learn more about the program. Whether you qualify is up to you and how much your children's educational expenses you can ask them to carry. Student loans are a burden, but if you lose your home for the sake of them having low (or no) student loan debt then the price of their education was too high.
    0 Votes

  • 35x35
    Nov, 2009
    Agustin
    I am a Ca resident. I am debating whether I should foreclose or request for a loan mod.My monthly gross income is $19K but expenses is over $8K each month.The reasons for my expenses being over the income are that one is in college and 2 are studying to be doctors. I have 2 mortgages on my principal residence totalling $2102. The house was purchased at $560K and the value is now $300K. Will be qualified to get my loan modified (lender is Chase & B of A)? I have not made payments for over 3 months. Please advise.
    0 Votes

  • 35x35
    Nov, 2009
    Kim
    We are active duty military....after a recent deployment the army moved us from USA to Germany. The move was within a month therefore we did not have time to sell our home and it is now vacant. We lost our housing allowance,I am disabled, have 3 kids in college plus expenses of maintaining a residence both here and in USA...we cannot continue to make the current house payment. I have tried for months to work with the motgage company..we applied for a hardship to lower our payments (we could make a slightly lower payment, $500 less) but they declined...it appears our only options are foreclosure, short sale or deed inlieu. We have good credit but a high debt to income because of 3 kids college loans that we are cosigned for so a refinance is a no go. We are trying so hard to sell the house but the economy is simply not allowing for that. The mortgage company is truly not helpful and we do not trust them. Our insurance has now informed uis that they are cancelling us as well due to the vacant house..and any other insurance we can find is triple the price becasue the house is vacant! We do not qualify for any military help since the base did not close. We are at our wits end. Any suggestions? How long does the deed in lieu take? Should we find a lawyer and let them handle this for us? Thanks Kim
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    A deed in lieu or short sale must be voluntary and must occur before the homeowner defaults. Talk to your mortgage company about either option now. Deed in lieu of foreclosure and short sale differ in the legal details, but from the perspective of the homeowner both get the homeowner to the same place. Namely, selling the property without foreclosure with a minimal impact on the homeowner's credit rating. You mentioned you do not trust the mortgage company. Be sure to get all promises in writing, and be sure to review all documents you receive from the mortgage company carefully. In my humble opinion, most homeowners have the reading comprehension and knowledge of law to understand short sale and deed in lieu of foreclosure documents if they read them carefully. However, in a case where the homeowner does not trust the mortgage company, I would urge the homeowner to ask an attorney to review these documents before signing them. An attorney's time is not cheap, but if the attorney discovers terms that are not favorable to the homeowner and is able to correct them, it is money well spent.
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    As my answer above suggests, contact your mortgage company and ask about its requirements for a short sale or a deed in lieu of foreclosure. Both a short sale or a deed in lieu of foreclosure are good alternatives (from a credit report perspective) to foreclosure.
    0 Votes

  • 35x35
    Oct, 2009
    Barbara
    I live in Tennessee. My husband and I filed chapter 7 2yrs ago. We are now facing a divorce and I can not con't to pay the mortgage. The mortgage was included in the bankruptcy. I have never missed a payment or been late on a payment. I want to put the house on the market but the value is much less than we owe. Can I sell the house for less than the loan value or does the bank have to approve the sale price? What options do i have? i do not want a foreclosure on my record after taking the hit of a bankruptcy. Thanks.
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    You did not mention the state where you reside, and your state's laws may be significant to you. Some states, such as California, offer consumers living in mobile homes additional rights that may protect you. Contact your county's bar association and learn the legal aid organization that assists low- and no-income people with legal questions. Make an appointment with the organization, and bring all creditor collections letters, contracts, bills of sale, and loan agreements that you have for your mobile home to your appointment, and let the paralegal or attorney you speak to review them and the form the creditor asked you to sign. I do not see any waiver of a deficiency balance in what you quoted -- to the contrary it requires you to pay the balance due immediately. I am curious, if the mobile home is worth $50,000, and you owe $35,000, why are you surrendering it? Why not sell it, pay off the loan balance, and pocket the rest?
    0 Votes

  • 35x35
    Oct, 2009
    Darla
    Bill, I am unable to make payments on my mobile home and have tried every avenue to avoid foreclosure, but I'm afraid it's just not enough. They sent me a Voluntary Surrender form which states the following: "I/We Understand the outstanding balance, any negative escrow and or/legal feels plus accrued interest is now due." It says nothing about the deficiency balance; just says we won't hold them liable for personal property left in the home. Does this sound like it's asking me to be responsible for the deficiency? Do you think it would be better to sign this than to have a foreclosure? We owe $35K on the home but it's work about $50K or so! On the taxes it's valued at $70K even. Should I be worried about the deficiency balance in this scenario? Any advice is appreciated! Thanks, Darla
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    I see no disadvantage for you to pursue either a short sale or a deed in lieu of foreclosure if you are facing a foreclosure.
    1 Votes

  • 35x35
    Oct, 2009
    Jon
    Our now former primary residence home in Arizona has been on the market for 14 months. The first (cash) offer was on the table for over five months with the bank. After receiving literally no response on way or the other our buyer retracted the offer. Our second offer which was accepted by the bank was just retracted by the buyer after the inspection period. We moved out of the home two months ago and, as such, the residence is vacant. I am considering pursuing a deed in lieu. First, it is highly unlikely that any lender will approve a note for the short sale amount the bank approved. I'd like to avoid a foreclosure and always thought a deed in lieu was a good option. We lost our mortagage papers (I know) and don't know if it's a non-recourse loan. Should I just let it go to foreclosure or pursue the deed in lieu..any other counsel?
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    You and your siblings should consult with an attorney in your state who has experience in wills, trusts and estates, or property law. I do not believe you and your siblings violated any laws by not probating your mother's estate in a timely manner. That said, the probate process must occur to dispose of a decedent's assets properly. I can't recall studying any cases in my property law classes that dealt with this issue. My guess -- note my word choice -- is each jurisdiction has answered this question differently, which leads me back to the first sentence in my answer.
    2 Votes

  • 35x35
    Oct, 2009
    Herman
    My mother died nearly year ago next November. She did not leave a will and we did not go through probate with her estate, there was nothing left except her house. My brother and sister and I have been paying the mortage on her house, which is still in her name, for this past year. We have recently been unable to pay the mortage and are receiving letters warning of foreclosure (they are addressed to our mother). What options do you see in this situation?
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    Each lender has its own rules for approving a short sale or deed in lieu. The typical requirements are a) the residence must already be on the market for a certain number of days (90 days is typical), b) there can be no liens on the property, c) the property cannot already be in foreclosure, d) the offer of a deed in lieu must be voluntary, e) for a short-sale, the seller must have a hardship, f) the house must be priced reasonably. This list is by no means exhaustive, and I encourage readers who have gone through the process to share their experiences here.
    0 Votes

  • 35x35
    Oct, 2009
    Nina
    My home has been on the market since Mary 2009. It is listed at $340K, and I owe $313K. I have recieved NO offers. I would like to seek a Deed in Lieu. If the bank agrees is there a need to file bankruptcy if I can afford to pay my other debts? Also, what is the typical criteria that the bank will use to approve a Deed in Lieu?
    4 Votes

  • 35x35
    Oct, 2009
    Bill
    Foreclosure = bad. Avoid a foreclosure if at all possible. A deed in lieu of foreclosure is less-bad only because the question about the homeowner's deficiency balance is unresolved as a general rule. As the article above states, if the lender is willing to forgive the deficiency balance, or if your residence is in a non-recourse state, then there is little difference between a deed in lieu of foreclosure as compared to a short sale, as a practical matter. Regarding your question, "What can we do?" Obviously, I do not know your family situation, but I wonder why you are paying the mortgage on your sons' house. Shouldn't they pay their mortgage? One solution to your financial situation is to explain to your boys that you cannot afford three mortgages, and they need to take responsibility for their living expenses.
    6 Votes

  • 35x35
    Oct, 2009
    Gerry
    Our residential home has been on the market over 3 months, priced reasonably at 500K. WE owe about 627K on it. We have not paid the mortgage on our home since March 2009. we also own another much smaller home where our 2 sons live. We continue to pay for that mortgage. We have a rental home in another state that is negative earnings and we continue to pay the balance of that mortgage. Our total expenses exceeds our income. what can we do? we are ready to give up our current residence and move to the smaller home with our sons. Should we do a deed in lieu for closure or a short sale?
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    Josie: I will combine the answers to your questions here. By definition, in a short sale the creditor agrees to forgive the deficiency balance. That is not necessarily the case in a deed in lieu of foreclosure. Review a deed in lieu carefully before signing it so that you understand all of its terms and conditions. If the document is unclear to you, it is money well spent to ask an attorney in your state review it so that he or she can take the time to explain your rights and liabilities. Also, in many states, a deficiency balance cannot be collected on first mortgage. Again, your state's recourse/non-recourse rules are something to discuss with an attorney. In terms of tax implications regarding filing a bankruptcy in 2009 or 2010, that's something to discuss with bankruptcy attorney in your state. Based on what you've written above, I don't see an advantage or disadvantage for you delaying a bankruptcy filing. However, I am not aware of your whole financial situation, and there may be significant facts that change that conclusion.
    4 Votes

  • 35x35
    Oct, 2009
    Josie
    Would it be best financially or for tax purposes, to file bankruptcy the same year as you do a short sale or deed in lieu of forclosure or does it not matter if they are done in two separate years(ie.short sale in 2009, bankruptcy in 2010)?
    0 Votes

  • 35x35
    Oct, 2009
    Josie
    My home has been on the market since Feb09. My real estate agent is pushing for a short sale and does not want me to proceed with a deed in lieu of forclosure, but the last offer on my home was back in July09 and fell through due to financing. I have already moved out of the house, have not made a mortgage payment on the house since March09 and I really just want to get it off my hands. Would you suggest that I go for the deed in lieu now before we roll over into another tax year or will the taxes not be an issue either way? Just FYI: I have already decided to file bankruptcy once the home is sold in short sale or deed in lieu.
    15 Votes

  • 35x35
    Oct, 2009
    Bill
    You need to look at the total situation to decide your course of action. Is the rental in an area where an economic recovery will happen quickly or will lag behind the rest of the economy? How is the neighborhood where is property is located? Is the school system desirable? Does the property manager give any estimation on time to re-rental? Do you have equity in the property, and if not how upside down are you? How secure are your jobs? Have your mortgage providers shown any willingness to work within the Making Home Affordable initiative? I think if you answer some of these questions your course of action will be clearer.
    3 Votes

    • 35x35
      Jul, 2011
      william
      My wife has became disabled and is still waiting on Social Security to approve her benefits(its been 4yrs) during this I was unable to pay my full first mortgage and my second mortgage.Both let me pay half my payments and half my interest for @ 2yrs.Neither 1st or second mortgage modified my mortgages(as they said they would) during this time and my first started returning my partial payments. I would receive a letter one day saying I am ineligible for a modification and the next day they would send me papers trying to modify my mortgage.During this time the fees and penalties raised my principle by $4k. I have decided to walk away.Should I do a short sale or deed in lieu or just let it go trough foreclosure.My credit is destroyed as we went down to one income for the last 4yrs. both mortgages are way underwater and I have no idea if a short sale is even possible since I have 2mortgages. any advise would be greatly appreciated.
      0 Votes

    • 35x35
      Jul, 2011
      Bill
      In my original answer above, I try to convey the notion that a deed-in-lieu-of-foreclosure and short sale are akin to an airplane making an unpowered but controlled landing. Think Capt. Sullenberger landing US Airways Flight 1549 in the Hudson River — that was not a pretty landing, but it was the best under the circumstances. By contrast, a foreclosure is an uncontrolled airplane crash — people will get hurt.

      With a deed-in-lieu-of-foreclosure or short sale, the homeowner has a measure of control over when and how the property sale will occur. In a foreclosure, the mortgage servicer and state laws control the timeline. The question becomes, do you want to try to drive or not?

      The existence of a second mortgage does not preclude a short sale.
      0 Votes

  • 35x35
    Oct, 2009
    Jay
    Bill, I need some advice. We own a property in another city and have been having a property manager take care of it. Recently our renter just lost her job and cannot make the mortgage payment. In this down economy we cannot make the payment either. We don't know what to do and we fear we may be facing bankrupsy. What shout we do?
    5 Votes

  • 35x35
    Sep, 2009
    Mark
    My condolences on your loss. You do not mention when your mother died, but based on the context of your question I will infer it was recently. Accordingly, I recommend you speak with the executor (if she has a will) or administrator (if she died intestate) of her estate to determine the rights of your brother regarding the property. The fact he "has his name on the title" does not imply he now owns the property outright. Your first job is to learn exactly what rights your brother has. Do not accept "My name is on the title" as an answer because that answer has little meaning. Second, you need to speak with an attorney about the exact wording of your brother's name on the title, and what it means for your mother's estate. If your brother now owns the property completely (in lawyer-speak this is know as "fee simple absolute") or is a joint owner with an heir named in your mother's will or is merely a tenant for a set number of years, either of those rights of possession (and there are many other possibilities!) will have an impact on an analysis of how to resolve the reverse mortgage. Accordingly, I won't speculate on whether you should choose a deed in lieu or a short sale, or on your brother's liabilities because those questions are wildly premature.
    0 Votes

  • 35x35
    Sep, 2009
    Trish
    I have situation when my mother passed away and her home has a reverse mortgage. Somehow my brother who was living with her in the same home also has his name on the title but not on the loan. What is the best way to settle this, we are thinking of a short sale but a friend suggested us to do Deed in lieu of foreclosure. Since this is a reverse mortgage loan, from what I am understand, the lender will be responsible for all expenses incurred on short sale the home. Is that correct? Will my brother be held responsible for anything related to short sale or can the lender go after him to collect the different of sales? Thank you for your advice.
    4 Votes

    • 35x35
      Jan, 2011
      Andy
      Sorry to hear about your mother. If you have a HUD backed reverse mortgage and are upside down you honestly wont have to worry about it. Your mother most likely took out the HUD insurance and it is HUDs liability to take care of the difference.
      2 Votes

  • 35x35
    Jun, 2010
    Michael
    Bill - I have a question for you. I have been paying on house in IL for the last 3 yrs that has not been occupied (never late). My credit score is over 800 and worry about being able to buy soon if foreclosed. I Moved to TX (community property state) and have been here since listing. I bought the house for 300k and now asking 205k. My wife more than likely is on the deed, but not on the loan. I have it listed as a short sale, but will be running out of money soon (giving up?) and no offers as of yet. As far as I know we cannot buy under my wifes name here in TX because they will see I have a foreclosure if it gets to that point. Do you have any advice to give or if she can qualify here on her own with a conventional mortgage? Any help appreciated.
    4 Votes