I am facing foreclosure. Don't think I qualify for legal aid but have lost 2/3 of income because of employment status. What can I do?
Country relating to Question: United States
State (if USA): New Jersey
Tried to get into several programs for assistance but haven't qualified.
Good morning,I'm very sorry to hear of your dilemma.Your inability to get a mortgage modification---which the vast majority of qualified applicants are unable to do either just because the way the system was set up ---coupled with your loss of income, means that there is no realistic way that you will be able to hold onto the property. The best that you can do is to prepare strategically for the coming foreclosure, to make the best of a bad situation and prepare financially as best you can. While I can not help you keep the property----no one can----I can help you prepare so that the impact on you financially is minimized---by letting you know what to expect and your options.
There really is not a whole lot of benefit to a short sale UNLESS, you can get an agreement IN WRITING from the lender that they will not seek a deficiency judgment from you after the short sale, and that they will forgive the debt. Other than that, the short sale generally is very time consuming---lenders often will not agree to the offer made by the prospective buyer, even after you bring what you believe is a good offer---if there is more than one mortgage--all lenders must agree on the short sale---you must generally remain current on your mortgage during this period---your credit score will suffer almost as bad a hit for the short sale as it would for a foreclosure. Finally, recently it was determined that the average short sale in the US sold for about 10% below market value---meaning that if your outstanding loan is much higher than about 10% over market value, you may encounter difficulty getting a short sale approved by your lender. Most people will instead opt for what is known as a strategic foreclosure. They cease making payments on the mortgage and taxes---and bank the money they save during the 6 to 12 month average time it takes the lender to decide to begin foreclosure and when the property is sold at the foreclosure auction for use in relocating.
After the foreclosure is completed, the lender will auction the house. The lender can do one of a couple of things then. The lender can seek a court judgment against you for the difference between the loan amount and the amount of sale at auction (deficiency). With the judgment, they can attempt to collect money from you; they can garnish your wages or levy on your bank account. The lender, however, often will not bother to do this though because the collection rate on deficiency judgments are usually not very good --in fact statistically, the collection rates are dismal.
The lender may instead choose, and often does choose, to write the debt off for tax purposes. If they do that, they will send you a 1099 tax form and the loss the lender took (the difference between the loan amount and the amount of sale at auction).
If the property foreclosed on, or which you short sold, was your primary residence, and the 1099 you receive is for the tax years 2007 through 2012, then you will not have to report the amount on the 1099 form as income for tax purposes.
If the property foreclosed on, or short sold, was not your primary residence, you may have to pay taxes on the amount written off. HOWEVER, if you can show that you were insolvent at the time of the foreclosure---that your debts, including the house, exceeded your assets, then the IRS will not force you to pay any taxes on the amount that the lender writes off.
If you were not fully insolvent at the time of the foreclosure---as an example you had $10,000 more in assets than in debts, then while the lender may 1099 you for $100,000, you would only have to pay taxes on the amount that you were above the insolvent level----you would pay income taxes on just $10,000.00.
I wish you the best in 2012.I understand that you may be disappointed by the Answer you received, as it was not particularly favorable to your situation. Had I been able to provide an Answer which might have given you a successful legal outcome, it would have been my pleasure to do so.You may reply back to me using the Reply to Expert link if you have additional questions; and if you do, I ask that you please keep in mind that I do not know what you may already know or with what you need help, unless you tell me. Please recognize that the rating system only gives me credit for working with you when you click one of the 3 stars/faces on the right (positive rating). Also, kindly rate me based solely on my service to you in understanding the law, and not based on whether my answer is what you were hoping to hear. I have no control over the how the law impacts your particular situation, and I trust that you can understand how it would be unfair for me to be punished by a (negative rating) ----the first 2 stars/faces----for having been honest with you about the law.Thank you,Doug
Thanks for your answer. The truth is the truth. How long would I have between the start of foreclosure and having to actually vacate the property?
A rough estimate would be appreciated.
Good morning,Thank you for understanding my position. I do wish that I had a fix for you.On average, most lenders will not serve the Notice of Intent to Foreclose until you are actually 3 to 6 months behind in your mortgage. Even after doing that the process can take another 4 to 9 months. Even after the foreclosure sale, the lander is the one who typically buys the property back so as not to take an even greater loss. The simple fact is that to lenders, an occupied property is better off then a vacant property---the property is generally care for to some extent and not vandalized by thieves.And, just because the foreclosure sale may take place doe not n=mean that you can be thrown out---there still must be an eviction proceeding in court as if you were a renter. Once you are served with the eviction proceeding you have just a few weeks left.So, in all, it can easily be a year or more before you actually must be out and you will have plenty of notice that the final date is approaching.Kindly take a moment to rate my service to you based on the understanding of the law I provided. I wish you the best in 2012,Doug
Thank you. I totally appreciate your help. Just one more quick question, would /should I consult a bankruptcy attorney on my situation? I am in a bad situation at least until I regain fulltime employment. If you can't offer an opinion I understand and still very much appreciate your help.
Unless you are suffering other extreme financial situations, such as having to defend against creditor lawsuits---then it really is premature to file bankruptcy until you find out what is going on with the mortgage lender.As I stated, few foreclosures result in judgments against the borrower any more---so there may be no need to file bankruptcy at this time.Consulting with a bankruptcy attorney can be helpful though. If you are contemplating bankruptcy in the future based on things other then your mortgage--such as consumer loans that you simply don't foresee ever being able to pay off---then such an attorney can assist you in preparing for filing in terms of how to treat creditors. Essentially, as soon as you decide that you will file within a year or so---you generally want to just stop paying all of your creditors and conserve your cash.Kindly take a moment to rate my service to you based on the understanding of the law I provided. I wish you well in your future,Doug
I've more than 27 years legal experience. Additionally, in CA I held a Real Estate Broker's license.
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