A mountain with picturesque views of the ocean and Los Angeles was recently listed for sale for $1 billion. However, it recently sold at a foreclosure auction for a mere $100,000. The property’s complicated history and $200 million lien made it a difficult sell, but the original owners, to whom the lien was owed, have regained possession.
Foreclosure and Other Options
Your home may not be worth a billion dollars, but financial difficulties can make any home unaffordable. If you cannot pay your mortgage, you will not be able to keep your home, at least not without a drastic change in your finances. However, you may have a choice in the process of losing your home.
Traditionally, your home would be foreclosed on and the proceeds of the sale would be used toward your mortgage balance. In most cases, you will not be held responsible for any mortgage debt not covered by the sale. This process takes a minimum of 200 days from the date of your first missed payment, but can often drag on for more than a year.
For homeowners behind on payments who do not wish to go through the lengthy, stressful foreclosure process, there is another way. Some mortgage lenders will accept the deed in lieu of foreclosure. In other words, you can simply hand the deed over to the bank and walk away. There is no obligation to pay further on the mortgage used to purchase the home.
Drawbacks to Deeds in Lieu of Foreclosure
Although a deed in lieu of foreclosure means that you will not have a foreclosure on your financial record, your credit score will still drop as a result.
You may be required to put your home on the market for a specified amount of time before a deed in lieu of foreclosure will be accepted. You may also be required to provide detailed financial records to show that you are unable to pay your mortgage.
It is essential to read the terms of your deed in lieu of foreclosure agreement carefully. The bank may be able to hold you responsible for any amount owed which they do not recoup in the sale of your home. The bank may also report the forgiven amount as income, landing you with an enormous tax bill.
Due to the negative impact on your credit and the loss of your home, it is important to consider commonly available alternatives to a deed in lieu of foreclosure. In some cases, you may be able to sell your home and pay off the mortgage. While this is more work, it allows you to avoid the negative impacts of foreclosure. You may also choose to file for a Chapter 13 bankruptcy, which can allow you to sell your home in order to pay off your mortgage as part of your debt reduction plan.
Contact an Attorney
If you are unable to make your mortgage payments, contact an attorney immediately. The attorneys at Bankruptcy Law Center can guide you through your options and help you to make the right decisions for your situation.