Not being able to afford your mortgage payment is stressful, embarrassing, overwhelming and confusing.
Every day you go without making your mortgage payment, your mortgage balance keeps going up, up and up. Late fees, legal fees and other fees keep compounding but you are not sure what to do.
You want to be smart and make sure your family has a roof over their head.
You’ve heard all of the horror stories from friends and family members that lost their homes in the 2008 crash.
You don’t want to make the same mistakes.
Here are some examples of some of the biggest mistakes clients made when facing foreclosure and how you can avoid them.
1. Throwing Away Your Hard-Earned Equity.
One of the worst feelings in the world is the feeling of wasting money. It breaks my heart when clients fight with their lender for 2 years and end up filing bankruptcy only to realize that they could have initially sold their house for what they owed.
To avoid this mistake you need to get a realistic idea of what your house is worth as soon as possible. This way you know if you have the option of selling or refinancing your home to avoid foreclosure.
Learning the value of your home is not usually as simple as putting your address into the Google search box and seeing what sites like Realtor.com and Zillow.com say your house is worth. The real value of your home is what someone is willing to pay for it right now.
Most of the time, the best way to figure that out is to talk to a local Realtor. They can usually give you a good idea of what your home would sell for and help you figure out if you could sell your house and break even.
Once you know what your house is reasonably worth, you know if you have the option of selling or refinancing to avoid foreclosure.
2. Creating an IRS nightmare
Here’s how it happens. You do a short sale or give your home back to your lender and your lender doesn’t come after you for any more money. You think your problem is solved until you get a notice from your lender that they reported their loss to the IRS as income to you.
This means you may have to pay income taxes on what your lender lost.
To make matters worse, sometimes you can’t even get rid of the income tax debt by filing bankruptcy until it is 3 years old. But, if you had filed bankruptcy to begin with the debt to your lender probably could have been discharged.
By not getting tax advice before starting your short sale, you could accidentally make your situation worse.
The best way to avoid this disaster is to get tax advice before you decide to do a short sale or do anything to get rid of your house.
3. Getting Sued by your Homeowner’s Association
Living in a home that you are losing can be really depressing. Sometimes you just want to move out and leave it all behind. Some clients just file bankruptcy on their townhome and just move out.
The bankruptcy takes care of everything to do with the house, right?
Wrong! In Illinois, after you file bankruptcy, you are still personally responsible for your homeowner’s association dues until you no longer own the property.
Even if you don’t live there any more, the association may be able sue you for association fees, late fees and legal fees that accrue after you filed for bankruptcy.
The best way to avoid being unpleasantly surprised by a collection lawsuit from your homeowner’s association is to keep paying your association fees until you no longer own the property.
If you want to move out early and stop paying the fees, you can consider renting out your home (if the association allows it) or selling your home.
One Last thing:
Don’t let procrastination keep you from doing what you need to do to protect you and your family. If you cannot afford to pay your mortgage, you need to know your options and create a plan to move forward and not waste precious time.
The best way to do this is to talk with an attorney that has experience with foreclosure, bankruptcy and short sales so they can help you understand all your options and figure out the best strategy for the success of your family.
Need More Advice?
If you want to learn more about your options, you can have a free strategy session with one of our foreclosure attorneys that understands how all these moving parts work together.