When a homeowner is in foreclosure and does not desire to stay in the home, but merely wants to walk away from the home and the mortgage they are faced with three options:
1) just walk away and don’t work with the lender at at all;
2) convince the lender to accept a deed in lieu of foreclosure;
3) convince the lender to accept a short sale.
Of the three options, just walking away is most certainly the worst option to choose. Every borrower has a contractual and to meet their contractual obligations and if they cannot meet that obligation, they have a moral and ethcial obligation to try and work with the other party. Failure to do so subjects the homeowner to the greatest liability both for the underlying mortgage debt and for liabilities and damages associated with the property.
The next option for a homeowner is to try and convince the lender to accept a deed in lieu of foreclosure. In this scenario, the borrower admits to the bank that he cannot or does not want to fulfill his obligations and asks the lender to allow him to deed the property in exchange for a release from any further liability on the mortgage.
The third option is to present the lender with a short sale, or an offer to sell the property for less than the value of the outstanding mortgage balances. Of the three options, this is certainly the most beneficial both to the lender and to the borrower. When a short sale is negotiated and closed properly, the lender accepts an agreed upon amount and releases the homeowner from any further liability. In this very difficult real estate market, real buyers are king and if you can bring this to the table, you’ve helped resolve a major problem for the lender–vacant property with accumulating liability.
Each option presents its own positives and negatives and the homeowner must always watch for 1099-c tax liability https://www.bankrate.com/brm/news/debt/20060303a1.asp associated with the consummation of any transaction. Always seek the advice of an attorney experienced in mortgage law and these types of transactions, for more information visit my website at www.mattweidnerlaw.com.