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?
Please contact us today if you'd like to schedule a consultation.