Can You Keep Your Home?

Summary:. Most people can keep their home, if they can make payments based on a reasonable fixed interest rate, such as 5% or less. In addition to asking for a loan modification, you should find out if you have any legal defenses to foreclosure. Many people do.

Can You Keep Your Colorado Home?

Most people can keep their home, if they can make monthly payments based on a fixed interest rate such as 5.875%.

Therefore, the first thing to do when you are behind on your mortgage payments is to apply for a loan modification. If your income and other expenses show that you can make a reasonable monthly payment, then you should expect to get a loan modification so that you can get back on track.

We have been charging about $700 total to do a loan modification, even for both a first and second mortgage, as long as we do them both at the same time.

Do You Have Any Legal Defenses to a Foreclosure of Your Home?

Many people can prevent a foreclosure on account of a legal defense to foreclosure.

Perhaps the best legal defense is a Truth in Lending Act violation.

Other legal defenses include predatory lending, deceptive trade practices, fraud, etc.

You should have your real estate file documents examined by an attorney so that you can get some decent legal advice as to whether you can keep your home based on a legal defense to foreclosure.

We do not charge for a review of your real estate documents. (Don't be suckered into paying $500 to $3500 for such a review, which is often called a "loan audit." It is a rip-off.)

What Happens if You Can't Keep Your Home?

If you can't keep your home, then you must make a plan as to how you will handle the loss of your home.

Particularly as to whether you are likely to be sued over the difference between what you owe the mortgage company and how much the property will be sold for at the foreclosure sale.

For example, if you owe $200,000, and the foreclosure sale amount is $100,000, then you can be sued for the $100,000 difference. And a bill collector can take 25% of your take-home pay every month until the judgment is satisfied.

Second mortgages, such as a Home Equity Line of Credit (HELC), are a big problem. Because in a foreclosure sale, the second mortgage will be paid nothing. And we are seeing lawsuits and judgments against homeowners for the unpaid second mortgage. (And now even for the balance of the unpaid first mortgage.)

What About the Income Tax Problem of Giving Up Your Home?

In many cases, you will not have to pay any income tax if you lose your home.

However, there are exceptions. Such as if you are not insolvent and you took cash out when you refinanced your personal residence, then you may have to pay income tax on the amount of the mortgages which you did not pay. Or, at least on the amount of cash you took out. This is particularly true if you have a fair amount of exempt assets, such as an IRA or 401(k).

I know that many attorneys say that the new 2008 change in the law allows you to give up your home without having to pay any income tax. However, that is often not accurate.

Also, if the real estate that you lose is a rental or business property, then you are more likely to have to pay income tax on the amount of the mortgage which is unpaid.

What About Doing a Short Sale for Your Colorado Home?

In my opinion, the short sale is one of the biggest rip-offs in America.

No one wins, except the real estate brokers and the mortgage brokers.

And worse, most lenders are now requiring that you pay the unpaid mortgage amount(s) after closing. And, some are requiring you to sign promissory notes at the closing table.

If you ever sign such a promissory note (or two) at a short sale closing, you probably cannot later get rid of that debt in bankruptcy. The theory here is that you did not intend to pay the promissory note at the time that you signed it. So, don't ever sign a promissory note (or two) at a short sale closing. (The best advice is - don't do a short sale.)

One of the big lies today is that a short sale or deed in lieu of foreclosure will not harm your credit as much as a foreclosure or a bankruptcy. That is not true.

What Should You Do To Find Out Whether You Can Keep Your Colorado Home?

Get a written Plan as to what your options are and a recommended Plan of action.

How can a legal defense or a bankruptcy help you?

It is easy to make a $100,000 mistake. It is also easy to avoid it, if you know what to do.