What are my responsibilities in letting my home go into foreclosure?
Submitted by Mary on Thu, 04/10/2008 - 1:45pm.
I have been contemplating letting my house go into foreclosure. If I do, what are my responsibilities to the lender or the IRS in paying off the difference of the sale price at auction and the difference of my loan? Also what about capital gains from appreciation of the home? It is my understanding that there are laws that could protect me, is that true? Thanks.
Comments:
You should really consult a tax advisor and or attorney. However, California is largely a no-recourse state, meaning that the lender likely won't be able to come after you for any deficiency balance. There also will likely not be any tax consequences for the forgiven debt at the moment thanks to the Homeowners Relief Act passed by Congress - though this was always true if you are insolvent - again you will want to check with a tax advisor for details because it depends on your specific circumstances. Also note that you may still remain liable for taxes on any capital gains. Another issue to consider is that it will affect your credit for 7 years.
How long am I responsible for maintaining utilities once the home is in its final days of the foreclosure process?
Utilities remain in your name and you remain responsible for them until you have them shut off.
Mary -
Is letting your home go into Foreclosure best for you? The bank does not want to Foreclose and unless you have been several months late and an NOD filed then there is probably still time to work out a Short Sale vs Foreclosure.
Sean has been very clear about the benefits of a Short Sale vs Foreclosure. Here is another benefit in a memo from Fannie Mae - see the attached memo, dated, 6/25/2008 - it basically says that Fannie Mae will not allow someone to obtain a new loan for 5 years after a Foreclosure. However, they will allow a new loan after 2 years after a Short Sale (pre-foreclosure) - This is really good news for homeowners who have a tough situation with housing prices that have fallen who choose a Short Sale vs Foreclosure.
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf
Regarding Mortgage Forgiveness Act - Below is a link to the IRS site with common questions and answers. Basically, for a pruchase loan for your primary residence, in the years 2007-2009 the IRS will be forgiving (ie not charging) taxes based on debt relief. This does not apply to second homes, investment properties and refinances above the original purchase value. If you dont qualify for the Mort. Forgive Act, then there is still the "insolvency" test, if you qualify.
http://www.irs.gov/individuals/article/0,,id=179414,00.html
These comments are strictly my opinions and should not be relied upon as tax or legal advice. Consult a lawyer or accountant for tax and legal advice.
Regarding Short Sales - Please contact me if you would like additional information or would like a professional to assist with any or all aspects of the process. We are located in Southern California, however, have a network of professionals that can assist around the country. My e-mail is bob@inspiragroup.com or direct line 949-600-5404.
Please get the facts of a Short Sale or other options before doing a foreclosure.
BOB
Post new comment