AboutRon Bauer Expertise Whether you have great credit or think you are the most credit challenged person on the planet I can help you with mortgage related questions about purchasing a home, investment property, refinancing, or doing some debt consolidation. I also specialize in helping those needing credit repair or creative financing when purchasing a home. Additionally I work with many second home and investment property buyers in a variety of States. My clientele is mainly west coast (California, Colorado, Nevada, Utah, Arizona...), but I lend in all 50 States and will do my best to answer any question you may have on any conventional, FHA or VA loans...
Experience Experience:
Sr. Residential Mortgage Lender of a National Bank specializing in "residential" mortgages including FHA/VA loans and investment property strategies. We process, underwrite, and fund in house for most of the big named companies and then some...
Expert: Ron Bauer Date: 5/7/2008 Subject: Foreclosure on an 80/20 mortgage
Question My husband and I are debating whether to go into foreclosure or try and do a short sale. We have an 80/20 mortgage, could you tell me how the foreclosure process works with this type of mortgage (we reside in Michigan). Is there any obligation of payment to the second lein holder and could they come after us for the amount owed. Thanks for the help!!
Answer Janell,
Thank you for contacting me with your question. Keep in mind that I can offer advise, but am not a expert at foreclosures or short sales.
A short sale is supposed to be better for you as far as credit goes, but how much better is the question. On a short sale you have to negotiate with the lenders who hold your mortgages. If they are held by 2 different companies it becomes rather complicated. If you call them and ask to talk to their mortgage retention department or say you are interested in a short sale package they will send that to you and you will know their process and all the documentation they request. On a short sale you truly need to already be late on your mortgage and show proof of a financial hardship or they likely will not do it. Decline in value with perfect credit and ability to pay won't get you any where on a short sale usually.
Although legislation may have changed this, in the past you were 1099 the difference. I.e. if you owed $200K and it sold for $175K you would be liable for taxes on the difference ($25K).
Foreclosure tends to work on who files it first. If the 1st Lien holder files then they get paid first, the 2nd gets nothing if there was no extra left over, and the difference used to get 1099 to you for tax purposes. No you did not have to pay cash or make payments on it, but you would be taxed on that difference as if you made that much more money. So you would get a big tax bill as a surprise!
I'd do a search on the "Mortgage Forgiveness Debt Relief Act". The letter of the law is open to interpretation, but it has a lot of information about the answers you are looking for.
