It used to be that you needed to be late with your lender before they would consider a loan modification or other recourse . That's not true anymore with most lenders but why not call them and find out? A call to your loan company, and talking to the loss mitigation department, will clear up what their policies are. I'll guarantee that when you talk to an attorney, or a tax accountant on the tax consequences, they'll ask you what your lender said. So make that your first step.
Also, legislation is changing. If your mortgage was used in the initial purchase of the house then there are no tax consequences for any write off or settlement of monies. Others had the potential to have a 1099 attached, but more and more legislation is dismissing those. But that really is a matter to handle later....it's a whole other discussion.
Save your house if you can. Call your lender. If you can't save it, then sell it in a short sale. You are definitely not alone in getting mixed up in this financial crisis but we all have to do what we can to resolve the individual situations. Foreclosure will hurt the worst for all involved; yourself, the lender, and the public and is not necessary.
Don't worry, you'll get through this and with a little information it will be a lot less stressful.
Sue summarized the basics very well for you already, but I would recommend that you still seek legal advice as there are potential tax consequences of which you should be aware before you make a decision as to how you want to proceed.
While you are upside down, I don't see your situation as hopeless. There are a lot of people who are more upside down than you are and a loan modification would not make sense for them. You don't mention whether you are currently behind with your payments. Many lenders will not talk to you seriously about a loan modification if you are current with your payments. This may not make sense, but it's reality and I would not want you to think that you can't qualify because they turned you down once. I don't want to give you unwarranted hope. I just want to encourage you to explore all your options even if you may have received a "no" before.
One last thing, it is crucial that you take action immediately. The sooner you get started getting the information you need, the better you are off and the more prepared you'll be.
Wishing you the best of luck and please don't hesitate to contact me if you'd like the name of the attorney who offers free consultations.
Avalar Real Estate
"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."
I'M NOT A LAWYER; however, my understanding is as follows if a foreclosure takes place:
There a number of ways a lender may or may not be able to go after personal assets via a deficiency judgment after a foreclosure, but it makes a difference on how the property is foreclosed.
For a Owner-Occupied where:
1) A lender made a purchase money (non-recourse) loan, then NO deficiency judgment can be attempted. If a senior lienholder forecloses on the property, the "wiped out" junior lienholder who no longer has a secured note may not sue on this promissory note.
2) A Seller financed a purchase money loan (non-recourse), NO deficiency judgment can be attempted (non-recourse loan). If a senior lienholder forecloses on the property, the "wiped out" junior lienholder who no longer has a secured note may not sue on this promissory note
3) You as the owner of the property, refinanced the property (recourse loan), then a deficiency judgment CAN be attempted if a judicial foreclosure was used. This is NOT allowed under a trustee sale foreclosure. HOWEVER, if a senior lienholder forecloses on the property, the "wiped out" junior lienholder who no longer has a secured note MAY SUE on this promissory note.
IN ANY CASE, A REAL ESTATE LAWYER SHOULD REVIEW YOUR SITUATION TO KNOW WHAT YOR OPTIONS ARE IF A LOAN MODIFICATION IS NOT ALLOWED.
Just so you know, Sue, there are tax consequences. Only an owner-occupied residence is exempt from federal taxes, but investment properties can be taxed. Also, regardless of whether the home is owner occupied, the state of California will collect taxes. The state exemption expired last year, and there is legislation pending regarding this (which is what you may be referring to) but it hasn't happened yet -- and god help our state budget deficit. Federal exemptions apply to only owner-occupied residences through 2010.
However, I am not licensed to give tax advice. For more information, please contact a CPA.
Although I'm not a lawyer, I believe the answer to your underlying question will be based on the types of loans you have. You first have to determine whether your loan(s) are classified a recourse or non-recourse loans. You will need to find your Promissory Note, not the Deed of Trust, to check this out. The Promissory Note may or may not specifically state whether your loan is non-recourse, so for the formal definition please review questions 4-6 of the document found here:
Now for the better alternative. Call your bank. Complete a financial form, write a letter of explanation and they will work with you to come up with a better alternative. Those alternatives include a loan modification, or for them to accept a short sale for the property. It is a win win situation for you and the bank to work out a solution. You need to be talking to the loss mitigation department, not customer service, And if you need any help doing that, understanding this in more detail, or just some discussions on possible alternatives, please give me a call.
I work as a home retention consultant for many banks. They hire us to do nothing more that call on their clients and encourage the client to talk to them when they appear to have difficulty paying their mortgage. There is no charge to the borrower. The bank just wants to talk to them to work out a solution.
So there is a solution for you out there, that is alot better than you are imagining.