Most of you have heard the news from Obama as it relates to companies, and services that can help you with your home solution in this current economy. Chances are you took out a mortgage, or home loan a few years ago with your bank and now you are afraid that you may have bad credit, or owe too much on your house, now that housing prices have gone down.
Federal laws have come out with some great loan modification programs, and now you are hearing about, and you are wondering how to make sense of all of this and what are the qualifications.

Most loan modification programs will not allow for a principle reduction.  If you are looking for an upside down mortgage solution, then a short-refi may be better for you.  My research shows that GMAC, Wells Fargo and Countrywide are widely searched as it relates to lenders. If you want to sell instead of stay in your house, a short sale may be a better solution.

The short refinance process usually takes 120 days or less to complete. This is not like
your standard refinance process on your mortgage. The lenders have to take what’s called a short payoff, or short pay refinance, it’s a unique program, just now becoming popular. With the short pay of the mortgage you’ll want to check with your tax accountant, it’s likely that the lender and IRS will deem this as a discharged debt, and you may owe taxes on it.
The company I am affiliated with will handle the negotiation. Typically a new bpo is ordered, this is a broker’s price opinion.  This is done to ensure what the current market value is of the property. The buyer gets qualifying for the new loan amount with the current lender or a new lender through FHA.  Through the FHA, homeowners are able to qualify for low fixed interest rates and high LTV (loan-to-value ratios on their mortgages)

The homeowner must be able to afford the new loan and qualify showing:
tax returns, w-2’s, 1099’s, check stubs and bank statements, a full documentation loan. The current program is for those not yet in foreclosure. If foreclosure has been filed already, contact us and we’ll look at the loan modification or short sale solution for you. The costs to the seller are only around $224 upfront. You keep ownership of the property the whole time and stay in your house. You don’t have to be behind in payments like most loan modifications. Prior credit histories such as bankruptcy and foreclosure don’t matter. Debt to income can be as high as 45% when qualifying.

Documents you’ll soon need for qualifying:
(Info needed for anyone to be put on the loan)
-Last 2 years of W-2’s
-Last 2 years of tax returns
-Check stubs for the past 30 days
-Bank statements covering the past 60 days-all pages from the statement
-Most recent statement(s) for investment accounts: IRA’s, CDs, Money Market accounts, Pensions
-Your mortgage statement(s)
-A copy of your homeowners insurance policy
-Copies of your ID and Social Security Card

What are the disadvantages from walking away in foreclosure Vs. Selling on a Short Sale?

SOLUTION: I believe selling on a properly executed short sale is better than walking away.

DISCLAIMER:
Before I answer questions below, I am not an attorney, a CPA, or an accountant. I suggest you seek legal,and/or competent CPA’s advice before making any decisions. What I am typing below is based on extensive research I have read. It’s suggested that you do your own research on the topic of he information below, it’s in no way to be used as: legal, tax or financial advice.

SELLING SHORT SALE SOLUTION: SOLVING THE PROBLEM SOONER Vs. SUFFERING CONSEQUENCES LATER:

With a short sale, typically within only 4-8 months you have put almost everything behind you. A properly done short sale can work towards a satisfaction of the mortgages and promissory notes, eliminating the possibilities of a future deficiency judgment against you personally.  People often like to mention that short sales takes months to complete, but what they should realize  is that the negotiator, agent, or investor is the one that spends 95% of the time following up. The homeowner simply just waits and doesn’t have to do much work at all other than allow for the house to be shown and sign some paperwork upfront.  Little to any money is involved on the seller’s end, as the bank pays the majority of the fees. Seller’s may have to pay any past due associate fees and or required city inspections.  Those are required WHENEVER you sell a house, regardless if you sell on a short sale.

WALKING AWAY CAN HAUNT YOU LATER ON:

Walking away and letting the bank take the house back seems like an easier solution today, to many, as it doesn’t appear to take any work, you don’t have to keep thinking about the central focus of your problem today, your house. This is because you don’t know what you don’t know.

“Walking away from your house is like sweeping everything under the rug, eventually, it has to be dealt with, for now you don’t have to look at it or think about it, but later it comes back with an escalating number of cockroaches and ants, requiring an exterminator.”

BEFORE 2012, THERE ARE SOME TAX BENEFITS:

It’s true that there are some great benefits currently before 2012 allowing homeowners some great tax credits on losses due to foreclosure and short sales.  This can be seen through the IRS website IRS.gov under The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
http://www.irs.gov/individuals/article/0,,id=179414,00.html

This is great, but this is independent of the other issues. What I am saying is this only covers taxes, not deficiency judgments and lender collection attempts and wage garnishment. The lender who DOES NOT do the foreclosure by advertisement would like to collect the judgment later.

Note: Remember when you signed your mortgage and got a house loan you also signed a promissory note,  obligating you to pay your creditor/bank/lender.
You heard this goes away with foreclosure, but you only half heard what you wanted to.  Please read below, it is true that foreclosure by advertisement does waive the right by THAT lender to seek a deficiency later.  The key word is THAT.  In some cases, it may be true that only 1 lender likely initiated foreclosure waiving their rights. You may want to seek an attorney’s advice on this point.  I suggest getting a satisfaction with the 2nd lender on a property executed and negotiated short sale.

FORECLOSURE BY ADVERTISEMENT:

Foreclosure by advertisement is by far the preferred method of foreclosure because it faster, more simple and less expensive. Foreclosure by advertisement is only for mortgages that include a power of sale clause. A power of sale clause simply grants the lender the right to sell the property upon default.

DEFICIENCY JUDGMENT: THE #1 THING YOU ARE TRYING TO AVOID

“If the foreclosure sale does not bring in enough money to pay off the debt, the creditor may be able to obtain a deficiency judgment against the mortgagor. If the statutory redemption period is six months, however, such a deficiency judgment can be obtained against the mortgagor only if the foreclosure was by action. No deficiency judgment can be obtained against the mortgagor if the redemption period is six months and foreclosure was by advertisement. If the redemption period is twelve months, however, a deficiency judgment can be sought. Finally, even if the redemption period is six months, a deficiency judgment can be sought against any guarantors of the promissory note.” -source http://www.extension.umn.edu/distribution/businessmanagement/df7297.html

ONLY 1 LENDER INITIATED THE FORECLOSURE:

Keep in mind that often the 1st lender is the one that initiated the foreclosure. Often there is a 2nd lender in the equation who DID NOT initiate a foreclosure that does have a promissory note signed by the borrower, which they can use later against you.

DECISION TIME:

Typically what’s going to happen, is that the homeowner will decide either to:
A: Give the house back (walk away-Foreclosure)
B: Sell on a short sale

BEST SOLUTION: SELLING ON A SHORT SALE:

Often when selling on a short sale the 2nd lender will release the lien/mortgage from the house, so that the seller can sell the house to the new buyer. Notice I said release, not cancel.  What this could do is make it so that the seller owes the 2nd mortgage company even more money down the road.  Often the 1st mortgage lender needs to know about this as the 1st lender only  agrees to give up a short sale discount based on dictating what the 2nd lender will receive.  At this point Private Mortgage Insurance (PMI) and others can get involved as well as the investors backing the loan such as FHA, Freddie Mac, Fannie Mae, servicer’s, etc.

Short sales can be the right solution, but often are too complex for a homeowner to try to do on their own.  Homeowners may get a hold of the bank after numerous phone calls for months and eventually get the house sold, but often with major mistakes along the way, that they may not catch until years later. That’s why hiring a professional short sale negotiator is recommended.

With the above, we discussed doing a short sale, solving the problem and wrapping it up within 8 months or less on average. With a successful short sale you should be able to often receive a satisfaction on the loan. You should be able to minimize taxes, especially before 2012 based on current laws.  The short sale itself has a minimal impact from obtaining your next loan in 2-3 years, provided you qualify in the other required areas.  A full foreclosure could take 5-7 years with Fannie Mae and Freddie Mac, 3 years with FHA, currently less under extenuating circumstances with job loss, or medical. A short sale should have less of a credit score impact than a foreclosure.
Source: http://www.wecallyourbank.com/FREE/shortsalevsforeclosure.pdf

ALTERNATIVE TO A SHORT SALE:
WALKING AWAY: GIVING THE HOUSE BACK: FULL FORECLOSURE

When walking away from your home and giving the house back through foreclosure, your problem doesn’t easily go away, in fact, it may linger on for many years. For now it appears to be the easier solution. It may give you more peace of mind today since you don’t have to think about it right now.  It’s very likely you will have to think about the repercussions of walking away for years into your future.  Let me discuss some things you have to look forward to, if you choose to walk away Vs. selling on a short sale.

Important Note: Those doing loan modifications, then later walking away after 2012, are even worse off as the IRS tax benefit expires after 2012. See: The Mortgage Forgiveness Debt Relief Act and Debt Cancellation http://www.irs.gov/individuals/article/0,,id=179414,00.html

SOLUTION: Sell on a short sale before 2012 if you are or will be over-financed on your home.

FUTURE PAIN OF WALKING AWAY:
(FORECLOSURE  RECORD AND ON YOUR CREDIT REPORT)
ENVISIONING YOUR LIFE’S FUTURE THE NEXT 20-25 YEARS:
HINT: (IT’S NOT A WONDERFUL LIFE)
*Please see this full section in the credit repair section*

Lifetime for unpaid state tax liens
Lifetime for unpaid federal tax liens
Lifetime for unpaid child support
Lifetime positive paid trade lines
20 Years from the end date of the 1st judgment followed by a 2nd filed renewed judgment
10 Years on a credit report for a closed positive account
10 Years for Bankruptcy Chapter 7, 11, 12 from the date of filing
10 Years maximum for Chapter 13
  7 Years maximum since Chapter 13 discharge date
  7 Years a foreclosure is on your credit report
  7 Years as paid since date of last activity on collections and judgments
  7 Years for paid state tax liens from the date of filing
  7 Years for paid federal tax liens from the date of filing
  7 Years for a deficiency judgment to remain on your credit report
  7 Years for civil judgments from the filing date, or from the date of satisfaction
  7 Years for child support payments from the date of closure
  7 years of employment background and credit checks with foreclosure on your credit report
  7 years of employment background and credit checks with bankruptcy on your credit report
  7 years of not getting a high-security clearance job due to bankruptcy and/or foreclosure
  7 Years for max reported financing when lender is backed by Fannie Mae
  7 Years for max reported financing when lender is backed by Freddie Mac
  6 Years and 180 days a creditor can wait to file a judgment
  5 Years a 5 year Chapter 13 repayment plan could show up as rolling late payments
  5 Years accrued interest and penalties can accrue on Chapter 13 bankruptcy if you fail
  5 Years for earliest reported financing when lender is backed by Fannie Mae
  5 Years for earliest reported financing when lender is backed by Freddie Mac
  3 Years for financing when lender is backed by FHA
  2 Years for hard inquiries on your credit report
  2 Years charge-offs and liens affect your score a little less
  2 Years from Chapter 7 bankruptcy discharge date to get a FHA loan
  1 Year into Chapter 13 bankruptcy to get a FHA loan 
  1 Year for financing when lender is backed by FHA and "extenuating circumstances"