If you are struggling to pay your mortgage due to a job loss or transfer, illness, or change in life circumstances (such as a divorce), you may not be able to save your house if you are in an underwater mortgage. Homeowners are “underwater” or have negative equity if they owe more on their mortgages than their homes are worth. In this post, I will discuss some of the options that are available for homeowners who are not able to save their homes. Sell your house and bring cash for the difference between the sale price and the mortgage balance to the closing. Unfortunately, this is not a realistic option for many people, especially once you include closing costs and realtor fees. On occasion, sellers in this situation have been able to secure a personal loan for the difference between the sale price and the mortgage balance, but this is quite rare. Deed in lieu of foreclosure. Some homeowners are able to negotiate a deed in lieu of foreclosure with their lenders. In this case, the homeowner deeds the house back to the lender, in order to satisfy their mortgage and avoid foreclosure proceedings. Short sale. If the lender agrees to accept a short sale, a homeowner can sell their house for what it is currently worth, even if that is less than what they owe on their mortgage(s). The lender may not agree to forgive the deficiency (the difference between what the house sold for and the amount owed on the mortgage). Foreclosure. If you are no longer paying your mortgage, the lender will eventually begin the foreclosure process. Foreclosure is a legal process by which a bank, mortgage company, or other creditor takes a homeowner’s property in order to satisfy a debt. In Minnesota, there are two different methods of foreclosure: (1) Foreclosure by action. See Minn. Stat. § 581.01 et seq. (2) Foreclosure by advertisement. See Minn. Stat. § 580.01 et seq. Deficiency Judgment. Minnesota allows for deficiency judgments by mortgage holders (lenders) in certain cases. See Minn. Stat. § 582.30. A deficiency judgment is a judgment against a debtor (homeowner) whose foreclosure sale did not produce sufficient funds to pay the mortgage in full. Taxable Event. If you have a successful short sale and your mortgage bank decides to forgive the deficiency, this is normally a taxable event. This is also true in the case of a foreclosure or a deed in lieu of foreclosure. This is because debt forgiveness or cancelation is considered to be income by the IRS. You will want to consult with your tax advisor before moving forward with a foreclosure, short sale, or deed in lieu of foreclosure. Elizabeth Rosar Chermack is a Minnesota Attorney who offers Foreclosure Options Consultations. Call (952) 491-0390 or send an email to liz@chermacklaw.com to schedule a consultation with Liz. ATTORNEY ADVERTISING MATERIAL. The content of this website is for informational purposes only and is not intended as legal advice. No attorney/client relationship is formed by use of this website. Do not submit confidential information via this site unless and until there is a signed retainer contract on file.
