Is Your Home Worth Less Than You Owe?  Is Your Rate and Payment Adjusting Higher? Can You No Longer Afford Your Home?  Do you NEED HELP?  Do you KNOW YOUR OPTIONS? 

These questions are being pondered daily by thousands of homeowners in our area. 

Unfortunately, the answer differs for each person based on their individual circumstances, so I strongly urge you to call me at (925) 272-0595 for a detailed discussion.  However, to help you gain a general understanding of your options and to assist you in determining which solutions you may want to further examine, I have compiled some key points for each.

Loan Modification: (getting the lender to change the terms of your current loan)

• You MUST be able to qualify for the lower modified payment or the lender will not modify.
• Requires contacting the lender and providing income and asset documentation
• You or someone representing you must be persistent as this can be time consuming.
• You do not have to be late on payments, but must be able to show current or future hardship as a result of the current or future loan terms.
• The terms of the modification will determine if there are any tax implications, such as debt releif.

Short Sale: (getting the lender to approve the sale of your home for less than you owe)

• Most lenders are not going to approve a short sale if you are paying on time.  Therefore, do not plan on taking this path unless you are willing to have a blemished credit history.
• There are Debt Relief and Capital Gains tax implications.
• Taxes on Debt Relief depends on whether the loan that results debt relief is recourse or non-recourse.  Only Recourse loans are subject to debt relief taxation.
• Non-Recourse would be loans received for the purchase or construction of a property. 
• Recourse would be all others, including a Home Equity Line of Credit.
• Lenders often retain the right to pursue deficiency on Recourse loans.  This could result in future payments and/or legal proceedings (ie. Judgements) in which your assets could be sold and your wages could be garnished.  This however does not seem to be the typical practice of lenders as they are aware the property has been sold and the legal costs to pursue often exceed any benefits.
• If the Sales Price is greater than the taxpayers adjusted basis (purchase price plus capital improvements), then you will be subject to Capital Gains Tax.
• In the event you go through a short sale on a RECOURSE loan and you are INSOLVENT at the time of the closing you will not be required to pay taxes on some or all of the debt relief until such relief returns you to solvency.

Foreclosure: (lender notifies trustee to sell the property due to your failure to pay the mortgage)

• The lender that forecloses loses all rights to go after any deficiency.
• If the FIRST mortgage lender forecloses.  The SECOND mortgage lender still has a right to pursue deficiency.
• The cost of foreclosing is a burden to the lender and is not added to your loan balance in determining any debt relief taxation.
• You may be able to remain in the home for months before the home is scheduled to be auctioned and another 30 days after the auction.

Deed in lieu of Foreclosure: (agree with lender to assign the property over to them)

• DO NOT DO THIS.  The lender does NOT give up their rights to pursue deficiency AND the cost of carrying and selling the home is added to your loan balance.  Thus, upon eventual sale your debt relief can be quite a bit higher than the loan balance at the time you handed over the property.

 Bankrupcty: (file for debt relief through the courts)

• You must meet certain criteria to qualify for bankrupcty, including maximum income limits.
• Your mortgage debt will be cancelled by the courts.
• After bankrupcty you will need to "reaffirm" the debt on your home or workout new loan terms with your lenders.  Failure to do so will result in a foreclosure as the lender still holds a deed of trust, they just no longer have the Note.
• If you have a second mortgage which is deemed worthless based on the market value of the property during bankrupcty and you agree to new terms on the first mortgage to prevent them from foreclosing, the second mortgage will most likely not pursue foreclosure.  HOWEVER, they still have a deed on the house, so years later, when values go up they could foreclose at that time.  THEREFORE, you should work something out with the second at the time of bankrupcty to get the trust deed resolved/removed.
• There is no taxation on the debt relief.