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LawTalk, Attorney
Category: Legal
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Experience:  I am a practicing attorney with more than 3 decades of experience in the legal field.
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I have 3 daughters that perticpated in the SHIP home buying

Resolved Question:

I have 3 daughters that perticpated in the SHIP home buying program. They borrowed 20-35 thousand. The market has tanked and their homes are upside down. They each have high mortages that thier house is not worth and very high payments. They want to get out of the debt. Unable to sell their homes for enough money to pay ship back and they are considering trying to have a short sale done, what are their options. Some counties forgive the SHIP LOAN and some don't. Has the government planned to help anyone in this situation. Thanks
Submitted: 6 years ago.
Category: Legal
Expert:  LawTalk replied 6 years ago.
Good morning,

Were these SHIP loans first time home buyer loans with payment back over 15 or 30 years?

Are there extenuating circumstances beyond the fact that the housing market tanked and they want out of poor investments? Are any of them dying of cancer, or active duty military being relocated to a foreign country, or anything else beyond their control and which carries with it a major impact on the totality of their lives?

Customer: replied 6 years ago.
Some Counties forgive the debt from ship after 5 years. If you live in your home 5 years, you do not have to ever pay them back. Collier County, where we live does not forgive the debt. If you sell, refinance or do not live in your home as your primary resident, you are required to pay the loan back. Two daughters have had babies. They are school teachers and daycare takes a large chunk of their income. One of those two lost a part time job she had after the baby was born. The third daughter has married and wants to sell her condo and move. All of their homes are valued below the market value. Yes, it is a bad investment that no one saw coming. The struggle to pay their mortgage payment and I help where I can. At the time they bought their homes they were afraid that they would never be able to afford a home where they grew up. The housing maket was that high at the time. There is assistance for a lot of people who decided to walk away. My children are not walking away. I strongly feel that if some counties can forgive debt in five years, our county should as well. The market isn't going to turn for their homes for many years to be able to pay SHIP back. If they are given forgiveness after five years, we can all struggle to get to that point.
Expert:  LawTalk replied 6 years ago.
You are correct---the majority of counties don't automatically forgive the loan---except in exceptional circumstances.

Neither the babies, nor the job losses, nor the housing market slump are extraordinary occurrences. A majority of Americans are presently struggling in this economy. The fact that Obama may think that we can afford to give money away, simply does not represent the thinking of the majority of folks running the states and local governments.

I understand that you feel the county should simply walk away from the money---but that can not be expected in this instance. Why should the county, in this instance, take the loss for the housing market drop---as opposed to the borrowers who stood to gain when they took the loan in the first place?

The law does not allow for your daughters to demand that the county simply give the money that they were loaned---it isn't going to happen like that.

They can try to short sell the properties--but the county can prevent that if the county is the one who loses in the end---and you can expect problems in that regard as the properties are under water.

The more realistic approach is for them to allow foreclosure. 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 them 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 them; they can garnish their wages or levy on their bank accounts.

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 them a 1099 tax form and the loss the lender took (the difference between the loan amount and the amount of sale at auction), will be attributed to them as income and the IRS will expect them to pay income taxes on that amount. HOWEVER, if they can show that they were insolvent at the time of the foreclosure---that their debts, including the house, exceeded their assets, then the IRS will not force them to pay any taxes on the amount that the lender writes off.

If they were not fully insolvent at the time of the foreclosure---as an example they had $10,000 more in assets than in debts (and retirement accounts do not count), then while the lender may 1099 them for $100,000, they would only have to pay taxes on the amount that they were above the insolvent level----they would pay income taxes on just $10,000.00.

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.

I wish you the best in 2011.

Because I help people here, like you, for a living---this is not a hobby for me, and I sincerely XXXXX XXXXX abiding by the honor system as regards XXXXX XXXXX I wish you and your family the best in your respective futures.

Would you be so kind as to Accept my Answer so that I may be compensated for assisting you? Bonuses for greatly informative and helpful answers are very much appreciated. Thanks Again,


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Customer: replied 6 years ago.

Thank you for your answer. Your honest answer is not disappointing. I do not think that they will consider walking away and having their homes foreclosed. They understand their responsibility as I do. I just don't understand why some counties are allowed to "forgive" the SHIP loan after 5 years from the start of the loan and others do not. If they walk away and foreclose like thousands have done in our county, no one wins.

Expert:  LawTalk replied 6 years ago.
Good morning,

Thank you for your accept! I understand your puzzlement as regards XXXXX XXXXX ways that individual counties handle these loans. Chalk it up to the different personalities of the politicians in charge at the county level. Personally, I think that such a program should be handled at the state level, to insure fairness across the board.

I wish you all well in your futures,

Customer: replied 6 years ago.
Is there no one in the state that I can go to for this to be addressed?
Expert:  LawTalk replied 6 years ago.
The only place I can imagine you might look for assistance would be from Florida Housing. They are the entity responsible for handing out the money to the individual counties. Here is a link to their site:


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