Umatilla Florida Blog

    Due to economic circumstances often beyond their control, many homeowners are finding themselves facing the prospect of losing their homes due to foreclosure. Foreclosure is the process by which mortgage holders (Banks) attempt to either acquire title to or receive payment for the real estate properties which serve as collateral for the funds they have loaned to borrowers.

    In some cases, the banks may be able to modify the terms of the mortgage to allow the homeowner (borrower) to make lower monthly payments and thus remain in the home. However, most cases result in some sort of foreclosure proceeding. The options for a homeowner at this point are basically reduced to three choices which are further defined by the circumstances surrounding the actual mortgage. The three choices are:

1. Short Sale. The homeowner finds a buyer for the home at whatever price the market will bear and which is usually less than the mortgage principal balance. The lender becomes a party to the transaction and must agree to sell the home at the reduced price. The difference in what was owed minus what was realized in the sale then becomes forgiven debt, and may become taxable income to the borrower. A short sale is usually the best way for a distressed homeowner to proceed because it's impact on the homeowner's credit is far less than that of an actual foreclosure. Banks would also prefer a short sale because they don't want to actually own the property.

2. Deed in Lieu of Foreclosure. In this situation, the borrower simply gives the property back to the bank in exchange for the bank's agreement to consider the homeowner's promissory note associated with the mortgage to be paid in full. While this may seem simpler than the short sale described above, typically banks do not want to actually own the properties and would rather the homeowner attempt to sell the home themselves. In addition, factors such as second mortgages further complicate things and make a "Deed in Lieu" solution less likely. As in a short sale, the forgiven debt may still be taxable to the borrower.

3. Foreclosure. In this scenario, the property has not been sold in a short sale and the bank did not accept a deed in lieu of foreclosure. The property goes to public auction. The bank incurrs significant legal expenses in this process and adds them to the mortgage amount owed by the borrower. The borrower's credit is significantly impacted by a foreclosure both in reduced credit score and in a much longer period of time that the event remains on the borrower's credit history.

    For a simple, easy to understand, discussion of the pros and cons of the first two options, short sale and deed in lieu, go to the following link:

    http://www.nolo.com/legal-encyclopedia/article-30016.html

    If you are finding yourself in a distressed situation with respect to your mortgage, I would highly recommend that you contact a Realtor qualified in this type of transaction. I would be honored to help you in this regard. Please feel free to call me at 352-455-3684.

    Thank you,

    Geoffrey F. Presson

    Broker/Owner

    Silver Beach Realty, LLC