What are my responsibilities in letting my home go into foreclosure?
Submitted by Mary
from
- 04/10/2008 - 12:45pm
I have been contemplating letting my house go into foreclosure. If I do, what are my responsibilities to the lender or the IRS in paying off the difference of the sale price at auction and the difference of my loan? Also what about capital gains from appreciation of the home? It is my understanding that there are laws that could protect me, is that true? Thanks.
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You should really consult a tax advisor and or attorney. ?However, California is largely a no-recourse state, meaning that the lender likely won't be able to come after you for any deficiency balance. There also will likely not be any tax consequences for the forgiven debt at the moment thanks to the Homeowners Relief Act passed by Congress - though this was always true if you are insolvent - again you will want to check with a tax advisor for details because it depends on your specific circumstances. Also note that you may still remain liable for taxes on any capital gains. ?Another issue to consider is that it will affect your credit for 7 years.
All the rules have changed in the last couple of months. Lending banks are now being held accountable for the trap they set, borrowing money they didn't themselves have, while using loose and illegal practices in the process. The massive lawsuit against Wells Fargo / Wachovia, Indymac / OneWest bank, Citibank, Bank of America, JP Morgan Chase, GMAC..............can actually, not only put a stop to your foreclosure, but also pause your house payments with no loss to you............
https://sites.google.com/site/sueyourlendernow/home
Certainly lots of action, but we don't see that there has been a fundamental shift yet. Certainly little in the way of settled law still. The only thing that is certain at this point is that a lot of folks are spending a lot of money with attorneys in the hopes of getting mortgage relief. Will be interest to watch it play out. We've been covering most of the important cases at http://foreclosuretruth.com
Santa Barbara Bank & Trust has filed an NOD on the Oceano Nursery SBA loan even though they are claiming they are owed $55,000.00 that they have all ready been paid. Is this legal?
Hi Bill,
You may want to consult with an attorney that can review the paperwork. Could they be accelerating the terms of the loan because of some other clause in the loan agreement? Sometimes if there is a change in the beneficial interest of the property or some other term other than non payment of the monthly payments they can call the loan due and payable and start the foreclosure proceedings. SBA loans also have different rules that standard Deeds of Trust. You would be best served to seek legal advice.
How long am I responsible for maintaining utilities once the home is in its final days of the foreclosure process?
Utilities remain in your name and you remain responsible for them until you have them shut off.
Mary -
Is letting your home go into Foreclosure best for you? The bank does not want to Foreclose and unless you have been several months late and an NOD filed then there is probably still time to work out a Short Sale vs Foreclosure.
Sean has been very clear about the benefits of a Short Sale vs Foreclosure. Here is another benefit in a memo from Fannie Mae - see the attached memo, dated, 6/25/2008 - it basically says that Fannie Mae will not allow someone to obtain a new loan for 5 years after a Foreclosure. However, they will allow a new loan after 2 years after a Short Sale (pre-foreclosure) - This is really good news for homeowners who have a tough situation with housing prices that have fallen who choose a Short Sale vs Foreclosure.
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf
Regarding Mortgage Forgiveness Act - Below is a link to the IRS site with common questions and answers. Basically, for a pruchase loan for your primary residence, in the years 2007-2009 the IRS will be forgiving (ie not charging) taxes based on debt relief. This does not apply to second homes, investment properties and refinances above the original purchase value. If you dont qualify for the Mort. Forgive Act, then there is still the "insolvency" test, if you qualify.
http://www.irs.gov/individuals/article/0,,id=179414,00.html
These comments are strictly my opinions and should not be relied upon as tax or legal advice. Consult a lawyer or accountant for tax and legal advice.
Regarding Short Sales - Please contact me if you would like additional information or would like a professional to assist with any or all aspects of the process. We are located in Southern California, however, have a network of professionals that can assist around the country. My e-mail is bob@inspiragroup.com or direct line 949-600-5404.
Please get the facts of a Short Sale or other options before doing a foreclosure.
BOB
I want to move out of my home in Clearlake, Ca, and I owe $150,00. It is worth roughly $100,000. I have lived in it for six years and need to get out. What can I do?
Contact a Realtor about listing it as a short sale.
we lost our home to foreclosure here in Oregon. We were only in the house for 2 years what are our responsibilities now. It has since been sold to another party.
Next step is to find a new place. Ask the new owner for "cash-4-keys" in exchange for moving quickly and leaving the place clean. In CA cash-4-keys is typically $1k to $3k. Depending on the value of the property, and how badly the new owner wants to get in quickly.
i have a home in florida that i'm thinking of a forclosure, lack of funds. what is my reponsibility. thank you. anthony.
We are in Wisconsin. We have a home we are considering allowing to be foreclosed on. We were both unemployed and did not pay for about 1 1/2 years. They have restructured our loan, but we still cannot afford to pay and still support our family. What are our financial responsibilites if we allow it to go into foreclosure?
I let a house go to forclosure last year, its been sold and the bank switched the "secured" second to "unsecured". We have not gotten any notices on this as of yet...Qustion is the current home we are in is underwater, we owe $376k and its worth $250k at the top of the scale, Should we let it go as well??? we could save alot of money and in 5 years buy a house outright.
Hi Aj,
This is a very subjective question and unfortunately only one that you can answer. We highly suggest meeting with a tax professional, legal advisor and a realtor that specializes in short sales so that you can examine all options. It also sounds like you should consult with a bankruptcy attorney. If you are going to truly restart your life make sure that there are no "unsecured" loans out there that could impact you once you start down the road to financial recovery.
We know that there are a lot of people that are choosing to strategically default on their properties. It is so important that you get all of the facts and then make your decision.
My husband just lost his job and we financially cannot afford to make our payments. Even if he was to get a job tomorrow he would be lucky to make 1/2. So restructing our loan is probably not possible. We are also upside down. We have money in savings [and 401K and profit sharing and stock] and do not want to spend this money knowing it's inevitable of us losing our home. My main question is if you do a "short sale" will the bank go after our "other assets"?
Whether or not they can depends on what state you are in, how many loans you have, and whether the loans were the original loans you used to purchase the property, or refis.
Rochelle -
The answer to your question is in the specifics of your situation. Feel free to contact me with your details of your situation. Please include the following:
- what city, state is your home located?
- is there one loan or two loans?
- where the loan(s) used to purchase your home or refiance loans.
- what bank(s) are currently servicing your loan?
With that information we'll be best able to assist.
BOB, MBA, CDPE
bob@inspiragroup.com
949-387-0500
we have a home in Montana with PHH morg. and a second with HSBC for repairs/refi /misc. we have had to move do to loss of work. we are thinking about letting the home go back to the bank. what happens to our 1st and 2nd loan and will the banks come after us for money or other stuff ? its a 1st and 2nd loan with no other leans on property.
House is located in St. Charles, MO one loan. Loan was to puchase the investment home. Citi mortgage.
the house is going for sale on court house steps in mid February. We are trying for deed n leau or short sale but not much hope. what are our responsibilties after the foreclosure> Can they come after us for anything?
Hi Jannea,
We do not cover Missouri but it does appear that MO does allow for deficiency judgements. You can contact a free HUD approved counselor in your area by going to makinghomeaffordable.gov. They should be able to help answer your questions or refer you to someone that can.
we have a home in iowa and it went into forecloseure we moved out in feburary as it was going up for sale feb 8th it has not sold now they want us to pay for insuranse --we canceled as of feb 8th and the city wants to charge us to mow--what are our responsiblilities?
Hi Lisa,
This is one of the big problems with the delays in the foreclosure process. You are still the owner of record until the property goes to foreclosure/trustee sale. The city will continue to contact you as the owner of record and hold you responsible until the property is foreclosed upon.
I have a home in Phoenix, AZ and I want to let it go. The payments are too high. I have moved out but since then I have learned that the A/C unit has gone out. If I let it go into foreclosure will this be my responsibility to fix?
Hi Annabell,
If the lender forecloses on the property you would not be responsible for repairing the AC. If you are currently renting the property then you would want to repair the AC. If the property is vacant the non-functioning AC is not creating a hazard or code violation so there would not be any urgency in getting it repaired.
We have a rental home in CA with renters currently in it. Their rent doesn't pay the mortgage and we can no longer afford to pay out the difference. We want to just walk away from it and be done with it. Its worth about half of what we still owe on it. We haven't missed any payments yet but are wondering if we should let it go into forclosure or if there is a better way to handle it.
Hi Ben,
Do your research and get your questions answered before you make a decision. You can consult with a real estate professional that has experience with short sales to explore that option. You would also want to consult with your tax advisor to determine what potential tax liability there could be if you short sell or foreclose. This is an investment property so you do not have some of the advantages that you would if this was your primary residence. It would probably be helpful to consult with an attorney as well. There are many variable to consider (is the loan a purchase money loan, hardship etc) that may impact your decision. It is far better to make an informed decision considering all options before you decide a course of action.
Ben - I'll ditto what Michelle said, but emphasize the fact that you may not be able to simply "walk away" from all the debt, especially if you have more than one mortgage. Be sure to have someone review your specific situation so you know exactly what the lender may or may not be able to come after you for, as well as the tax consequences.
We are behind in our mortgage due to my husband having multiple surgeries. Our home is only worth about 50,000 right now and that is a high estimate. We owe 70,000. We are moving in with my husbands parents and they are giving us their house. Our neighborhood is no longer a safe place to live. Will the bank be able to come after us for the balance of the loan? We live in Ohio. If it is auctioned I don't know that they would get more than 20,000 for it. I just don't know that we have any other options.
Hi Marissa,
Deficiency judgments are allowed in Ohio. You may want to seek legal advice or at least reach out to a HUD approved counselor at www.makinghomeaffordable.gov. You will want to make sure you understand the laws so that this debt does not attach to the new property. Better to do your research in advance and know the laws and what you are up against.
I'm in a condo in CA, and there are many empty units in my complex that have been foreclosed and vacant for nearly a year. My original loan amount was $348,000, now with penalties and interest, it's up to $370,000 and worth around $250,000. The mortgage company has made me go through miles and miles of heartbreaking paper trails only to deny me a loan modification and put my condo up for auction. I haven't paid mortgage, HOA or property tax at all in 2011 and my home is on the auction block. I was in hope that a lien would be placed on the property for the back HOA payments or County Tax thus incorporating those costs into the sale of the home. Am I responsible for the back HOA and property taxes? I'm considering a BK, but I don't want to give up the possibility of buying a car or using my credit cards. I really don't have a ton of debt, just my upside down home that I have used my entire life savings to keep in 2008-2009 after I lost my 6 figure job.
Hi Kim,
The HOA lien will typically be wiped off of the property in a trustee sale but that does not prohibit the HOA from attempting to collect the past due dues from you. It depends on how aggressive the HOA is in collecting the past due dues. They may take you to small claims court to seek a judgment so that they can attach a lien. Many of the HOA's are in serious financial distress and are becoming more aggressive.
We just recently had a offer accepted on a short sale home and the owners are moving out of state within 2 weeks. The bank still needs to accept our offer and our realtor advised us it could take up to 90 days. What is the responsibility of the owners to keep the pool and landscaping up eventhough they are moving out of state? We don't want to move into a home with a green pool and dead landscaping because the bank takes 90 days.
Hi Heather,
The maintenance on the house (and pool) It is the responsibility of the homeowner. They will need to hire someone to maintain the property if they are out of state. If they neglect the house and the pool turns green your lender would probably refuse to fund your loan even if the short sale was approved.
The goal is to lower the new mortgage amount to approximately $3000 below the house's current market value. The homeowners will have instant equity and a payment they can afford. We will help them start to rebuild their financial health.
Banks call these homes toxic assets. We call them homeowners.
Check this for more info! http://www.indiegogo.com/Save-One-Homeowner-at-a-Time-Help-to-Break-the-...
I have 2 investment properties in Washington and a primary residence in Calif. I want to let the bank take back one of the investment properties in Wa. What is the consequences on my other properties?
Our daughter died in October, 2011, after a long illness. She lived in Florida. She had stopped making mortage payments on her home Spring, 2011. She also had an equitiy loan as well and tried to keep up payments with that but ended when she passed. Her 18th year old son is now living in the home. The only income he has is SS from his Dad who also died in 2004. His Mom left nothing/no life insurance, etc. He has nothing. There is a possibility that we his grandparents could buy the house/it has only been assessed at $50,000. Her
ttotal debt both home and equity loan is $80,000. Should we wait until it goes iinto Foreclosure before approaching the bank or wait it out?
HI Courtney,
We are really sad to hear about your loss. At this point the point the property is underwater (she owes more than it is worth). Although I completely understand the emotional attachment to the property it would not make financial sense for her son to try to "save" the property unless the bank is willing to modify the terms of the loan and do a principle reduction. This would also mean getting the 2nd to accept a settlement. What you are proposing is a type of short sale which in most state the lender does not want to do a short sale where the buyer has a relationship with the seller (non arms length transaction). At this point it would not hurt to reach out to the lender to exhaust all options. You can also reach out to a local FREE HUD approved counselor in your area for guidance. You can find a list by going to www.makinghomeaffordable.gov. We sometimes hear about unique situations where the bank does the "right" thing. We are hoping that happens here.
We have a 2nd home (condo) here in Oregon that we just found out will be foreclosing. No date yet. We just found out that we do not qualify for a modification on our loan. We owe approx. $360k and IF any condos move they are selling for $200k. What are our tax responsibilities for this default? What would our responsibilities be for a short sale? Do not even know if we would be approved for a short sale.
Hi Traci,
There are potential tax consequences on any debt forgiveness. You would want to seek the advice of a tax professional that can look at your specific situation and determine what the tax consequences may be. There are certainly some variables. Did you do a cash out refi? Do you qualify as insovent under IRS rules. There are 3-4 different ways that a good tax preparer can address this matter and potentially reduce the amount that may be owed.
The rules are changing all the time regarding short sales. The issue of hardship may no longer be an issue. You would want to reach out to an agent in your area that specializes is short sales. Of course it is easier to negotiate a short sale if you only have one loan. In some cases we have even seen a lender give an owner cash at close to help with moving expenses.
Do your research and then make a decision that is best for you.
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