Nagle Law Group
Q: “I’m not late on my payments, but I don’t see the market turning around anytime soon. Even if I get a loan modification, I still face the reality that my home is underwater and that I’ll most likely want or need to move long before the loan is paid off. Is ‘walking away’ the only choice?”
A. There are many options available to homeowners beyond just walking away from the loan. It’s best to assess all of the options in order to assess which course of action will make the most sense for your particular situation.
Of course, in all cases we are assuming that the home is on land of 2 ½ acres or less and is a completed, single, one or two family dwelling that is at least occasionally occupied by the owner or another party. From there, the next key question is whether the unpaid loan is a purchase money loan or a refinanced loan. A purchase money loan limits the lender to foreclosure only, so the borrower is free to allow the home to be foreclosed upon with no additional personal liability for any deficiency in the repayment of the loan. Also, if a lender pursues a “non-judicial” foreclosure (i.e., a trustee’s sale) for a refinanced loan, the lender waives the right to pursue any deficiency against the borrower. So, a homeowner can certainly allow the bank to take back the property based on that.
Lenders are beginning to learn that some of the alternatives to foreclosure will result in the lender collecting far more money than if they foreclose, so another option available to the borrower is to pursue the sale of the property for a sales price that is less than the outstanding balance of the loan and obtain lender approval of the “short sale.” This scenario could allow the borrower to avoid missing any payments and allow the lender to receive more money – a win/win setting. It is essential to receive release documentation from all lenders of any liability for a deficiency in connection with a short sale. Indeed, some lenders, appreciating the benefit of avoiding foreclosure, are now coming up with ways to expedite the approval of a sale in just two weeks time along with offering the borrower additional sums to assist in the moving out of the home.
So, the bottom line is that homeowners actually have many options as to the action they want to take vis a vis first and second loan financing, and it is worth investigating all the possible options available to you to determine what is the best course of action available. We all have our own unique issues affecting us; fortunately, there are options available to help get through the tough times we all have to face.
Robert Nagle is a partner with Nagle Law Group, P.C., focusing on residential transactional and debt management matters, and can be reached at 602-595-3156 or firstname.lastname@example.org.