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$YRLG IRUHFORVXUH ZLWK D ORDQ PRG RU VKRUW VDOH There are many solutions available to homeowners falling behind on their payments. Most people think Bankruptcy is the only option, short of just letting the Bank take their home. Bankruptcy is a good option, and while it can strip off the second trust deed if the home is upside down in current value, bankruptcy cannot change the terms of payment on the Àrst mortgage. Frequently, we use a combination of strategies including bankruptcy to strip all secondary liens, modify the terms of the Àrst, and convert the adjustable to an affordable Àxed loan. Some lenders offer workout options. Others want you to “catch up” all the missed payments Àrst. A few major banks have sent out letters to their borrowers, offering to modify and lower the loan balance if you meet certain qualiÀcations. However, in instances where you do not qualify for a loan modiÀcation, the home owner should deÀnitely consider a “Short Sale”. Short Sale Facts. If you are facing foreclosure, a short sale can be a beneÀcial alternative. It is an agreement with your bank or mortgage company, allowing you to sell the property for an amount less than what you owe. Usually, the bank requires an appraisal, and will accept an offer that’s relative to the current fair market value. Unfortunately, the seller (current home owner) cannot also be the new buyer. What are the advantages of a short sale vs. foreclosure? The main advantage of a short sale is preventing foreclosure and the consequences that foreclosure incorporates. Short sales are considerably less damaging on credit ratings than foreclosures. Remaining on your report for up to 7 to 10 years, a foreclosure is often times more damaging than a bankruptcy, (unless it’s included in a bankruptcy), and may take you 3 years or more to re-qualify for a new home loan. While Short sales may be reported to the credit bureaus, they are noted as “paid in full” or “settled for less than owed” and have far lesser effect on Àco scores. 2013 is a great year to complete a short sale, and get out of a property that is “under water”. Because a short sale allows the homeowner to sell their property for less than the outstanding mortgage debt, it creates a “deÀciency”, written off as a “forgiveness of debt” by the lender. In years past, debt forgiveness was considered taxable income. The lender would send out a 1099. Imagine adding $200,000 to your regular taxable income! However, for 2012 and 2013, the federal government has given us a pass on debt forgiveness taxable income on short sales. However, it is wildly expected to end in 2013. (Please note, this column does not provide tax advice. Always seek advice from a tax professional, when considering tax ramifications in
property sales) Short Sale Summary You can buy another home in as little as 12-18 months. Under Mortgage cancellation Tax Relief Act of 2007 (H.R. 3648) Forgiven debt may NOT be taxed. Get more time in your home, and avoid the threat of immediate eviction pending a short sale process. Permanent tax free debt relief. It usually takes 1-4 months to complete a short sale; you may remain in your home during this time. May qualify for Government relocation assistance – up to $3000 What is a Loan ModiÀcation? Loan ModiÀcation Facts A Loan ModiÀcation is usually a conversion from an adjustable (and uncontrollable) to a Àxed interest loan. It could also involve changes to one or more of the following: Interest Rate; Principal Balance and even forbearance on penalties. It also should bring the account current, creating a fresh start for the borrower. There are many reasons for seeking a Loan ModiÀcation, however not everyone can qualify. Most Lenders will tell consumers they do not qualify, or deny the Àrst attempt in order to collect the full amount due. Our law ofÀce will qualify you according to the lender’s guidelines and negotiate on your behalf to get the lender to accept your situation and thereby agree to the modiÀcation. A loan modiÀcation will take the mortgage you now have and change the interest rate, terms or payment requirements in order to convert to a Àxed rate. Changes in rates and payments do not require new closing costs, legal fees, survey, appraisal, or taxes. In contrast, if you “reÀnance” a loan you’ll be required to have a closing and be forced to pay a variety of fees and taxes. If you are facing the dilemma of owing more than the property is worth, or you cannot afford your mortgage payments, give us a call. Let’s see what my ofÀce can do for you. Some people try this on their own, but get lost in the system and end up with an unnecessary eviction instead of a workout. That’s why a lawyer makes a difference. When a lawyer is involved, calls start to get answered and the letters responded to. This could make the difference between keeping your home or losing it. Get the help you need. Call the Law OfÀces of Paul M. Allen. We have three locations to serve you: Glendale, Cerritos and La Palma. My consultations are free, but it is by appointment only. Call now at 818-552-4500.
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