Strategic Default Monitor – How To Strategically Default

Tuesday, July 20, 2010

Got Questions? Get Answers...BSE Wants To Walk Away From Two Investment Properties in Vegas

GOT QUESTION?

This question has to do with two properties I own in Las Vegas. Briefly , they are two townhomes in the same develpoment w/ mortgages by two different lenders. Both are intrest only ARM's due to adjust in 2012 and 2013. I've owned them since 2005 and they are currently worth 50% of what I paid. Principe balance on one is $204,000.00 and $172,000.00 on the other. I'm current on both and they are rented but with neg. cash flow. I sold my buisness in 2004 and all of the note payments from the sale of my buisness has gone into these two properties. When these mortgages adjust I most definately will not be able to afford them. My wife and I are both on the notes, she is currently employed and I work part time on a cash basis. We also own our home her in New York as well as a commercial property. The lenders won't talk to me until I miss at least three payments, I'm condisering walking away. What are the potential consequences? By the way I put down $50,000.00 on each of these properties.

Thanks for your help!

BSE

GET ANSWER…

Dear BSE:

Thank you for writing.

First of all, you and your wife are equally liable and equally responsible for the mortgage loan since you both signed the note. A lender or creditor will not differentiate between who signed the note first or last, as long as it has been signed by each party.

The primary risks of a strategic default are:

1. Deficiency debt leading to a deficiency judgment.
2. Lower credit score.
3. Loss of the home or property to a foreclosure sale.
4. Recently, Fannie Mae implemented a rule that bans a person from
obtaining a Fannie Mae mortgage, if that person strategically defaults. The ban last for seven years. Furthermore, the United States Government may pass a law that bans a person from obtaining a government insured loan, if it is proven that a person strategically defaults. Read this
link to learn more.
5. Debt collections tactics, including mail, letters, personal visits to the
property, phone calls to cell phone, work, and/or family members. Not all debt collection tactics are legal. You should become familiar with your state’s debt collection protection laws and the Fair Debt Collections Protections Act. Read this
link to learn more.

My experience has established that most people who strategically default are most concerned about deficiency debt. Most people do not want to be chased down for more money by creditors or lenders.

Let’s go through deficiency debt issues carefully. A deficiency debt also known as debt deficiency arises when collateral that is used to secure a loan cannot satisfy the total amount due on the loan. The unsatisfied amount due on the loan is a deficiency debt.

A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note or mortgage loan, in full. A deficiency judgment can be obtained when there is a deficiency debt.

You mentioned that your properties are in Las Vegas, Nevada. Nevada is a recourse state. That means a lender has the right to seek a deficiency judgment. A lender must file for a deficiency judgment in a certain period of time after a foreclosure sale. Please read this
link to learn more.

If a lender or creditor forgives the deficiency then you will not be exposed to a deficiency judgment. When a lender or creditor agrees (IN WRITING) to forgive a debt as opposed to seeking a deficiency judgment, then the forgiven debt may be considered income by your state taxing authority and the IRS. Forgiven debt is income.

Under current Federal Law if a debt is forgiven on a primary residence then there is no tax due to the IRS. However, your properties are investment properties so it is unlikely you can benefit from the rule.

There are ways to minimize your risks of a deficiency judgment:

You can negotiate a principle reduction. This is when a lender or creditor agrees to reduce the principle balance of a loan. You can ask the lender to forgive the difference (IN WRITING) as part of the negotiation.

You can negotiate a deed-in-lieu. This is when you enter into a written agreement to give the property back to the bank. The key is to negotiate a full settlement of your total outstanding mortgage debt including fees and penalties in exchange for the deed to your property. A full settlement of your total outstanding mortgage debt eliminates a deficiency and tax liabilities. A partial settlement still leaves open the possibility of a deficiency judgment or forgiveness of the remaining balance.

You can negotiate a short sale. This is when a lender let’s you sell your property for an amount less than what is owed on the mortgage. Essentially your lender may be willing to accept less than the full amount due on a mortgage. If you owe the lender $400,000 then the lender may agree to let you sell the property for $350,000.

In all these cases you must get the lender to agree to forgive the deficiency.

Beware of the Turn In Your Financial Documents Trap. This happens when the lender’s representative asks you to turn in your financials via telephone or fax in order to see if you qualify for a loan workout, principle reduction, deed-in-lieu, or short sale. Before you agree to turn over your financial documents ask the lender to send you something in writing stating that they will seriously consider a work out option if you turn over your financials. Or ask the lender to direct you to their website regarding their loan workout processing rules. The problem I have is this: What happens to your financial documents, if your lender refuses to negotiate a loan workout? Can the lender use this information against you? For example, can the lender use the information during a foreclosure action or during a lawsuit seeking a deficiency judgment? In order to collect on a properly obtained deficiency judgment, the creditor or lender must locate your bank account, or locate your investment account or locate your place of employment or locate any other asset that has value. I don’t think anyone wants to turn over their financial documents to be used in any way to take their money.

If you do decide to turn over financial documents to the creditor or lender, then cross out all of the account numbers. If the creditor or lender refuses to work with you after you have turned over your financial documents then immediately move all of your money and your investments to another financial institution. Only turn over what the lender asks for nothing more.

A creditor or a lender has the right to garnish wages if it properly and legally obtains a deficiency judgment in a court of law against a person who entered into a legal loan agreement with the creditor or lender. Your wife could be exposed to wage garnishment if the creditor or lender successfully obtains a deficiency judgment against her.

Keep in mind that even if a creditor or lender successfully obtains a deficiency judgment, it does not mean all is lost. You can negotiate a settlement with the creditor or lender. The creditor or lender may take 50% or less than what is owed instead of spending time in court. Also keep in mind to NEVER LET A LAWSUIT FOR A DEFICIENCY JUDGMENT GO UNDEFENDED. NEVER IGNORE THIS TYPE OF LAWSUIT. The simple reason is that you may stop the creditor or lender from getting a judgment or you may be able to use your defense to this lawsuit as a means to negotiate a settlement.

A critical decision is how to protect your assets. There are various tools and strategies that can be employed to legally protect or hide your assets from a creditor. Keep in mind there is a rule called fraudulent conveyance. Essentially, a fraudulent conveyance is when a debtor transfers their assets in a way to prevent a creditor from collecting on a debt. There are specific rules regarding fraudulent conveyance, so this should not prevent you from properly protecting your assets.

Unfortunately, you will lose your initial $50,000 investment. However, you should speak to an accountant to determine what happened to your cash investment if the property is sold at a loss.

You should seriously consider working with a qualified real estate broker, attorney and/or accountant in order to understand your specific risks.

You have much to consider. I am confident you are on the right track.

Please feel free to write me at anytime.

Sincerely,

Augustine A. Diji

Monday, July 12, 2010

Got Questions? Get Answers...KL Wants To Strategically Default In Colorado - Can The Bank Come After Him?

GOT QUESTIONS?

Hi,

I am considering strategic default and am wondering how Colorado state law will effect strategic default within CO. Can the bank come after the debtor for the balance?
Thanks,

KL

GET ANSWERS…

KL

Thanks for writing.

You are essentially asking is Colorado is a recourse or non-recourse state. It is my understanding that Colorado is a recourse state therefore a lender may have the right to collect on the unpaid mortgage balance after your property is sold.

Read the following link to learn about debt deficiency, forgiveness, and obligations and the link on recourse and non-recourse states.

I advise you to speak with a legal professional that is familiar with Colorado’s foreclosure laws, debt laws, deficiency laws, recourse laws, and collection laws.

Thank you.

Augustine A. Diji

Got Questions? Get Answers...SU Needs A Reputable Professional To Stop The Loss In Savings

GOT QUESTIONS?

Hello,

I don't even know who to turn to for advise on these matters. Do I need an attorney, an accountant or a mortgage advisor? And how do I find a reputable one?

I lost my job 13 months ago and decided to take most of my savings and put it into a business with my new husband. My house has been on the market for 8 months and I am hemorrhaging $2500 from my savings each month to keep up with the payments.

I am down to my last $10,000 in savings and I really don't want to keep throwing my money into a black hole. The house still has a small amount of equity in it, about $10,000

The house is in my name only, but I bought the business jointly with my husband. What are my options? Can the bank come after my business? The business is not profitable at this time due to start up costs. My husband is already using his 401k to fund the business.

Any advise appreciated.

Thanks, SU

GET ANSWERS…

Dear SU:

You are at a critical juncture. In a short period of time you will spend all of your savings. Your husband is depleting his 401k.

It is easy to tell you to stop wasting all of your savings on mortgage payments. However, it’s just not that easy.

Please consider the following:

A bank or creditor has the right to place a lien on your business asset if it obtains a court ordered personal judgment against you.

This assumes that the bank can prove you owe it money. The only instance in which you would owe the bank money is in the case of a deficiency. A deficiency debt is the difference between what the bank collects after the sale of your property and the balance of the mortgage loan (including fees, late penalties, legal fees, escrows, and unpaid interest.). A deficiency means the lender does not collect the full amount due on a mortgage loan. A deficiency debt can give rise to two different scenarios 1.) a deficiency judgment or 2.) debt forgiveness. A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note or mortgage loan, in full. This takes a time in court. Also, you have the right to defend yourself. I advise you to speak with a legal professional in order to understand the legal process.

In the case of debt forgiveness, when a debt is forgiven it can be viewed as a taxable event by the IRS and your state taxing authority. Forgiven debt is income. Please
click this link to learn more about deficiency obligations, deficiency, and forgiveness.

Certain states do not allow lenders the right to obtain a deficiency judgment. This is called a non-recourse state. Please
click this link to learn more about non-recourse and recourse states.

The following are the primary risks of a strategic default:

1. You will have a deficiency debt.
2. Lower credit score.
3. Loss of the home or property to a foreclosure sale.
4. Recently, Fannie Mae implemented a rule that bans a person from obtaining a Fannie Mae mortgage, if that person strategically defaults. The ban last for seven years. Furthermore, the United States Government may pass a law that bans a person from obtaining a government insured loan, if that person strategically defaults. Please
click this link to learn more.
5. Debt collections tactics, including mail, letters, personal visits to the property, phone calls to cell phone, work, and/or family members. Not all debt collection tactics are legal. You should become familiar with your state’s debt collection protection laws and the Fair Debt Collections Protections Act.

You should utilize the services of a legal professional and a financial professional. Your goal is to find a professional with experience in your type of matter. You can do a search online to learn more about a professional. You can also ask for a meeting to evaluate them. Furthermore, a local professional association may be able to refer you to a reputable professional.

You need to understand your risks. Your goal is to make a decision that will not expose you to any deficiency to the lender. You want to walk away without owing the lender another dime out of pocket.

I hope this helps. Feel free to write back.

Thanks.

Augustine A. Diji

Got Questions? Get Answers...PL Wants To Know If It's To Early To Strategically Default

GOT QUESTIONS?

Hello,

My wife and I bought a townhouse/condo in 2006 for $229K and now it's work about 210K. My parents are struggling to pay their mortgage and would welcome my wife and I moving into their house, adding an in law apartment to the place and taking over their mortgage (not on paper yet, just making their payments via a side agreement). I'm just wondering that even though we can pay our current mortgage, should I try to sell the condo or just do a strategic default. My parents house is the house we plan to live in for the remainder of our lives, so looking to buy another house in the future isn't in our plans. What do you think?

PL

GET ANSWERS…

PL

Thank you for writing me.

I have listed below your primary risks if you decide to strategically default:

1. You will have a deficiency debt. A deficiency debt can give rise to a deficiency judgment or debt forgiveness. A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note or mortgage loan, in full. If the debt is forgiven it can viewed as a taxable event by the IRS and your state taxing authority. Forgiven debt is income. Please
click this link to learn more.
2. Lower credit score.
3. Loss of the home or property to a foreclosure sale.
4. Recently, Fannie Mae implemented a rule that bans a person from obtaining a Fannie Mae mortgage, if that person strategically defaults. The ban last for seven years. Furthermore, the United States Government may pass a law that bans a person from obtaining a government insured loan, if that person strategically defaults. Please
click this link to learn more.
5. Debt collections tactics, including mail, letters, personal visits to the property, phone calls to cell phone, work, and/or family members. Not all debt collection tactics are legal. You should become familiar with your state’s debt collection protection laws and the Fair Debt Collections Protections Act.

The question you should ask yourself is this: How much are we willing to come out of pocket to sell the property without facing any of the strategic default risks?

Is it worth paying $10,000 or $20,000 or $30,000 to eliminate any of the strategic default risks? Can you sell it on your own without paying a real estate broker fee thereby saving on your expenses?

Do you know what a short sale is? Have you explored that option? Will the bank be willing to lower your principle so you can sell the property at cost with no out of pocket, especially since the difference between the value and the mortgage balance is not that great? Will the bank be willing to agree to a principle reduction?

A short sale occurs when a lender enters into a written agreement to let you sell your property for an amount less than what is owed on the mortgage. Essentially your lender may be willing to accept less than the full amount due on a mortgage. If you owe the lender $400,000 then the lender may agree to let you sell the property for $350,000.

Do you know what a deed in lieu of foreclosure is? Have you explored that option?

A deed-in-lieu is when you enter into a written agreement to give the property back to the bank. The key is to negotiate a full settlement of your total outstanding mortgage debt including fees and penalties in exchange for the deed to your property. A full settlement of your total outstanding mortgage debt eliminates a deficiency and tax liabilities. A partial settlement still leaves open the possibility of a deficiency judgment or forgiveness of the remaining balance.

My advice is to first try to sell the property at either an affordable out of pocket cost or ask the lender for a principle reduction so you can sell at cost or utilize a short sale or offer to give the property back to the lender through a deed-in-lieu of foreclosure.

It’s a little early to strategically default and completely walk away from your property without exploring other options. Just make sure that if decided to work with a qualified professional that person knows what they are doing.

Please contact me with any further questions.

Thank you.

Augustine Diji

Sunday, July 11, 2010

Got Questions? Get Answers...DF's Question & Answer Is A Must Read!!!

GOT QUESTIONS?

Firstly, I want to thank you for your site which has provided some invaluable insight into the possibility of strategic defaulting.

My husband and I have been challenged by the recent downtown in the housing market. We have a home (on which I’m the primary, my husband the secondary borrower). We also have condos each (each of us are primary borrowers on one of them). The home is now worth $300,000 less than the $1.2million we paid for it (and $100,000 less than our mortgage). The condos are worth approximately half of the $600,000 we paid for them. I have just lost my job, and job prospects look bleak for me at this time. My husband is working, but cannot cover all of the mortgages.

We have been considering strategically defaulting on all of the properties and moving into a rental property and simply cutting all our losses (effectively starting again). We have also considered strategically defaulting on the home and living in one of the condos (we think this I the better solution). My husband could pay the mortgages for both condos, they are not in a location which can be rented. We’re concerned about the ramifications of such an action however, we are sure that at this point, we must lose at least one of the properties we are making mortgage payments on.

We realize we are in a recourse state (GA). How will my being first on the note affect my husband who is second? Any deficiency awarded against me solely at this point cannot be satisfied as I have no income. As my husband is the only one who is working, how likely is it that any such deficiency will be garnished against his wages?

Thank you for any help you can provide.

DF

GET ANSWERS…

DF, thank you for contacting me.

First things first. You and your husband are equally liable and equally responsible for the mortgage loan if you signed the note and your husband signed the note. I am being specific about the note not the mortgage. A lender or creditor will not differentiate between who signed the note first or last, as long as it has been signed by each party. The note a.k.a. promissory note gives a lender the right to collect all of the money from any person who signed the note. A note is evidence of a loan of money. A mortgage is a security lien against the property. A mortgage is not a promise to pay money.

The primary risk of a strategic default is a deficiency debt. The other risks are:

1. Lower credit score.
2. Loss of the home or property to a foreclosure sale.
3. Recently,
Fannie Mae implemented a rule that bans a person from
obtaining a Fannie Mae mortgage
, if that person strategically defaults. The ban last for seven years. Furthermore, the United States Government may pass a law that bans a person from obtaining a government insured loan, if that person strategically defaults.
4. Debt collections tactics, including mail, letters, personal visits to the
property, phone calls to cell phone, work, and/or family members. Not all debt collection tactics are legal. You should become familiar with your state’s debt collection protection laws and the
Fair Debt Collections Protections Act.

However, my experience has established that most people who strategically default are most concerned about deficiency debt. Most people do not want to be chased down for more money by creditors or lenders.

Let’s go through deficiency debt issues carefully.

A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note or mortgage loan, in full.

You mentioned that you live in a recourse state. You appear to understand that a recourse state allows the lender or creditor to seek an unsecured money judgment for any deficiency. Also, a deficiency judgment has a time period. In some states a deficiency judgment can last up to 20 years. So even if you have no income now, you may have income in the future. Read this link about Recourse and Non-Recourse states to learn more.

If a lender or creditor forgives the deficiency then you will not be exposed to a deficiency judgment. When a lender or creditor agrees (IN WRITING) to forgive a debt as opposed to seeking a deficiency judgment, then the forgiven debt may be considered income by your state taxing authority and the IRS. Forgiven debt is income.

Now consider this. Under current Federal Law if a debt is forgiven on a primary residence then there is no tax due to the IRS. However, this rule may not apply to state tax law.

Read about
debt obligations, deficiency, and forgiveness so you can better understand everything that I have written so far.

So, if you consider strategically defaulting on your (primary residence) home AND you can negotiate debt forgiveness with your lender, then you will not have any exposure to a deficiency judgment and you will not have any federal tax liability.

The question is What Does It Take To Get The Lender To Agree To Forgive Your Debt?

The answer is: you must successfully negotiate a principle reduction, short sale, or a deed-in-lieu of foreclosure AND get the lender to agree (IN WRITING) to forgive any deficiency. You want the creditor or lender to give up its right (IN WRITING) to seek a deficiency judgment.

A principle reduction is when a lender or creditor agrees to reduce the principle balance of a loan.

A deed-in-lieu is when you enter into a written agreement to give the property back to the bank. The key is to negotiate a full settlement of your total outstanding mortgage debt including fees and penalties in exchange for the deed to your property. A full settlement of your total outstanding mortgage debt eliminates a deficiency and tax liabilities. A partial settlement still leaves open the possibility of a deficiency judgment or forgiveness of the remaining balance.

A short sale occurs when a lender let’s you sell your property for an amount less than what is owed on the mortgage. Essentially your lender may be willing to accept less than the full amount due on a mortgage. If you owe the lender $400,000 then the lender may agree to let you sell the property for $350,000.

In all the above cases you must get the lender to agree to forgive the deficiency.

Beware of the
Turn In Your Financial Documents Trap. This happens when the lender’s representative asks you to turn in your financials via telephone or fax in order to see if you qualify for a loan workout, principle reduction, deed-in-lieu, or short sale. Before you agree to turn over your financial documents ask the lender to send you something in writing stating that they will seriously consider a work out option if you turn over your financials. Or ask the lender to direct you to their website regarding their loan workout processing rules. The problem I have is this: What happens to your financial documents, if your lender refuses to negotiate a loan workout? Can the lender use this information against you? For example, can the lender use the information during a foreclosure action or during a lawsuit seeking a deficiency judgment? In order to collect on a properly obtained deficiency judgment, the creditor or lender must locate your bank account, or locate your investment account or locate your place of employment or locate any other asset that has value. I don’t think anyone wants to turn over their financial documents to be used in any way to take their money.

If you do decide to turn over financial documents to the creditor or lender, then cross out all of the account numbers. If the creditor or lender refuses to work with you after you have turned over your financial documents then immediately move all of your money and your investments to another financial institution.

A creditor or a lender has the right to garnish wages if it properly and legally obtains a deficiency judgment in a court of law against a person who entered into a legal loan agreement with the creditor or lender. So yes, your husband could be exposed to wage garnishment if the creditor or lender successfully obtains a deficiency judgment against him.

Keep in mind that even if a creditor or lender successfully obtains a deficiency judgment, it does not mean all is lost. You can negotiate a settlement with the creditor or lender. The creditor or lender may take 50% or less than what is owed instead of spending time in court. Also keep in mind to NEVER LET A LAWSUIT FOR A DEFICIENCY JUDGMENT GO UNDEFENDED. NEVER IGNORE THIS TYPE OF LAWSUIT. The simple reason is that you may stop the creditor or lender from getting a judgment or you may be able to use your defense to this lawsuit as a means to negotiate a settlement.

You should seriously consider working with a qualified attorney and/or accountant in order to understand your specific risks.

You have to make some difficult choices. I am confident that once you understand you options you will get through this successfully.

Thursday, July 1, 2010

Got Questions? Get Answers...GR Wants To Walk Away To Move Closer To His Parents

GOT QUESTIONS?

Hello Mr. Diji,

First off, I want to tell you how great your website is, as I started to ponder the idea of a strategic default I stumbled across your site and it has been a wealth of information. So thank you for all the hard work you put into it.

Now I would like to tell you my situation and ask for your advice. I purchased my home in Connecticut in April 2005 for $245k. I put $15k down and had an original mortgage of $230k. In mid 2006 the house had appreciated a bit so I took out a home equity loan of $25k to pay off some high interest credit cards (I thought I was being smart). About a year and a half ago I refinanced my mortgage and home equity loan into one new mortgage, that mortgage now stands at $247k. My wife and I just had our first child and would like to move closer to my parents (a few towns over in CT) so we decided to call a realtor and see what the current value of the house is. To our dismay, she valued the house at about $200k. We desperately want to get out of the town we are in and closer to my parents for several reasons (baby sitting / free daycare, better school system). My current mortgage payment is $1900, and based on my estimate, if I continued to pay that every month, it would take over 10 years to see any equity and be able to sell. We can’t wait that long and we don’t have the savings to sell at a loss and make up the difference with the bank. We are going to attempt to rent the place but I don’t have high hopes for that. I don’t see another way out besides a strategic default. Since I have been making the payments and can afford them, I don’t see the bank qualifying me for a short sale or a deed in lieu of. The good thing is that the mortgage is only in my name, so we would be able to get a new mortgage in my wife’s name. And as far as I know, CT is a non-recourse state. Any advice you have would be greatly appreciated.

GET ANSWERS...

Dear GR:

I appreciate your words.

First things first. Let’s be sure if Connecticut is a non-recourse state. I strongly recommend that you speak to a qualified professional, such as an attorney. Deficiency rules are governed under §49-14 General Statutes of Connecticut. An appraisal process and hearing must be held on any application for a deficiency judgment. Please click this link so you can begin to familiarize yourself with the deficiency rules in Connecticut.

Let’s assume that Connecticut is a recourse state. You would then be exposed to a deficiency judgment. A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note or mortgage loan, in full.

Please read this link to learn more about deficiency judgments, debt obligations, and debt forgiveness.

Read this link about Recourse and Non-Recourse states:

There is a lot of truth when you say a bank is unwilling to work with anyone who pays their mortgage on time. Even if the property is upside down or the mortgage payments are “sucking” all of a person’s life savings. That said, you want to limit any exposure to a deficiency judgment.

A lender may allow a short sale even if you are current. I would contact your lender regarding a short sale. It is not likely a lender will agree to a deed-in-lieu unless you default on payments. You should ask the lender.

Beware of the Turn In Your Documents Trap. This happens when the lender’s representative asks you to turn in your financials via telephone or fax in order to see if you qualify for a loan workout, deed-in-lieu, or short sale. Before you do that ask the lender to send you something in writing stating that they will consider a work out option if you turn over your financials. Or ask the lender to direct you to their website regarding their processing rules. The problem I have is this: If, after you turn in your documents the lender does not agree to a workout, what happens to those documents? Can the lender use the information to during a foreclosure action or during a lawsuit seeking a deficiency judgment? I don’t think anyone wants to turn over their financial documents to be used against them.

While you are considering this you should probably move forward to get the new house. Even though your wife’s credit will not be impacted by your current property, you will both be emotionally impacted dealing with your current property situation. Once you have secured a new home, you can immediately implement your strategic default strategy. If you decided to rent instead of buy then your credit may be a factor. It’s best to take advantage of your good credit prior to any decision to strategically default.

Obviously, the key to renting your home is based upon how much the rental payment will cover the home’s expenses. Are you willing to cover the monthly short fall in order to preserve your credit? Is your credit score important to you? This is critical because experience has shown that most people who decided to strategically default are less concerned about their credit. If you understand that you must default to get a deed-in-lieu or short sale then it is something to seriously consider.

Remember that if you decide to give the property back to the bank make sure that it is in exchange for the complete and full satisfaction of all of the debt that is owed to the bank. This will eliminate any deficiency judgment risk. The key is to get any agreement with the bank in writing. If the bank is unwilling to accept the property for full satisfaction of the entire mortgage debt then demand that the bank forgives the balance. Normally, forgiven debt is taxable, however federal law exempts homeowners from any tax liability on forgiven debt under certain conditions including if it’s the homeowner’s primary residence. There are other factors which you can read about in my debt obligations, deficiency, forgiveness article.

It’s a careful balancing act. I can appreciate your reluctance to put money into a worthless asset that has very little chance of having any value. Who wants to be an economic slave to a home that simply enriches the bank and depletes savings.

If you have any further questions please feel free to contact me.

Thank you.

Augustine A. Diji