Ask Phyllis!
Short Sale Ramifications

Dear Phyllis,

In 2006, I bought a condo. Last year, I was out of work for six months and fell behind on my mortgage. I recently landed a new job that is in Westwood and the commute is killing me. I have met with a real estate agent who valued my condo in the $350,000 to $365,000 range but I owe nearly $425,000.

It just doesn’t make sense for me to try to hang on and make this horrendous drive when I can rent for less than my monthly nut. What are my options and what can happen to me if the bank forecloses?
– Overwhelmed

Dear Overwhelmed,
Congratulations on your new job; I sympathize with your dislike of your daily commute.

Approximately one third of California homeowners who have a mortgage owe more than their home’s value. When a homeowner is unable or unwilling to pay their mortgage there are just a few options. Contact the lender and request a loan modification. A loan modification alters the terms of your mortgage. In some instances the monthly payment, interest rate and/or principal balance will be reduced.
If you are not eligible for a loan modification:

1. Contact your lender and ask if they will allow a deed- in-lieu of foreclosure. A deed-in-lieu of foreclosure occurs when the homeowner transfers ownership of their property to the holder of their mortgage. The lender then releases the borrower from their loan obligation.

2. Short sales generally impact a homeowner’s credit less than a foreclosure. A short sale occurs when the lender agrees to accept less than the amount owed to the lender in a sale. Contact a real estate agent to begin this process.

3. Foreclosure occurs when the borrower stops making mortgage payments. This process typically takes four or more months. After the lender forecloses, you must move out or the lender will begin the eviction process.

You should consult with your tax professional as to any possible tax consequences due to a short sale or foreclosure.