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Catherine Fairbourn Asked:

My husband and I have owned out home for 13 years. It is our primary residence. Last November, 2009 we refinanced consolidate our 1st and 2nd mortgages and to pay off credit card debt. Our credit was poor at the time and we received a 11.33% interest rate on the new loan. They told us that if we could keep on the mortgage payments and not incrue any new debt, they would refinance us Nov 2010. Since then they have closed all their branches and are no longer taking any new business which included refinancing their current clients. We currently owe $158K with a payment of $1,760 per month plus a 5% prepay penalty estamated value of the home is $166k. if we refinance or sell before November 2011. The currently mortgage company states that they have chosen not to participate in the Obamha Stimulas package. We have been playing the pay them late but just in time game for month and we can\\\'t keep it up any longer. On Sept 30,2009 we will hit our first 30 days past due. We have found a rental house to move into but what are our options for getting out of this home and the mortgage. How will the options affect our credit? is one worse than the other. What are the tax implimintations? Thanks, Cathi [Sandy UT]



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Answer Provided by: Ron Pippin [09/15/2009]

Cathi, There are three options for getting out of your home. 1 – sell the home. This is the best option as it does not affect your credit (other than the late payments that will begin to show up) 2 – Short sale the home. This is the next best option. Lenders will still look at this as if it was a foreclosure and you may be waiting 3 years to buy again but there is an advantage. In a “short sale” your lender accepts the sale as full payment, even if it is less than you owe. The bank will not come after you for any remaining balance. I would highly recommend getting professional help to sell (a Realtor) 3 – Foreclosure. After you are 90 to 120 days past due, the bank will proceed with a foreclosure. Once they foreclose, they will sell the home. If they don’t sell for what is owed, they can ask you to make up the difference. If you can’t, you may be subject to that difference as being considered income and you will be subject to taxes. This is the worst case. Your credit is hurt AND you may be subject to the difference the bank does not get upon sale. There are options if you want to keep your home. Some non-profit companies exist who helps those in your situation. They will work with the current company to modify your loan. Make sure the company is reputable. If you want a reputable company’s name, let me know. Ron Pippin