Mortgage Liability and Short Sale, Strategic Default, or Bankruptcy
Many homeowners in Arizona today are faced with the situation of owing
more on their mortgages than their homes are worth. If you are in this
situation of having a home that is "underwater" or "upside
down," what are your options?
There are four options to consider:
1. Keep paying the mortgage(s). When a house is extremely underwater, this option may not make a lot of
sense financially. But, based on a lot of other factors, it is still the
best approach in some cases.
2. Seek a loan modification. Loan modifications can be difficult to secure as many lenders have unclear
guidelines, untrained employees, and disorganized processes. However,
with persistence, it is usually possible to at least get an interest rate
reduction on your loan. It's very rare to have any principal reduced.
3. "Short" sell the house. A "short" sale is a sale which will not net enough funds to
pay off the existing mortgage(s). A "short" sale is a good option
if the lender will agree to waive its rights to pursue a deficiency claim
against the seller. If the lender will not agree to waive its rights,
then a homeowner is generally no better off doing a "short"
sale than allowing the home to foreclose -- and in fact, may even lose
some legal protections that foreclosure provides.
4. Plan for a "strategic default." A "strategic default" is an intentional default on your mortgage
note(s) which will ultimately lead to a foreclosure of the house. "Strategic
default" works in situations where Arizona's anti-deficiency
statutes will protect the homeowner from being personally liable for the
mortgage deficiency after the foreclosure. What this means is that if
the house and the mortgages meet certain guidelines, then the lender's
only right is to foreclose. The lender cannot later sue the former homeowner
for the losses incurred in the foreclosure.
Arizona has good anti-deficiency statutes when compared to much of the
country. However, they are quite complex and there are some vague areas
of the laws that are still being figured out in Arizona's courts.
So, don't pursue a "strategic default" on the assumption
that you will not be liable for the mortgage deficiency. Each situation
is unique, and you should consult with an attorney who can advise you
if you qualify for protection under Arizona law.
If you don't qualify for protection under the anti-deficiency statutes,
then a good attorney can counsel you in what steps you should take to
protect yourself through one of the other options above, or through negotiations
with your lender. And, ultimately, if there is no other available solution,
a bankruptcy can protect you from lawsuits by your mortgage company.
The Neeley Law Firm offers a one-hour consultation for $300 to homeowners
who are seeking advice in dealing with their "underwater" mortgages.
This consultation will address your unique situation, your options, and
questions such as: Are you protected by Arizona law from a deficiency
claim? What is the credit impact of a short sale or foreclosure? What
are the potential tax consequences of a strategic default?
contact us today if you'd like to schedule a consultation.