Sometimes because of the condition of the property, property values declining (like todays market), or lenders giving 125% equity loans, the homeowner will owe more than the property will sell for in the current market. This situation usually occurs when there is more than one mortgage on the property or a declining real estate market. When you mortgage a property there is both the mortgage agreement and a promissory note. Even though the property is the collateral, the lenders can obtain deficiency judgments because of the promissory note. Junior lien holders will often accept "short sales" otherwise they are faced with paying off larger mortgages to protect their smaller ones.
In today's market many of the first mortgages are accepting "Short Sales" because they would not be able to sell the property for what is owed on it and they have high fees that would be attached to the property if they take it back, causing even more of a loss.
Many homeowners qualify for the Mortgage Debt Cancellation Relief (H.R. 3648-Public Law 110 - 142 Signed December 20th, 2007). Speak with your tax adviser or Real Estate attorney regarding receiving a Tax Form 1099 from the mortgage company and if you qualify for the Mortgage Debt Cancellation Relief or the possibility of having to pay taxes on the amount the mortgage company writes off. The IRS will consider the write off as a taxable income. If you do qualify you will need to attach a Tax Form 982 and your Tax Form 1099 to your Tax Returns. Again speak with you tax adviser as we can not give tax or legal advise.
Even though the homeowner would not receive anything at closing it is important to satisfy all liens on the property to avoid possible deficiency judgments and to help in re-establishing credit to become a future homeowner again.
Again to get a copy of our foreclosure handbook please contact us or visit our website to download a copy.
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