"Life is what happens while you're making other plans." Richard Dreyfuss in Mr. Holland's Opus

No one moves into a home planning on foreclosure.  Even if 9 out of 10 people would have told you the big house in Las Vegas was too expensive for you or that you were making a bad decision when you bought it, you probably would have sided with number 10 and thought things would work out.  If your decision did prove unwise, you lost your job, you got sick, or your rich wife left you, you might have to resort to foreclosure or short sale.  If your bad luck is temporary, you might miss a few mortgage payments before bouncing back.

People are resilient.  If any of these things happen to you, you can recover, especially if your family and your health are intact.  However, there are credit, legal, and tax consequences to any action you take once you are liable for the mortgage payment.  

If you go through foreclosure or give the house back to the bank with a deed in lieu....

•   Your credit report will take a hit of 250-280 points.

•   You'll have to be on time with all payments for about three years to qualify for another mortgage with good interest rates and terms.

•   Your lender could try to collect what they lost but probably won't.

•   The relief you got could be taxable, though that is off the table through this year, thanks to the Mortgage Forgiveness Debt Relief Act of 2007.

•   If you used a 1031 tax exchange and bought your home or less than two years ago or using tax-deferred capital gains, you might have to pay capital gains.

 If your bank agrees to a short sale...

•   Your credit report will take a serious hit, thought not as much as if you did a foreclosure.

•   You will have to be on time with payments for 18 months in order to get decent mortgage rates.

•   Your debts from mortgage and lien holders on the house will disappear, without fear of a lawsuit to recover any shortfall.

•   As noted with foreclosure, you won't be taxed on forgiven debt through the end of 2009.

•   There could potentially be the same issue with capital gains and 1031 exchanges so see your CPA if this pertains to you.

If you are late on payments....

•   If your payment is made within 30 days of the due date, you won't be reported to the credit bureau though you may have to pay a late fee.

•   A payment that is 30 days late can lower your credit score from 50-100 points.

•   If you miss a payment but then start making payments without making arrangements for the one you missed, the missed one will be considered 30, 60, and 90 days late and the late fees will mount as well.

•   Even one late payment in the past 12 months can disqualify you from refinancing and subject you to higher rates.

•  Late payments will show up on your credit report for seven years though the weight fades over time.

If you find it increasingly difficult to make your payments on time, it's time to do some thinking and some careful planning.  Is your problem temporary?  Could you pick up an extra job or shift your spending priorities so you can keep up with your mortgage?  Have things changed to make the mortgage harder to pay than when you signed up for it?  Do you want to stay in your current home?

Before getting into a cycle of late payments, talk to your lender about options that might give you relief.  Seek help from one of the many free resources in Nevada - including the N&Y Team.  Whether you need to discuss selling your home before your finances reach crisis proportions or whether you are trying to stop imminent foreclosure, we can help you reach a solution you can live with.

 N & Y Team

Nebi Adhanom Direct: (702) 277-9922

Yonas Woldu Direct: (702) 236-8997

Fax: 702-898-9738

www.VegasRealProperty.com

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