Good afternoon Mike, I'm Doug, and I'm very sorry to hear of your situation. My goal is to provide you with excellent service today. In order to give you a clear and concise answer, I will need some additional information about the circumstances, please.1. Are you prepared to rent it out when this tenant is gone so that you don't lose money in the interim, before you divest yourself of the property?
Good afternoon Mike Thanks for the additional information. I fully understand and I empathize with the situation you are in. First, there are no good alternatives to the situation that you are in. But you are in a better position than most considering walking away. I might suggest that you lower the rental price to anything that will get a tenant in there, because while you work to get rid of the place, some money is better than none at all. What you seem to be looking for is what is known as a strategic foreclosure. While I generally don't offer much hope that a lender will take a deed in Lieu, in your case, because the property is not upside down, I thing that there is a much better chance for you to avoid the problems associated with a foreclosure. While it is rare that deeds in lieu are acceptable to the lender--- because the lender is not in the business of buy and selling property---but in making loans and collecting money, if they see that they may actually avoid losing money, they many times will accept it. Be sure to get an agreement that they will waive and claim for losses associated with their acceptance of the deed in lieu.
Another possibility is a short sale---meaning the lender takes less than what is owed. However, keep in mind that 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 at the time you receive the 1099, you are insolvent---meaning that your debts, including the debts on the property, equal more than the total assets you own, then the IRS will not require that you pay tax on the money written off and represented by the 1099s you receive from the mortgage lenders.
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. If you have additional questions, you may reply back to me using the Reply to Expert link. Please also keep in mind that, even though you have already paid your deposit money over to JustAnswer, until you rate me highly for my service, I will not be paid for having assisted you with your questions. I wish you the best in your future. Doug
1. I don't understand what you are asking here: So for the foreclosure methods it is not cleaner to try and contact the lender and try to avoid some of the banks expense of foreclosure by sending them the keys ? Can you please rephrase the question? 2. The result with the foreclosure is the same whether you rent during the time you stop paying the mortgage, or you leave the property vacant. You are not penalized for having rental income during the time you are not paying mortgage prior to the foreclosure sale. You risk nothing more by getting rent during the foreclosure process. Doug
Hi Mike, That is correct, you don’t pay the taxes either. That will be the responsibility of the next owner to pay. There is little use in you throwing good money after bad. Yes, let the lender know what you are doing---that may move them along to agree to a deed in lieu and an agreement to not look to you for nay deficiency judgment. You may reply back to me using the Continue the Conversation or Reply to Expert link and I will be happy to continue to assist you until I am able to address your concerns, to your satisfaction. Please remember to rate my service to you when our communication is completed. I wish you the best in 2013, Doug
Thank you for your positive rating of my service, Mike. It has been my pleasure to assist you and I hope than you will ask for me on JustAnswer should a future need ever arise.Please feel free to bookmark the following link so you can request me to answer any future legal questions you may have:http://www.justanswer.com/law/expert-lawtalk/Thanks again.DougWhen you receive your Customer Satisfaction Survey from JustAnswer, please do rate me highly (9-10) there as well. It would be tremendously appreciated.
DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.
The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).