Short Sale vs Short Pay Off vs Foreclosure vs Bankruptcy vs Other things you should consider.
If you are reading this article odds are that you are facing foreclosure or maybe facing it shortly. With roughly 1% of all homes in New Jersey at some point of foreclosure, you are not alone. You probably are also facing a deluge of conflicting information from multiple sources. You have people offering to buy your house, others offering to get you a loan modification, others offering to put you into bankruptcy to save your home, others offering to find someone to buy your home…
Hmm, that last solution sounded a lot like the first didn’t it? Normally a home represents 80% of the amount of value in an estate when some passes, and this tends to be true while people are alive, too. So everyone trying to buy your home is trying to either take money out of your pocket or profit off your situation.
Everyone is Trying to Make Money Off of Your Situation.
To find out what solution is best for you, you need to go over all of your options with someone who will explain the options available to you in your situation. And, how all of the options may help you or hurt you depending on your unique situation. I recommend speaking to an attorney to ask questions specific to your situation. It doesn’t have to be, and you should talk to more than one to make sure you are getting the right advice. Not all attorneys are current on the law, nor will they always by working for your best interest. I am going to lay-out a list of options that you may be facing.
Not every foreclosure is the same, and not every solution is available in everyone’s situation. Standard mortgage foreclosure is different than a Tax Lien Foreclosure, just like it is different from a Home Owner’s Association Foreclosure and all of these are different than a foreclosure on a reverse mortgage. And, if someone passed away the options of the estate also vary for each type of foreclosure. And, if you are not a blood relative and you find your self in a position of having a property in an Estate that you are the Beneficiary your options are also different. Oh, and if someone along the way that had an ownership interest filed bankruptcy the options also change.
To explain all of the options to every person in foreclosure would take a book, but with this article, we will just go over the simplest pros and cons of each solution.
Foreclosure in New Jersey:
The cons are you lose the property and if your name is on the property you will have a foreclosure following you around on your credit report. If you have equity in the property, you will lose it if you choose to do nothing about the foreclosure. Even if you are foreclosed, you still may have options to recover the property or the value the property that it represents. It never hurts to talk to an attorney even after you think all hope is lost. We can tell you stories of clients that have come to us where we were able to get their homes back after foreclosure. You have rights, and talking to a New Jersey Foreclosure Attorney about them, you may find a solution. You are also going to be unable to buy a home by loan for the next two years.
The pros are…. Um, Well if the house was an albatross around your neck you do not have to worry about it anymore. Just the negative impact it has on your credit going forward and the ability to buy a new home in the future. There are options that let you get rid of the home, and for you to benefit. We can go through those in the next sections.
Sell Your New Jersey Home While in Foreclosure (Not a Short Sale)
The pros are that if you have equity you get the money in your pocket. This may sound silly, but we have had people that have come to us thinking their homes were underwater, but we consulted with a realtor and found that their home was worth more than they thought. If you want a free valuation on your home, go to First Look Realty for a Free Instant Home Evaluation. Why will they do it for free? So, they may someday get the ability to list your home for you. Pretty straight forward. Profit motive to sell your home for as much as possible.
This is almost the same reason why dozens of vultures potential investors are knocking on your door trying to buy your home. They see that you are in trouble and want to take advantage of your situation. Where the realtor wants to sell your home for the most amount of money, while the investors want to pay you the least. There are dozens of people across the country selling people systems on how to find people facing foreclosure, so they can reach out to try to buy the property under market value. This is where you as the homeowner is taken advantage. (If you think you can sell your home for more than a Realtor, remember the owner of the For Sale Buy Owner website used a realtor to sell his home and made more money even after paying the realtor.)
And, without the foreclosure on your record, it is easier to buy a new home faster. Qualifying for loans, and not taking the hit on your credit report for 7 years with the foreclosure.
The cons are you have lost your home. Sometimes living in the home is more important than the equity. Family memories are not easily sold. You may also then face eviction if you are still living in the property, which would then make it even harder to rent an apartment.
Short Sale your New Jersey Home
This does help you keep a foreclosure off your record and avoid the eviction scenario like the above scenario, however, you usually will not see any money on the deal. But, you may be able to get Cash for Keys as part of the deal or move out money. Some people would rather stay until an eviction, and everyone’s situation is unique so if nothing else, call a New Jersey Foreclosure Defense attorney to develop a timeline of staying in your home if you want to go this route.
If you are wondering what the short sale process looks like, we will cover that in another post. The basics are to owe more than the property is worth or close. In some cases, the lender may even allow a short sale if the property is not that far above water just to stop the foreclosure process. In many cases, we see banks willing to take 80% of the value of the home to just get out of the situation. Many banks do not want to face the prospect of carrying a non-performing asset for years on their books if they are going to lose money.
The hose normally needs to be listed with a realtor, so the bank can ensure that the highest offer is going to be given. So, short sales between relatives normally do not happen or are frowned upon. However, the possibility of a short pay-off all exists in these situations.
Short Pay-Off in New Jersey
A short payoff is making an agreement to pay off the bank for less than is owed. This is normally not possible for most people because if they had the money to pay of the loan, they wouldn’t be facing foreclosure. However, some people have rich relatives that are willing to help, a boss with extra cash, or they get a hard money loan. A hard money lender will at times work with the bank to only pay 75% loan to value “LTV” or lower on the property to the bank and then give a loan to the owner at the new amount.
The cons of both these scenarios are that you may lose your home, or significant equity in your property, or your lender may not want to work with you. You will also get a 1099 form at the end of the year telling you that you should treat the forgiven debt as income for the purposes of the IRS. There are ways to have this not included on your taxes, and you should discuss this with an accountant. You are not going to find this on TURBOTAX online. If you buy the software to be installed, it is on the CD. It is a situation that happens to many people.
So if you are a borrower unable to make your mortgage payments, and have experienced a significant decrease in the value of your home. You can approach your lender about the possibility of a short sale or short pay off of the property in lieu of the lender foreclosing on the property. Depending on what your needs are, either of these scenarios may work for you.
Deed in Lieu of Foreclosure
In a Deed in Lieu of Foreclosure situation the bank allows you to turn the property over by signing over the deed. The pros are you no longer own the property. The cons involve possibly losing equity, having the 1099 being sent to you at the year for IRS purposes and also not getting cash to move out. (See Cash for Keys below)
Cash for Keys for a New Jersey Home
A Cash for Keys arrangement, the bank pays you to move out. This can happen before or after a foreclosure. Basically, the bank is paying you to leave without blowing up the house, or stealing al of the copper pipes when you leave. Cons are the same as a Deed in Lieu except you now have cash in your pockets.
Loan Modification
A loan modification is different than a refinance in that your bank is working with you on your old loan and only changing the current terms. Sometimes the terms are worse in the long run or better. If you have a 7% home loan and it drops to 4% over the remainder of the loan you will save money. And, after you finish making your trial payments for the loan modification normally the bank will dismiss the foreclosure complaint.
In other cases, a loan modification may be better int he short term, but hurt more in the long term. If your 30-year loan is extended to 40 years your payments may go down, but if your interest rates go up you can end up paying more over the length of the loan. At times people take pad loan modifications for the short-term benefit of stopping the foreclosure.
Refinance
Unlike a loan modification, refinancing is going to a different lender to pay off your old loan. Normally people in a foreclosure situation do not qualify for a refinance as their credit will have tanked and no one wants to lend a bad risk more money. However, there are some companies that negotiate with a bank to buy the loan at a discount that are then willing to lend money that sounds better to you, but at the end of the day, they are making tons of money.
If you want to go over all of your options you should talk with a New Jersey Foreclosure Attorney to go over all of your options. An attorney will respect your privacy, answer all of your questions, review all of your options related to your mortgage, discuss options related to any hardship you face without being judgmental. Contact us today to go over your options related to your loans for real help. This costs you no money. Come to one of our offices or call us at (973) 200-1111.
