CA - Letting home into forclosure

Guest 0.10 Dollars($)

Hello,
I am planning on stopping payments for my Primary home from next month. I have a propertytax bill as well that is due early next month. Should I be paying the Property Tax to protect myself or Can I just ignore it?
I have 1st loan with INGDirect and I dont have a second loan. This is refinanced mortgage. I am upside down on the price. Bought it 2 years ago and the price is 180K less than I owe to bank. My commute is 3-4 hours daily and this is stressing me. I am not sure of lender would let me do a short sale as the difference is over 180K. Should I stop payments before even bringing this with the lender and talk to them about short sale once they contact me?
I have 401K, cars and future paychecks from work. Since, I dont have 2nd mortgage, am I protected in terms of these?
Thanks for your help..

larry · Joined: 27 Jun 2007 Posts: 2546 339.95 Dollars($)

Hi Kish,

Welcome to the forum.

I think you should not stop your monthly payments also you should not even ignore the property tax. You are bound to pay the property tax.

Even if you let the property go for foreclosure it will not help you anyway. Rather it will have a huge negative effect on your credit report.

Feel free to ask if you have any further questions.

Best of luck,
Larry

Guest 0.10 Dollars($)

Larry, thanks for your reply. I cant stay in the home due to medical reason (commute) and I cant rent it as well. Or I cant sell it as weell in this market conditions. So, How can I walk out of this property without having to let into forclosure. I cant afford to leave the house and rent another place near my work. What are my options?
Thank you,
Kish

Jeanette · Posted: Thu Mar 27, 2008 8:35 pm Post subject:

Hello Kish and again Welcome to Mortgage Fit,

Kish what we doing is offering you options and its your decision on what to do in your unique case. We would not suggest for you to do a short sale because that will negatively impact your credit. If you do want to get rid of the property a sale whether it will be to a relative, friend or others would be more feasible. If you try to sell at a lower than market value you would benefit better than doing a short sale. Think hard about this and find a good alternative way out of this situation. You can stay at relatives or friends close to job while you are trying to sell the property. Besides, lenders will be more agreeable to negotiation if your payments are in arrears. Plus, if you have cash assets, such as your 401k, the lender might try to tap those accounts. Doing a short sale is not for the faint of heart.

Here is the effects on the credit score.

Foreclosure or Deed-in-Lieu of Foreclosure
__________________________________
Both of these solutions affect credit the same. Sellers will take a hit of 200 to 300 points, depending on overall condition of credit. This means if a seller's FICO score before foreclosure was 680, it could dip as low as 380.

Short Sale
________
The effect of a short sale on a seller's credit report is identical to that of a foreclosure. The ding on credit will show up as a pre-foreclosure in redemption status, Steep says, which will result in a loss of 200 to 300 points. This means a short sale with a previous FICO of 720 will see it fall from 520 to 420.

Jeanette SMith
Mortgage Planner
Union Mortgage Group
office: 757-306-3300

Guest 0.10 Dollars($)

Hi Jeanette,
Thanks for your suggestion. I have 2 people that are interested in buying the property for a lower than market price. But, will bank be willing to bite the difference? I cant shell 180K out of my pocket. I make enough money to pay mortgage for the house. But, if I rent another place near to work, it will be tight. So, I have to make bank agree for selling the property to a person either in regular sale or short sale. In order for the bank to look into that option, should I stop making mortgage payment?

Caron

Hi Kish,

I suggest you rent out the property thereby paying for the loan with your rental income and avoid doing a short sale as the latter will affect your credit negatively. So, why take the hit on your credit report when you have an alternative. Even better would be to allow for a lease-to-purchase on your property and then sell it when the market is good enough to offer you some gains at least.

Moreover, if you're on short sale, don't forget you'll have to pay taxes on the deficiency, if the lender forgives the unpaid debt and if you're in California. Had you stayed in some other state, you wouldn't have to pay such taxes.

But hey Kish, did you discuss all options with your lender? It's important for you to negotiate with him on the workout options, especially if he agrees to a short sale asking for deficiency, you may have to take help of an attorney for the negotiation.

Good luck

Guest 0.10 Dollars($)

Caron,
Thanks for your reply. If I rent it out, Since my income is over 150K, I cant take tax advantage. So, I need to pay ~2K/month out of my pocket.
I want to talk to the bank about short sale or deed in lieu. Do I need to miss a payment to get banks attention or can I try talking to them now? I am in CA, Is there anybody out here or any attorney contact that I can take to help me out dealing with the bank?
Thanks,

larry · Joined: 27 Jun 2007 Posts: 2546 339.95 Dollars($)

Hi Kish,

Welcome back.

I think no one would suggest you to miss payments to get bank's attention. better you talk with them now.

Joshua Heard is an attorney here in this community. You can talk to him at http://www.mortgagefit.com/jheard/

Feel free to ask if you have any further questions.

Best of luck,
Larry.

Jessica

Hi Kish,

It actually depends upon your lender as to whether he's require you to miss a payment or two before you can ask for a short sale. You need to talk to him regarding this. Tell him that you're having problems in paying; possibly he'll suggest an alternative such as short sale or deed-in-lieu.

Regards,

Jessica.

Guest 0.10 Dollars($)

Thank you Jessica and Larry for your input..I will talk to the lender to see what he has to say. If he agrees for short sale or deed in lieu, that would he really great before I miss any payments..
I will keep you guys posted.

sara · Posted: Wed Apr 02, 2008 4:27 am Post subject:

Yeah it happens at times when lenders agree to short sale or deed-in-lieu before one has missed a payment. But I guess that's very rare. They'd like to look out for every possibility so that you don't take up such an option if you haven't missed a payment.

Take Care

kingno1 · Joined: 25 Apr 2008 Posts: 3 1.86 Dollars($)

Hello,
I was talking to my lender about letting my property go if they wont accept for Short Sale or Deed in Lieu. He was saying that 1099 will issued for the difference amount in case of Deed in Lieu for the purchase price - their sale price. And in case of short sale, they wont consider purchase price and only consider the realistic market price - sale price. He was suggesting me that I am better off with Short Sale. Is that a true statement? This will help in negotiating with them on which patch I want to go.
Thanks,

larry · Joined: 27 Jun 2007 Posts: 2546 339.95 Dollars($)

Hi kingno,

Welcome to the forum.

I think your lender has given you right suggestions. Short sale is the better option and you should try sale the property and pay off the lender. It will not have a huge effect on your credit report. It will only drop 60 to 100 points but you may have to pay the deficiency amount.

In case of short sale you may get approve for another mortgage within 18 months if you can improve you credit..

Feel free to ask if you have any further questions.

Best of luck,
Larry

Guest 0.10 Dollars($)

Hello Experts,
I submitted my paperwork and hardship letter to bank on Tuesday. Just received a call from the bank (very quick, 3 day turnaround).
They are willing to do Deed in Lieu. They asked me to pay this year property taxes and the insurence. I told him that I can cover half of the taxes and asked them to bite the other half. He said he will get back to me on Monday with final terms. and said that the process will take 2 months.
I feel releived..Better than letting the house into forclosure.
Here is my question.

He mentioned that when the bank was able to sell the house, bank will issue me 1099 for the losses incurred. What are my liabilities once the house is deeded back to the bank? Can I be covered under mortgage forgiveness act? Can some expert throw some insight into this please?
Back ground
-----------------
House was bought in July 2006.
(Will it benefit if I own and stay until I complete 2 yrs, for 1099 ans tax purpose?)
bought for 536,000
Refinanced last time with appraisal of 650K and bank was able to put all in 1 loan for 536,000. No second loan.
I owe 531K now. Never pulled extra money out of the house.
I am concerned about the 1099. The difference will be atleast 200K if they sell it. Am I liable to pay taxes on those 200K income in the future? Can I be covered under mortgage forgiveness Act? Please Advise?

larry · Joined: 27 Jun 2007 Posts: 2546 339.95 Dollars($)

Hi Kish,

As the bank has accepted the deed in lieu they will not come after you for the deficiency judgment and because of the Mortgage Debt Forgiveness Act you will need not to pay any tax on it.

BTW you can consult with an Tax attorney on this.

Best of luck,
Larry

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