We have put together a great deal of information on foreclosure for this and our home investors site. The information is very similar and the situations are very similar. We have a 2 forum pages for you to discuss on which ever home owner or home investor you fit.
Read our articles down the right column made for the investor home foreclosures but information similar.
Come back regularly we will have new articles and information and please put any questions you might have on the appropriate forum page.
Your author has 9 homes affected by this with six underwater, so we will be writing from personal experience.Also: In the meantime be warned away from paying advance fees for negotiating with banks for you. Do these only on a pay on performance basis. Some are charging you fees and merely refer you to an attorney who you have to pay additional for the work. BEWARE.
Beware of Paying Fees for Mods
The scammers used to take your money to make home repairs, make lots of promises, take your money and disappear.
Latest Scam, is make promises to get loan modified, take your money and disappear.
There are many free loan counselors now paid for by the government etc to advise you on this. We will have articles on this.
Loan modifications are very few happening in reality and even hiring an expensive attorney, the odds are poor that it will happen at all. You can likely do it best of all your self. Keep informed.
Read the forum, others will be reporting on what worked and what did not work for them.
There are seven states, (Arizona the best one) (Includes California) that have real estate anti deficiency laws that limit your liability after giving the home back to short sale or foreclosure.
In these states, giving the home back ends your liability.
You will need to check on your state, but most states, except for the seven, they can go after you for whatever deficiency there is after fire sale (low balling) your home on the "very slow" low demand market. They can file suit against you for the shortage.
We understand however, in practice this rarely happens. However if you have high income or other attractive assets, is a possibility.
When you do any of these cooperation turn it in, short sale, etc, then you want to be sure you get in writing they give this up and this settles it in full.
It is very expensive for banks to go thru the foreclosure process, and some investors, and home owners reported still living in or renting the home, (with no payments up to over a year later.) Official process time reported to go thru the legal process in most foreclosures, is to be 7 months subject to how badly they are "overwhelmed" resulting in delays.
Possible Option:
The bank may work a deal with you to forget (forgive) the shortage if the home is voluntarily turned in etc. this has to be worked out, but that is apparently your leverage, save them the time and expense of the foreclosure process.This has to be negotiated. It will NOT happen automatically if you turn it in.
Another option apparently is something called the "short sale":
Worked out with them where you put it on the market (called a short sale) and see what offers your real estate firm etc can get. The bank then consider any offer you get and decide to accept it (or not) (even if short of mortgage) as full settlement.
New Tax Complication for Investors:Apparently "exception law" removes this tax consideration for those lived in private home owners.
Any "underwater" shortage they forgive an "investor" is considered "income" by internal revenue and you are liable for income tax on the amount. (subject to deductions.) However the amount of loss of down payment etc and amount spent remodeling, how many years of depreciation, all are factors and you may owe some tax or you may even generate a tax credit from your losses.
You will need to take this up with your CPA or tax accountant.
Disclaimer:
Author is a long time reporter publisher, but has no real estate or tax expertise or qualifications, is a real estate investor with 14 homes, under water is 7. and many with 7% loans, and running a deficiency of $5,000 per month in the rental home business. Supplying a forum where fellow investors hung out to dry can discuss options. Reporting here is research and from seeking legal council on personal situation in Arizona. The state that has had the largest price drop on homes in the Nation. (over 50%)(See Continued Disclaimer Bottom of Page.)
