Can I Go To Jail for Not Paying My Mortgage?

Not likely... but....

A borrower will not go to jail if they default on their mortgage loan, but they could face criminal charges in a couple of extreme situations described below.

In some states, foreclosure involves judicial proceedings.  In other words, the lender must hire an attorney who initiates a foreclosure lawsuit against the borrower.  The lawsuit does not involve any criminal charges against the borrower.  It is merely a civil proceeding that involves the lender’s attempt to collect a debt or be given ownership of the property in exchange for the unpaid debt obligation.

 If a borrower fails to maintain their property prior to being foreclosed, the local municipality could issue a citation and/or a fine.  Common citations include failure to keep grass cut, leaving pets behind, having an unfenced or tepid swimming pool, or leaving a house unsecured.  Some municipalities will even condemn a property.  If the borrower fails to address the issues and pay the fines, some municipalities have the ability to take the borrower to court.  In rare cases, failure to show up for court could result in an arrest warrant being issued.

If a borrower deliberately trashes a house, it is possible for the lender to sue them after the sale for destruction of property and perhaps even press criminal charges.  While rare, it is done in cases where the borrower creates major damage to the house.  We have seen cases of angry borrowers clogging toilets and sinks with concrete mix or stopping the drains with other things like tennis balls.  They then turn the water on and leave it on.  In other cases, borrowers have ripped out all the fixtures and appliances.

In some blighted cities, lenders have taken the unusual step of not foreclosing since they determine that the property’s value is so low that it is better to not take it back.  This is known as a bank walkaway, where the bank charges off the loan and stops the foreclosure action.  Therefore, the borrower remains as the owner.  The city can then issue citations against the owner for failure to maintain their property.  In some cases we have seen, the owner walked away from the property only to find out years later that they still owned the property.  The city may even have the right to demolish the property and bill the owner for the cost.  In rare cases, failure to respond to the city’s citations or court hearings could result in an arrest warrant being issued.

The key is for homeowners facing a hardship and unable to pay their mortgages to Short Sale their home and avoid foreclosure all together. If you or someone you know is in this situation, contact me to learn how our team of professionals can help! We provide you with an attorney at no cost to you and a processor/negotiator to communicate and work with the lender.

From the Blog: StopMyForeclosureInstantly. Reprinted with permission.

Hardship - What Qualifies to be Eligible for a Short Sale?

I want to do a short sale and the bank says I need to display a hardship.  What counts as a hardship?

A hardship is a situation that renders a borrower unable to continue making monthly mortgage payments and/or unable to sell their property and cover the entire mortgage balance.

What are Legitimate Hardships?

Legitimate hardships include:

- The death of a breadwinner.

- Serious illness of a breadwinner.

- Serious illness of a family member, whereby the income earner(s) in a family take time off work to        care for the person.

- Serious damage to or a material defect with the property that will not be covered by insurance.

- Loss of a job.

- Reduced hours at work, which lowers a person’s take-home pay.

- Loss of a job by one of the two people in a dual-income household.

- A forced job relocation, typically more than 100 miles away.

- A divorce, typically one that involves a sharp decline in income and/or significant reduction in liquid assets.

What Situations Do Not Qualify as Hardships?

Situations that are not hardships include:

- Desire not to pay, even though the borrower has substantial income or assets.

- Decline in property values (in some areas of the country, like California, Arizona, Florida, and Nevada, the decline is so sharp that it may qualify as a hardship).

- A break-up between a boyfriend and girlfriend who were both on the mortgage.

- A person who has substantial liquid assets and who therefore could easily pay the difference that is owed.

- Depression experienced by the borrower.

- A person who is angry at the bank and wants to stop paying to make a point.

If there is no hardship, then it is extremely unlikely that a short sale will be approved.

If you believe you are a candidate for a Short Sale, contact me to discuss how we can help you get through this difficult time and avoid foreclosure.

Reprinted from the website “Significa Short Sale Solutions” with permission.

Short Sale - What's My Tax Liability?

I am selling my house via a short sale.  Will I have to pay tax on the forgiven debt?

 Under the Mortgage Forgiveness Debt Relief Act of 2007, enacted December 20, 2007, taxpayers may exclude debt forgiven on their principal residence.  This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately).  Details are on Internal Revenue Service (IRS) Form 982 and its instructions, available on www.irs.gov.  Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief.  In most cases, eligible homeowners only need to fill out a few lines on IRS Form 982 (specifically, lines 1e, 2 and 10b).

What are some of the rules?

The debt must have been used to buy, build, or substantially improve the taxpayer’s principal residence and must have been secured by that residence.  Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.  Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for this tax-relief provision.  In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available.

Will the government extend forgiveness?

It is possible that the federal government may extend the principal residence short sale tax forgiveness beyond December 31, 2012.  It is also possible that the government may not extend this provision.  The government needs tax revenues and 2012 is an election year, which may affect political decisions.  Given what we know now, people who are considering a short sale of their principal residence are better off if they sell their house in 2012.

Can the mortgage lender come after me?

Please be advised that your mortgage lender might not agree to forgive the mortgage deficiency. If they do not forgive the deficiency, they may legally pursue you personally to collect this debt.

Is a Short Sale right for you? Contact me to learn how our team of professionals can help you get through this difficult time and avoid foreclosure! 

From the Blog: Stop Foreclosure Right Now. Re-Printed with permission.