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Navigating the Mortgage Meltdown Mess

By Matthew J. Ence, Shareholder--Home foreclosures continue to occur at record rates in the United States. In July 2010 alone, approximately one in every 400 housing units in the entire country became subject to a foreclosure filing. In Utah, that number was closer to one in every 250 units.*   That is not to mention the millions of homes already foreclosed or proceeding toward foreclosure before that time. The numbers of “distressed” properties and homeowners in default on their mortgages have truly reached epidemic proportions.

Even if you have been able to stay current on your mortgage, these conditions are likely to have adversely affected you, too. Distressed property sales and foreclosures have driven prices and property values steeply downward, leaving many homeowners “upside down” with negative equity—in other words, with a mortgage balance exceeding the fair market value of their home. With financial institutions tightening lending criteria at the same time as many homeowners find themselves unemployed or underemployed, refinancing a mortgage may be near impossible, while difficult market conditions make a sale unlikely. All these factors and more make a “perfect storm” of trouble for homeowners of all stripes.

What options do you have as a homeowner concerned about your position? If you are already in default, you may be able to negotiate with your lender for a loan modification, or even avoid foreclosure by seeking to short sell your home. However, a short sale may not be feasible or advisable in every situation. Furthermore, many homeowners who have successfully sold short thinking they walked away free may be surprised to find later that they may still be liable for a deficiency long down the road. In comparison, a trustee’s sale foreclosure limits the lender to pursuing a deficiency within three months of the sale.

You might have other important questions like: If I am upside down, should I continue paying my mortgage, stop paying, or just walk away? What will be the effect on my taxes of a short sale or foreclosure, and what does it mean if the bank does or doesn’t issue me an IRS 1099 form? How do my options affect my credit rating? How does a bankruptcy—either before or during foreclosure—affect the options that might be available to me? What if I own more than one residential property?

Every situation is unique, but at Snow Jensen & Reece we can help you work through these questions, finding the answers to fit your particular circumstances. We know that when times are tight, it may be difficult to retain a lawyer, but those may be the times you need legal advice the most.

*Source: “July 2010 Foreclosure Rate Heat Map,” at http://www.realtytrac.com/trendcenter.

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