| Do you have questions about a short sale, a | | | | will probably want to see that the property has been |
| deed-in-lieu of foreclosure, or tax penalties? Have you | | | | marketed for sale for at least 3-6 months before they |
| been approached by someone who wants to charge | | | | consider a deed-in-lieu. The lender may ask you to sign |
| money to help you? Are you being pressured to sign | | | | a promissory note to repay the difference, so be sure |
| over your deed? | | | | to have all contracts reviewed by your attorney |
| In Part 1, you created a file folder so you are prepared | | | | before signing. |
| to deal with your lender, include loan docs, proof of | | | | 4. Do Nothing and Allow Foreclosure. If you don't pay |
| income, and a hardship letter. | | | | your mortgage loan and don't communicate with your |
| If you are willing to let your house go, consider more | | | | lender, your lender will eventually foreclose. You will |
| options, such as: | | | | lose your home and your credit will be marred by a |
| 1. Sell & Pay Off Loan. Before selling, ask your | | | | public record of foreclosure. Even worse, you may still |
| Accountant if you will owe capital gains taxes to the | | | | owe money to the IRS, depending on your situation! |
| IRS. Then consult your local Realtor® to calculate | | | | Every situation is different, please consult professionals |
| your house's value, the closing costs, and your | | | | for the best advice. In Part 1, it was recommended that |
| proceeds. If the value of your house is lower than your | | | | you contact the following experts: |
| loan amount, read the next section about Short | | | | - Attorney (must be experienced with real estate or |
| Payoffs. If you have a CalHFA loan, you may owe | | | | bankruptcy) - a good lawyer will advise you of your |
| recapture taxes. | | | | options, review your contracts, and negotiate with your |
| 2. Short Sell (Short Payoff). In a short payoff (short | | | | lender. Find an affordable attorney plan a pre-paid legal |
| sell), a buyer offers to buy your house for less than | | | | service at |
| the amount owed on your loan. Unless you have the | | | | - Accountant (or an Enrolled Agent) - to help you |
| funds to pay the difference to your lender, your lender | | | | calculate your anticipated IRS tax penalties. Find at |
| would have to agree to accept less than what is | | | | AICPA organization or NAEA organization. |
| owed on the loan. They'll ask you for your financials, | | | | - Real Estate Broker - a pro experienced in mortgage |
| and may ask you to share in their loss (such as | | | | loans, home sales, and short sales. Go to the Realtor |
| contributing funds from your retirement account). You | | | | web site. |
| may owe taxes if your lender files a 1099-C declaring | | | | - Financial Counselor - you need a consultant to help |
| their loss as your income; however the President just | | | | you negotiate with your lender and "go to bat" for you. |
| signed a new law which will waive this penalty for | | | | Contact to get in touch with a pro. |
| some homeowners. Ask your Accountant about it, and | | | | How long will the foreclosure process take, and what |
| also whether or not you will also owe the IRS capital | | | | are your rights? To find out about the foreclosure laws |
| gains taxes. | | | | and procedures in your state, go to and click on your |
| 3. Deed-in-Lieu of Foreclosure. Essentially, you give the | | | | state. |
| property to your lender and walk away. The lender | | | | If you want to consider some short-term solutions to |
| then owns the property, and usually try to sell it. If the | | | | avoid foreclosure and keep your house, look for Part 1 |
| property sells for less than the loan value you owed, | | | | of this series, the article entitled, "Avoid Foreclosure |
| the lender takes a loss. In some cases, they may issue | | | | and Save Your House with Short-Term Solutions". |
| you a 1099-C and you will owe taxes to the IRS; | | | | However, if prefer long-term solutions to avoid |
| however check with your Accountant and see if you | | | | foreclosure and keep your house, look for Part 2 of |
| qualify for the waiver under the new law. The lender | | | | this series, the article entitled, "Avoid Foreclosure and |
| will ask you for your financials and will probably order | | | | Save Your House with Long-Term Solutions". |
| their own appraisal before approving this option. They | | | | |