Following an elongated period of default, your mortgage lender may make you leave your home if you can’t reach an agreement to bring your loan current. Typically, the bank will sell your house for less than the balance on your loan. This process is known as foreclosure. Medical costs, job loss and other factors have resulted in a record number of foreclosures, as of 2010, prompting questions from strapped homeowners.
When Can Foreclosure Proceedings Begin?
Once you overlook mortgage payment to one, expect a letter or telephone call from your creditor. According to HUD, a second missed payment definitely triggers telephone calls from the bank. HUD indicates you answer these calls and endeavor to work out a payment plan with your lender. After your third missed payment, your creditor will sends you a "require letter," stating the amount of your delinquency and giving you 30 days to respond. Following 30 times –around the time you are going to overlook payment number four–your creditor will probably commence foreclosure proceedings.
Are There Programs That Can Help Me Avoid Foreclosure?
Several government programs are helping large numbers of homeowners which are facing foreclosure. The president#039;s making House Affordable application, headquartered in February 2009, is on pace to help over 3 million homeowners by 2012. Under this program, qualified homeowners may apply to get their loans. Below a modification, your creditor may lower your interest rate, extend the term of your loan or forebear or forgive a portion of the key to bring your monthly payments in line with what you could afford. Making Home Affordable also supplies a refinance option, aimed toward homeowners who have loans guaranteed by Freddie Mac or Fannie Mae. A similar program, provided by the Federal Housing Administration (FHA), helps qualifying homeowners refinance their existing loan into a 30-year, fixed-rate loan insured by the FHA. Whenever the FHA insures a loan, the federal government pays the creditor in the event that you default. As of July 2010, the HOPE for Homeowners application runs through September 30, 2011.
What Is a Short Sale?
A brief sale is 1 way homeowners attempt to prevent foreclosure. Bobbi Dempsey of Bankrate.com reports that under a brief sale, your creditor permits you to sell your home for less than the residual value of your loan. This approach is popular in regions where property values have plummeted. The creditor forgives the difference between the selling price of your home and the amount left in your mortgage. Though you won't lose your home through foreclosure, you will not profit from the purchase, plus your credit rating will probably drop significantly.
Do I Want to Worry About Taxes?
When a creditor forgives a debt through a loan modification, short sale or other type of agreement, the IRS generally considers the total forgiven as income to the taxpayer. Nevertheless, the federal government is providing taxpayers with a span of reprieve under the Mortgage Forgiveness Debt Relief Act of 2007. The IRS will not tax debts forgiven between 2007 and 2012, as long as the debt relief has been associated with your primary residence.