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  • Options for walking away from Your Home Loan

    iStock_000007871522Medium With the value of your home decreasing and costs of everything else going up, it can be difficult to figure out how you are going to pay your loans.  While the Obama administration has helped some people, there are still millions who do not qualify due to the decrease in value their home.  Thoughts about how to pay your mortgage can be scary.

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    Years ago, giving up on a mortgate would have been unthinkable.  However, with economic bad news hitting us at every corner, that is exactly what some people are doing.  It never hurts to talk to your lender to see about other options first.

    However, if there are no other options, you most likely won’t be subjected to any lawsuits.  The government should not tax you either.  Finally, although your credit will be damaged, it should be reparable. 

    One option available to you is to try for a short sale.  Work with the lender to see if you can sale at a price lower than the mortgage amount.  Another option is a “deed in lieu” where you give the lender the deed to your home and in return the lender agrees not to start the process to foreclose on your home. 

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    You can simply threaten to stop paying on your loan.  The number of people who are hurting financially is overwhelming the banking industry, making it more palatable for a lender to determine a resolution which is mutually beneficial.  The cost to lenders can simply be too much to go after somebody who cannot afford to pay. 

    Different states can have different rules regarding when lenders can go after borrowers for the balance due on their mortgage loans after foreclosure. 

    A good rule of thumb is to discuss the laws of your particular state with a lawyer.  You can also include a lawyer in any short sale, deed in lieu, or the foreclosure to additionally protect yourself. 

    Besides having a lender potentially pursue you, you also need to be careful of Uncle Sam. Forgiven debts can often be counted as taxable income.  If you must sell your home through a short sale or opt for the deed of lieu, take a look into using special tax form 1099-C.  Some states have passed laws that are similar to national laws, so check with an accountant.

    The damage to your credit can last up to seven years, but the extent of the damage also depends on how you have been able to pay other lenders.  If you are looking to rent a property, you should easily be able to qualify as long as walking away from the mortgage was the only event damaging your credit. 

    Due to the staggering number of people who have had their homes foreclosed, lending institutions have been working to remove the stigma that has been associated with home foreclosure.  Keep a cool head and an optimistic attitude and you can weather out the current economic storm.  

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