Far too many people have this notion that if they simply give up fighting foreclosure, make a strategic default and walk away that they will no longer have to worry about it anymore.
Los Angeles Foreclosure Lawyer Vincent Howard wants to make it clear you can't count on that.
The good news is that California is among a handful of states to have passed legislation that makes it difficult for mortgage lenders to sue you for the unpaid balance of your mortgage if what you owed was less than what it was resold for or the fair market value of the home.
That said, it isn't impossible, and the upcoming expiration of the Mortgage Forgiveness Debt Relief Act of 2007 means that you could still be held liable for the difference on your taxes, as it will be considered income after Dec. 31, 2012.
Generally, lenders pursue a judgement in a small number of cases where they actually legally could, but that doesn't mean it's not a risk.
Something else to consider is that you could still be held liable for homeowner's association fees if you haven't kept up on those. Whatever money you owed prior to the foreclosure sale being finalized is generally going to be your responsibility.
California's Civil Code allows that if you are more than 15 days past due on either regular or special assessment fees, the association can come after you for not only the amount you owe, but also late fees, interest and attorney's fees. If you are more than a month overdue, the association can up those charges to an annual interest rate of 12 percent on all of it - including the additional expenses and fees.
Consider also that if you have lost money from the sale or foreclosure of your personal property - i.e., your home - you can't claim that as a deduction on your taxes. In fact, as mentioned before, if your home doesn't foreclose by the end of this year, it could end up costing you majorly at tax time.
So let's say the debt on your home is $220,000 just prior to the foreclosure. Let's say the fair market value of your home is $200,000, which is what it sells for at auction. Per state law, the bank may not come after you to pay that additional $20,000, but you'll have to pay taxes on it as if it were additional income - even though it wasn't money you actually received.
If you make around $40,000 a year, you pay about 25 percent of your income in taxes, which means you'll owe another $5,000 in this scenario.
However, there are a number of options and initiatives to help you save your home - and your credit.
First, there is the Making Home Affordable program, which is extended through the federal Departments of Treasury and Housing and Urban Development.
The first thing this program allows are loan modifications through a program called Home Affordable Modification Program, or HAMP. Essentially, if you have a job but aren't able to keep up on the inflated cost of your monthly mortgage, you may qualify to have those monthly payments reduced to a more reasonable amount.
Similarly, the Principal Reduction Alternative (PRA), is designed specifically for underwater homeowners, and compels lenders and servicers to work with you to drive down the principal amount of your loan. Some of the eligibility requirements include:
- You owe more than your home is worth;
- Your mortgage isn't guaranteed or owned by Fannie Mae or Freddie Mac;
- You obtained your mortgage before January 2009;
- The home is your primary residence;
- Your mortgage payments are more than 31 percent of your income before taxes;
- You don't have a felony conviction in the last 10 years for crimes such as larceny, fraud, theft, money laundering, tax evasion, etc.
- You have a financial hardship and you're either delinquent or in danger of becoming delinquent.
These are just a couple of the options available to save your home from foreclosure.
It's worth considering before you decide to simply walk away.
Los Angeles Foreclosure Attorney Vincent Howard at Howard Law can help. You can reach us toll-free at 1-800-872-5925 or send us a message online.
What Debts Do I Owe After Foreclosure? By June Fletcher, Wall Street Journal