Foreclosure Question Please help ASAP

Danielle · Joined: 18 Oct 2007 Posts: 1 1.71 Dollars($)

In Michigan

My husband's name is on the loan but not mine. Both are on the deed. Will my credit get ruined if we foreclose on our 2nd home?

If we foreclose will they put a lien on our current primary residence for the balance after sale. There is no way they'll get what the loan is for, probably $50,000 less because the market is so bad.

If we foreclose will they garnish our wages or deplete our savings?

Since they won't get the full loan amount, is it true that the bank can come after us for the deficiency? And even if they don't since the home isn't our primary residence won't we be required to pay taxes on let's say the $50,000 app loss?

Is foreclosing the best option? We cannot afford the debt if the house even sells especially after paying all the upcoming house payments and we own our other home and we are locked in a 30 year fixed mortgage with NO intention of moving ever really. Both my husband and I have EXCELLANT credit we own our cars and we have NO OTHER debt, except our primary home mortgage.

NOTE: Just a redeming point we thought we sold our old home via lease to own option thing with this company 3 years ago and they basically took us for a ride made their money while the market was good and dropped the house back in our lap now that the tenants have trashed the place and stopped payment and the market went bellyup.

Guest

I think you are responsible for the deficiency because it is a refinance so would a short sale be better, but requires a lot of lawyers etc..

livinginnky · Posted: Fri Oct 19, 2007 11:10 am Post subject:

No if they foreclose on your investment property you probably don't have a lot to worry about. Besides the credit effects.

livinginnky · Posted: Fri Oct 19, 2007 11:12 am Post subject:

I want to add that you could possibly be responsible for paying the taxes owed on the deficieny. I would contact an attorney and ask them about the taxes and the leasing companies obligations to you through your contract. A good attorney will let you know what rights you do and don't have.

Samantha

Hi Danielle,

Since your name is on the loan, therefore only your credit will be ruined if the loan is foreclosed.

However, if the lender forecloses the loan, they won't place a lien on your primary home. This is because in this case, the collateral for the loan is your second home. Instead, they can demand the payment of the deficiency through a judgment. And, they may even garnish your wages so that they are able to get back the deficit amount.

Regarding the tax payments, that'll be on the deficit amount, that too, if it is not paid by you. If the lender forgives the deficit amount, that is, if he issues a charge-off, then it will be reported as a loss for the lender and in that case, you'll have to pay tax on the deficiency. But wait till the lender issues a 1099-C form implying that he has charged-off the debt and it will now be reported to the IRS.

However, the lender will not be able to deplete your savings. But if you need to pay off the deficiency and you don't have other sources of funds, then you may have to use your own savings to repay the loan.

Instead of a foreclosure, you should go for deed-in-lieu. The credit effect would be less but I don't know whether the lender or the mortgage company will agree. This is because if the same company has not worked out the lease to purchase deal properly with you, then I doubt how much they'll co-operate if you request for deed-in-lieu. Also, the company cannot ask you for deficieny payment in deed-in-lieu.

By the way, have you tried refinancing the existing loan on your second home?

God bless you.

Samantha

Guest

everyone thanks so much for the info. The bank is doing a short sale with us and word is that 1099-C may be waived by the government this year bc everything is so bad especially in MI. So hope for that. We have 90days to sell the home and the bank said they would issue a deed in lieu of foreclosure, so that is GREAT! THey are being extremely merciful! It only cost us $500 to put back the house in working order after the tenants left bc we had 10-15 volunteers and we did it in 2 days! Now we are waiting. There are some showings and some lady is writing to me from Toronto that wants to buy it but she has a lot of hoops to jump through to make that happen. We would rather it sell and do the short sell because the credit effects are less than deed inlieu. I am glad to know that it only affects one of our credit bc the loan is only in my husbands name.

Question?

How does deed inlieu of foreclosure affect your credit and is the a tax penalty (1099C) like in short sale? Which is better at this point?

BTW Samantha we are not qualified to refinance and even if we did the rental market is so competative we would take a huge monthly deficiency. We would probably payout $700 a month to rent the home. And sorry for all those good renters out there, but the 2 that the leasing co put in our home were horrible!

Thanks again!
God Bless
Danielle

livinginnky · Posted: Sat Nov 10, 2007 11:16 am Post subject:

jenkin7 · Posted: Tue Nov 13, 2007 4:56 am Post subject:

Hello Shalt,

A deed in lieu of foreclosure also has negative impact on your credit but it is less than foreclosure. You may look here http://www.mortgagefit.com/deed-lieu.html for further information on this.

Guest

THe bank is the one that said if the house doesn't sell in 90 days then they will do a deed in lieu of foreclosure. They have been extremely merciful and I am surprised at how helpful they have been. I simply called and said that our realtors recommended that we foreclose the property, but we didn't want to do that. THe rest was history. THey also said that both in the short sale or deed in leiu they will never come after the deficiency.

I am shocked! I guess in a way the bank is helping ease the blow of being scammed three years ago. Never again will we sign a contract regarding real estate without a lawyer again no matter how long I have known the person!

HOping that it sells in the 90 days so then this will all be over!

Thanks again
Danielle

Guest

Sorry the bank will do a short sale with us if we can find a buyer that they approve within 90 days from 10-24-07. After that they said they would issue a deed in lieu.

Caron · Last edited by Caron on Tue Nov 27, 2007 4:56 am

Ok Danielle, things are pretty clear now. So, the bank is being very helpful, it will allow you for a short sale and if doesn't happen within 90 days then they'll allow you for a deed-in-lieu. And, the best part is, they have promised not to ask for deficiency in case of short sale. As it is, in deed in lieu, the bank doesn't have the right to seek deficiency judgment. but take my word of advice Danieel, request the bank to give it in writing that they won't ask for the deficiency in short sale. it's always better to keep a written statement.

good luck for the sale Smile

Guest

We will make sure everything is in writing! THank you very good point! We have an offer as of Saturday and hopefully the bank accepts it and the short sale move quickly so we don't loose the buyers It is 45,000 less than the loan and that is without the fees associated. From the bank's perspective it is better than foreclosure. Hopefully it goes through!! And quickly!

Caron · Posted: Tue Nov 27, 2007 5:01 am Post subject: RE:

Hi Danille,

Welcome back.

Good to hear that things are going the way you wished for. But I hope you are aware that if you don't pay the deficiency, you may have to pay taxes to the IRS on the canceled debt. This is because the canceled part of your debt will considered as income and hence the taxes. But then it's always better than having a negative mark on your credit report.

Let's hope things go the right way and if you need any more suggestions on any issue, just don't hesitate to ask me.

Good luck

scherzeroni · Joined: 05 Jan 2008 Posts: 51 18.77 Dollars($)

Quit claim the deed to into your husbands name only. Although the bad payment history will not show up on your credit report, when the forclosure is filed, it is on the property and is public record and could show on your credit report. A quit claim deed will cost less than 100 for a title company or attorney to file for you. Save your credit so that if you need to use it in the future, you have it.

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