Walking away from mortgage? Read this
One thing is frequently left out in all the discussion about whether it's smart to mail your keys to your lender and walk away if you're far underwater on your mortgage: More is at stake for you than how long it will take until you can qualify for another loan.
As personal finance columnist Eileen Ambrose notes, you could be setting yourself up for trouble down the road:
Indeed, in Maryland and the majority of states, walking away is no guarantee that mortgage debt won't come back to haunt you. These are so-called recourse states, where a lender can pursue you for any shortfall after it sells the house. So if you walk away from a $400,000 mortgage and the lender turns around and sells the house for $300,000, you can still be on the hook for $100,000.
The lender might not come calling to collect right away, but there's time -- generally three years afterward, and sometimes more.
The same is true of short sales, unless you negotiate with your lender not to come after you for the difference.
Do you have a debt forgiveness -- or lack of forgiveness -- tale?
Posted by Jamie Smith Hopkins at 7:00 AM | Permalink
| Comments (3)
Categories: Mortgages, The foreclosure mess
Categories: Mortgages, The foreclosure mess
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Comments
The deficiency judgment is definitely an issue to consider, however I find that most of the time this happens for 2nd mortgages. The 1st mortgage holder will almost always send the ex-homeowner a 1099-C. The 1099-C can be written off as income with IRS tax form 982. Check the IRS website to see if you qualify for the Mortgage Debt Forgiveness Act. Most lenders will not pursue a deficiency unless they know you have other assets. Also, if you buy an FHA home 3 years after foreclosure, they could find that you own another property, file the deficiency, and attach a lien to the new home. If the lender does not issue a 1099-C, then I would wait until the statue of limitations run out. I believe in MD it is 6 years. As always, consult with a CPA and attorney if you are in this situation.
http://www.irs.gov/individuals/article/0,,id=179414,00.html
http://www.irs.gov/pub/irs-pdf/f982.pdf
Posted by: Frank Rizzo | March 30, 2010 9:44 AM
If you can qualify for a CH7 that will relieve you from a deficiency judgement. Since your credit will already be shot it's not as if the CH is costing you your good credit standing.
Note the Mortgage Debt Relief Act of 2007 that Frank points to is only for taxes owed on "forgiven" debt, it offers no protection from the lender's ability to collect. Statute of limitations is 3 years from the time the bank actually sells your house to a new buyer.
Unless you have specifically negotiated for it (and unless you've passed the bar this probably isn't something you want to try unassisted), don't underestimate a bank's desire to attempt to get blood from a rock.
Posted by: Josh Dowlut | March 30, 2010 3:19 PM
WOW this person really said this:
"If rates go up and with the tax credit gone, I think it would spur on housing," says Diane Saatchi, senior vice president with Saunders and Associates Realty in New York. "People will see rates rise and that will stimulate them to buy now rather than wait for rates to go higher."
I wonder what her quote was when rates were going down? IS there EVER a bad time to buy a house according to a realtor/mortgage broker? Why do they lie so much? Or... Why are they so uneducated?
Posted by: Ted Lemming | March 30, 2010 4:16 PM