Question Details

Dato, Home Buyer in New York, NY

if we do a deed in lieu of forclosure with an owner financing mortgage how will that affect our credit score.

Asked by Dato, New York, NY Fri Nov 2, 2007

We have never missed or been late with payment we just can carry it much longer so we contact them and they offered us to deed in lieu of forclosure.

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4
Hello Dato. Since this an owner financed property the lender is a private person and they most likely will not report anything on your credit. I would suggest that you get someone who knows how to work out the details for deed in lieu of foreclosure agreements to make sure that the correct wording is used to avoid any problems down the road. You are lucky that the lender is a private person as many institutional lenders would not let you do a deed in lieu of foreclosure unless you are late with your payments.

Check with your accountant about possible adverse tax consequences. If a debt forgiveness is involved, the lender (although private) may have to send you a 1099 for the amount that was forgiven and then you may have to pay income tax on that amount. Watch what will happen to the Mortgage Forgiveness Debt Relief bill that's currently under consideration (past the House recently and will next be considered by the Senate) as it may change the 1099 requirements if the bill becomes law.
Good luck.

I would still explore alternatives to doing the deed in lieu of foreclosure. If you have equity in the property, I'd try a sale first. Good luck.
Web Reference: http://www.theMLShub.com
1 vote Thank Flag Link Fri Nov 2, 2007
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
MVP'08
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I'm not a cpa but here is what I know. When you are late, then it hurts credit. If you are on time, that's good.
I've done lots of owner financing, here is what I learned... The note will still be in your name. The insurance is i your name, the taxes are in your name. Pay them all and everything should be ok. Have the new owners refi as soon as possible. Try to go no more than 24 months and no less than 12 months so that the lenders have a full year's payment history. This makes it easy to refi in at the end of the term and close this account off your credit report.
0 votes Thank Flag Link Fri Nov 2, 2007
This is a tough question. Please consult with your CPA and or attorney.
0 votes Thank Flag Link Fri Nov 2, 2007
Pam Winterba…, Real Estate Pro in San Ramon, CA
MVP'08
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Dato:

Lots of question here. However, my first question is there equity in this property? Do you have a professional Realtor or a Real Estate lawyer? Please let us know by reposting.
0 votes Thank Flag Link Fri Nov 2, 2007
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