Jeffrey Avny Law Offices

DISCLAMER: These materials have been prepared by the law office of Jeffrey A. Avny for informational purposes only and are not legal advice.  This is general information only. No information posted here or materials provided are intended to constitute legal advice. The Law Office of Jeffrey A. Avny cannot guarantee the accuracy of posted information as each individual situation may vary.  Consult an attorney before buying or selling a home.

Legal Options:

According to the latest released data nearly 2 out of every 5 homeowners have received at least one delinquency notice regarding their mortgage a.  Approximately 2 million homes will face foreclosure this year alone.  It has become evident that too many homeowners choose to do nothing and allow the Lender to take their home without ever putting up a fight.  More and more there is the growing trend of foreclosures where the homeowner never responds to any court documents.  Too often the home is merely given back to the Lender and the homeowner is left with nothing except ruined credit.  There are many options available to the homeowner:

1)Reinstatement of mortgage

2)Forbearance plan

3)Mortgage modification

4)Short sale

5)Deed in lieu of foreclosure

As you can see the homeowner has numerous options available to them before they simply send the keys in the mail to Lender and walk away from their home.  There simply is no need to give up without an attempt to try and qualify for any of the above solutions.  Your Lender does not want to own your property.  They would much rather find a way to allow you to stay and pay your mortgage.  You can most likely keep your home if you want to.  The choice is up to you.  Consult with an attorney in your area before you act. 

1. Reinstatement of Mortgage

A reinstatement of mortgage will always be an option to allow you to cure any delinquency you may face.  A reinstatement plan allows the homeowner to pay back delinquent amounts over a specified time period to cure the delinquency.  During the reinstatement period the homeowner will be paying more than the original payment they initially had under the terms of their mortgage.  None of the delinquent debt is forgiven.  The Lender allows the homeowner to bring their mortgage back to a current status and then the mortgage is considered to be back in good standing.  The homeowner will continue to make their payments per the original mortgage once the total amounts outstanding as delinquent have been repaid in full. 

2. Forbearance Plan

A forbearance plan may be also be available to you.  A forbearance plan is a way for the Lender to offer you short term relief from a specific hardship you may be currently facing.  Forbearance usually involves the Lender doing one of the following at their discretion: 1) Substantially reduce the monthly payment for a specific period of time, usually no more than six months or 2) Allow the homeowner to go several months with no payments at all in attempt to allow the homeowner to improve their financial situation.  Once the forbearance period has ended the Lender will either offer additional assistance or request that all delinquencies now be paid to bring the loan back to current.

3. Mortgage Modification

Every mortgage contains protection for you to allow you to keep your home in the event of a default a.  The Lender may attempt to modify your mortgage to make your payments more affordable. A mortgage modification will substantially change one or more terms of your mortgage.  The Lender has the option of 1) forgive past due amounts, 2) reduce the percentage of the mortgage rate, 3), extend the term of your mortgage and/or 4) reduce the principal balance of the loan.  Unfortunately most Lenders have been reluctant to offer meaningful modifications to most homeowners.  As a result the Lender will discuss other options available to you.

4. Short Sale

If you are unable to obtain a modification or forbearance plan there are still alternatives available.  The Lender may allow what is known as a “short sale”.  In a short sale a new buyer is allowed to purchase the home for less than is currently owed on the mortgage.  The homeowner is then released from personal responsibility for the note and mortgage. In the event of a short sale the Lender may reserve the right to attempt to obtain what is known as a deficiency judgment for any difference in amount owed and the amount the property sells for on the open market.

*For all tax related questions consult a qualified tax professional.   

5. Deed in Lieu of Foreclosure

If a short sale is not an available option the Lender may allow you to execute what is known as a “deed in lieu of foreclosure”.  By executing this deed you simply return the property to the lender and the lender agrees to completely release the homeowner from 100% of the liability arising from the note and mortgage attached to the property.  Beginning in April of 2010 the government has allocated additional funds to help deal with the mortgage crisis.  Now the homeowner may receive up to $3000.00 to agree to execute a deed in lieu of foreclosure.

Deficiency Judgement

Deficiency judgments are most commonly seen in situations where the current homeowner has additional assets secured by the mortgage or when the homeowner has enough other assets to make the securing of a deficiency judgment financial feasible.  The Lender does not want to obtain a judgment against a person who has no assets to attempt to seize.  

Depending on the circumstances if the Lender cancels or forgives any portion of your debt you may have to include the cancelled amount as income for tax purposes b. The total amount of forgiven debt is normally reportable as income.  The Lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C (cancellation of debt).

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.  This provision applies to debt forgiven in calendar years 2007 through 2012. The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

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