Walking Away Q & A

Today's Special Guest Star

Thanks to reader Russ Dogg who gave me a heads up about our guest contributor, this post writes itself. Actually the Q&A was written by Temecula, California real estate agent Kathy Neilsen in her blog Who Knew? (http://kathyneilsen.blogspot.com/). Remember I said there were two kinds of agents, those who bust their butts for you and those who get your listing and forget you exist? Well Kathy is clearly willing to bust her butt judging by the work she is biting off to help you move from your underwater house to a much cheaper version of your underwater house.

Without further ado, here is her Q & A:

Many people are concerned with the ramifications of the foreclosure. Can the foreclosed lender sue for the difference? Can he attach my new home? And what about the IRS? These questions are whirling around in everyone’s head as they consider this method so let me help you with the answers.

1. Can the original lender sue me for the difference between what my home is worth and what I owe in a foreclosure in California?

California is a non deficiency state which means if you are foreclosed on and the mortgage company sells using a trustee sale which is the most common in California, then the lender has no recourse after the sale. But you must have the original loan you bought your home with. This is called the Purchase Money Loan. You can have a first and a second but the second should not be a HELOC as this is considered a line of credit and is viewed differently than a mortgage.

2. Will the IRS tax me on the difference between what the home sells for and what is owed?

If you have lived in your home for two years or more and considered it your primary residence then you have no capital gains responsibility for amounts $250,000 and under for single people and $500,000 and under for married couples. If you have not lived in you home for two years yet, there are other alternatives and a tax professional should be consulted before you begin this process.

3. Can the old lender take any action against my new home?

The answer to this is easy. NO the old lender has no ties to your new home and therefore there are no options for him to regain any money through your new home.

4. How will my credit be affected?

You will have a bunch of late payments and a foreclosure that will take your credit from the 700s to the 400s within a few months but consider this…you have a home and a new mortgage. If you have any credit cards or car payments these regular and on time payments will help you recover your credit score much more quickly. The new mortgage will have the biggest impact on your credit though. By making your new mortgage payments on time you are raising your credit scores monthly and if you don’t plan on using new credit for a few years then your credit score should have little to no affect of your life.

Now this all may sound too good to be true so my best advice for anyone thinking along these lines is research what you want to do. Talk to a tax professional regarding the aftermath of this scenario. There are many websites dealing with the foreclosure issue and the IRS issue, so take you time and thoroughly research your situation. If you decide this is the best course of action for your situation and you live in the inland empire call me and I’ll help you find the right lender and the right home.

xxx

Now LetItSink readers should remember that this Q&A deals specifically with Foreclosures and not necessarily with Walking Away. It is helpful and informative though, because there is so much similarity and overlap.

Thanks to Kathy Neilsen, and I hope to contribute to her blog soon.