What do I do if I’m facing foreclosure?
In today’s current real estate market, it’s an unfortunate reality that many sellers are at risk of facing a potential foreclosure. The good news is there are several options available to help avoid the pain and hassle of a foreclosure.
A foreclosure does not benefit the consumer or bank, and should be avoided at all costs. Please keep in mind that if your property does go into foreclosure you are liable for the difference of what is owed on the property versus what is sells for. (For example if you owe $200,000 on the property and it sells at auction for $150,000, you are liable for the $50,000 difference.)
Not only are you liable for the difference to the bank, but you will also be liable to the IRS! Hard to believe? Well, believe it or not, the IRS counts the difference on the sale as a “gain” on your taxes. That’s right — you lost money and it’s counted as a gain! (I didn’t make that rule, that’s just the way it is…) With these liabilities, they can actually garnish your wages. That means if you let your property go to foreclosure, the amount you’re liable for could be taken directly out of your paycheck every week!!
Avoid Foreclosure: Your Options
Below are some options that can help you avoid foreclosure. (See a more complete list of Foreclosure Alternatives here.) Please keep in mind that in a foreclosure situation TIME IS OF THE ESSENCE. Hitches or delays in the process can really hurt your chances at a favorable outcome. Bear in mind, you should consult with a competent lawyer and accountant regardless of the route you choose, and remember—no matter how you look at it, a foreclosure should never be your goal, as it will ruin your credit and create a serious debt liability.
Brandon Brittingham Properties specializes in short sales and in buying homes for cash, both of which help you avoid foreclosure!
- Keep the property. Not too obvious, but if financially you can manage to do this, it really is your best option. Keeping the property will not damage your credit, and can be the most hassle-free course of action. Can you rent the property (even at a small negative cash flow), and wait to sell in a better market? If you can, you may want to pursue this option. If this option won’t work for you, move on to the following steps.
- Sell the property and bring cash to the table. If there is some equity in your property but not quite enough to sell it in today’s market (and if it is financially feasible), you should consider bringing cash to the table to sell it. This eliminates any credit damage and makes it so you can simply sell the property without going through any other processes. If you think you are in a situation where this is possible, contact us today — we can buy your house for cash. If this step is not feasible, move on to the next step.
- Try a loan modification. This works for some, and may possibly be appealing to you, too. If you do apply for a loan modification, make sure you understand exactly the type of program the lender is putting you into, and whether or not it will benefit you not only in the short term, but in the long term as well. If you are approved for a loan modification, it is imperative that you have a lawyer review it so that there is a clear understanding of what you are getting yourself into. Unfortunately, in Maryland, real estate agents cannot help you at all with this process.
- Offer the lender a short sale. The short sale is not something that you should be scared of or avoid. Actually, a short sale can be a “win-win” for both you and the lender.
Banks try to avoid foreclosures at all costs. The expenses associated with foreclosing on a property are astronomical, and the time it takes can be anywhere from 6-18 months (especially in Maryland). By taking a short sale, the bank can limit their loss. To qualify, you have to owe more than your property is worth, and be able to prove a true financial hardship. (Job loss, medical issues, pay cut; things of this nature will qualify you for a short sale.)
To start the short sale process, make sure you find a realtor who is experienced in short sale. The realtor should have over 30 closed, successful short sale transactions. This type of real estate transaction takes a special skill set, and only a select group of realtors know how to navigate the complexities of a short sale. *We are two of the most versed agents in the country on short sales; browse our site to find more information. In particular, we have a great deal of experience in short sales with Wells Fargo, and short sales with Bank of America.
A short sale will affect your credit, but if the property is your primary residence, in almost every case you can walk away with no deficiency judgment and no IRS gain. (Secondary and investment properties are treated a little different tax-wise.) Again, consult a qualified accountant before pursuing a short sale, and remember — the short sale nowadays can be your best option.
Still unsure if a short sale is right for you? Read our article: Short Sale Vs Foreclosure Facts.
One Final Option: Deed in Lieu of Foreclosure
If you don’t qualify for any of these options, or have tried them and have not been successful, your next option is to offer the lender a “Deed in Lieu of Foreclosure”. If for some reason your agent was not able to complete your short sale, you should try a better versed agent to get the short sale re-opened. If time is simply lacking, you can do a deed in lieu. A deed in lieu is just like a short sale; you are unable to make payments, you owe more on your house than it is worth, and you are likely to face foreclosure.
With a deed in lieu though, you are offering to turn the deed over to the lender in exchange for them not foreclosing on the property. This may limit the lender’s loss because it keeps them from having to pay the hefty expenses that a foreclosure brings, and it shortens the amount of time it takes for them to get the property back. The lender may feel taking the property in lieu of foreclosure is worth the cancellation of the note balance. *Though this is a negotiation it should only be performed after consulting a qualified attorney. Please also note, most banks require the deed in lieu to be performed 60 days prior to the auction date.
This is just a basic overview for consumer and professional education. If you would like more information, please contact us as we would be glad to give you more information. Foreclosure can be avoided. Do not just let your property go to foreclosure — you have viable options!
Have other questions about foreclosure? Read the answers to commonly asked foreclosure questions.