We can't afford to pay our mortgage, and the title and the mortgage are in my spouse's name only. What's the worst that can happen?
We cannot afford to pay our mortgage. The title and the mortgage loan are under my spouse's name only. Should I file income tax with my spouse or not? (we always filed together before), but I am trying to save my credit for the future, so we can rent a place. Do I still have to pay the property tax? What can the city do? We have one car paid in full (worth about $5,000), and my house is going to foreclosure. The bank can go after my car?
Due to the downturn in the U.S. housing market, many Americans are currently facing the foreclosure of their homes. Thankfully, there are several ways that you may be able to mitigate the damage caused by foreclosure. To read more about foreclosure, I encourage you to review the Bills.com foreclosure page.
Given the difficulty of your financial situation, you may have no choice but to give up the home. The easiest choice may be to place your home on the market; hopefully you can sell the home for a reasonable price which will allow you to liquidate any equity you have built in the property.
If you owe more on the home than it is worth under current market conditions, you may need to discuss a short sale with your lender. In a short sale, your lender would allow you to sell the home for less than you owe on your mortgage, thus avoid foreclosure. Many lenders will also forgive the difference between the amount owed on the mortgage and the short sale proceeds, preventing large deficiency balances which can often result from foreclosures. If you are interested in a short sale of your property, you need to consult with your lender to determine if it will approve a short sale and what terms would apply to the sale.
If you are unable to sell the home, or if the lender refuses to agree to a short sale, your home may be foreclosed and sold at auction. The lender would usually apply the sale proceeds to the balance of your mortgage, and you would be responsible for any balance left on the mortgage loan; this type of obligation is referred to as a "deficiency balance." Whether your lender can pursue your spouse (since he or she is the only person on the loan) for payment of any deficiency balance resulting from the foreclosure of your home greatly depends on your state’s laws. While most states allow lenders to collect deficiency balances just like any other unsecured debt, a few states, such as California, do not allow for the collection of deficiency balances resulting from the foreclosure of purchase money loans (i.e., a first mortgage that was used to purchase the property). However, if a California consumer refinanced his loan or took out a second mortgage, those lenders likely would be able to pursue the consumer for payment.
Foreclosure and Judgment
If your state allows for collection of deficiency balances, it is possible that your lender could sue you and obtain a judgment for any deficiency balance owed. Once a judgment is entered against you, the lender may be able to seize any non-exempt property you own. Whether your vehicle would be exempt depends on your state’s exemption laws, so I would recommend that you discuss this matter with an attorney. However, I can tell you that it is rare for any judgment creditor to seize a vehicle, as the benefits for the creditor rarely outweigh the costs and inconvenience associated with trying to take possession of a consumer’s vehicle.
Foreclosure and Bankruptcy
One possible way to resolve any deficiency balance resulting from the foreclosure of your property would be to file for bankruptcy protection. If you qualify to file for Chapter 7 bankruptcy, the bankruptcy court may discharge your unsecured debts, including any deficiency balance you owe. Bankruptcy may also be able to protect your vehicle and any other exempt assets you may own. I strongly encourage you to consult with an attorney to discuss the possible consequences of foreclosure, deficiency balances, and judgments in your state, and to determine if bankruptcy may help relieve some of your financial woes. To read more about bankruptcy, you can visit the Bills.com bankruptcy page.
Foreclosure and Taxes
In regard to your tax situation, I cannot provide you with tax advice, and I encourage you to consult with a qualified tax professional, such as a certified public accountant (CPA) or an attorney specializing in tax law. Generally speaking, I cannot see how the financial difficulties you are facing would change your federal income tax filing status, or how you and your spouse’s filing separate income tax returns would benefit you. As to your other tax questions, delinquent property taxes generally result in a lien on the property, which must be paid before the home or land can be transferred. In the case of foreclosure, the delinquent property taxes would likely be paid by the lender who wishes to foreclose. I cannot tell you whether you should pay your property taxes, but you should know that, because your home is already in foreclosure, there are likely few consequences if you are unable to pay the taxes. Again, consult with a qualified tax professional to determine how your financial troubles may affect your tax liabilities.
Debt distressing you? The Bills.com Debt Coach is a no-cost online tool that will analyze your debts and show you the options available to resolve them and the costs and benefits of each.
Before you resign yourself to allowing your home to go into foreclosure, you should explore the options available to prevent foreclosure. If you are forced into foreclosure, the information I have provided may help you mitigate the damage. I wish you the best of luck in resolving your financial difficulties, and hope that the information I have provided help you Find. Learn. Save.