To Foreclose or Not to Foreclose: Short Sales and Jedi Mind Tricks (Part 3)

Play Mind Tricks

You think, “I cannot do this anymore.  It is crazy.  There is no hope for this economy.  I cannot hold on any longer.  I am sinking.  I need to foreclose now.  I will do it.”

But wait! 

At the back of your mind, you are thinking – is there another option?  Options?  You are thinking – I think I may have heard of something. 

There is one: through a short sale.  But again, it is not that simple.

A short sale is selling the home for less than the mortgage balance and trying to get the lender to forgive the unpaid balance.  The question here is: will the lender give consent to the transaction and forgive the debt?  The tax consequences are the same but it is a better alternative to a foreclosure for debtors with non-recourse debt who qualify for the exclusion of income of the gain from the sale of a principal residence because these consequences will not haunt them.

But there are many requirements here (in case you did not understand my gibberish above):

1) will the lender agree to get less

2) is the debt non-recourse

3) will you qualify for the exclusion of income of the gain from the sale of a principal residence

If your answer is yes to the 3, then this is what you can (and should) do because it will not affect your credit score and you will not have the problems I previously discussed (except for the tax problem – you will have that unless you qualify under the exclusions).

Now you say, no can do. I do not think I can meet the requirements.

Then maybe it is time to try some jedi mind tricks:

1.  Talk to your lender.  If they see that you are near foreclosing, they will likely listen, because they will lose money too. Tell them that you want to inquire into other more affordable repayment plans, or if you can make interest-only payments for a short while, or if you can modify your mortgage agreement upon mutually agreeable terms, or if you can temporarily suspend monthly payments.  They are bound to say yes.  As I mentioned, they have a stake in this too.

2.  Read your loan documents (try to read it twice).  Because you have to find out what the lender can do to you if you do not pay your mortgage (and what you can do if you cannot pay your mortgage).  See what your rights are under the document.  Know what your rights are under the law.

3.  Prioritize your spending.  (mortgage payments first) (please)

4.  Do not fall for foreclosure scams by persons and companies who say they will help you but charge you 2-3 months mortgage for information that you can get for free from your lender (or the internet). 

5.  You can answer the foreclosure notice and try to get a court hearing so  the court can hear your side of the story and until you sort out what it is you want and can do (this will buy you a lot of time – well, hopefully).

Foreclosure is not insolvency or bankruptcy but it is also serious – so you have to treat it seriously too.  Know your options, know your rights.  Some experts say this crisis is only temporary and that we can opt to ride it out.  But for those of you who no longer want to see the end of this (because you think it might mean the end of you too), I urge you to consult someone who is knowledgeable in foreclosure, who can answer your questions and give you time and attention (and maybe a little sympathy).

A house is the culmination of all your dreams.  Sometimes it makes sense to see dreams end and vanish.  Sometimes too, it is worth it to see it through, all the way to the end (because the nightmare might end sooner rather than later).

And remember – you have everything within you to make the right decision.

Be rich,

Issa

Article by Issa. Art by D. Copyright 2010.
Website: www.YouWantToBeRich.com
Email: issa@youwanttoberich.com

Disclaimer: I encourage you to seek a competent professional, like an accountant or a lawyer specializing in foreclosures.  I specifically disclaim any liability, loss, or risk which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this article.

[ad name=”HTML-2 Blogher Before Comment”]

[ad name=”HTML-3 Logolopolis”]

[ad#Google Adsense-1]