Behind on your mortgage and receiving phone calls from your lender along with certified mail? Your mailbox may be inundated with offers to buy, offers to sell, offers to refinance, offers to wipe away some of your mortgage balance. You’re probably to the point of opening your mail over the trash can and possibly so confused that you are pursuing one possible outcome. That being “nothing“.
If you have been reading this blog or other real estate publications or just the newspaper (does anyone read the newspaper anymore?) you probably are aware that short sales are being marketed as a viable alternative to a foreclosure.
If a short sale is truly a panacea for homeowners in distress (think of a woodpile) then as with most woodpiles, things may not be as cut and dried as they seem. For instance, there may be snakes in the woodpile. Some homeowners are finding out there may be a lot of snakes in the woodpile which are taking shape in the form of taxes. Like most people, you are probably afraid of snakes.
In California when you purchase your home, you have what is known as a purchase money mortgage. Sounds simple; its the original loan you receive to obtain your residence and it affords you a protection known as an anti-deficiency, meaning the homeowners liability on the mortgage is limited to the property itself. As the video explains, once you refinance your property you may lose the protections you are entitled to under a purchase money mortgage. The California Association of Realtors is calling for passage of Senate Bill 1178. If passed this bill would afford additional protections to homeowners who have refinanced. Rather than summarize the proposed legislation, watch this short video. It provides a great explanation.
Full Disclosure?
When most people used a Home Equity loan, my guess is they understood the home became the collateral. Don’t pay and you can lose your house. You were provided with a 3 day right of rescission to think about it. My question is how many people understood the foreclosure ramifications when they chose to refinance their home? Was this a conversation you had with your lender?
The issue here is how to avoid your exposure to the snakes. The answer is to seek the guidance of the appropriate professional be it legal or tax.
For more information refer to the Mortgage Forgiveness and Debt Relief Act.
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