Are you in pre foreclosure in longmont, co?
Buying a house is an exciting time. You found just the right one and thought you would be there for a very long time. Unfortunately, sometimes financial troubles pop up unexpectedly and you may find yourself unable to pay the mortgage.
What can the bank do if you can’t pay? You have heard about foreclosure, but what about pre-foreclosure? What are your best options to try and save your credit, even if you lose your house?
Let’s look at five things you need to know about pre-foreclosure. As always we buy houses in longmont, co
What Does Pre-Foreclosure Mean
If you are unable to pay your mortgage and fall three months behind, the bank can file a default notice. This begins the pre-foreclosure process and simply means the bank intends to take legal action if the past due amount is not paid.
They are giving you a warning of the pending foreclosure action that will take place soon. The time frame from pre-foreclosure to actual foreclosure is typically three to ten months.
If the payments can be caught up, all action stops. However, by the time most people reach this point, they are unable to make up that amount. Their best option at this point is a pre-foreclosure sale.
What is a Pre-Foreclosure Sale
A pre-foreclosure sale is when you sell your home to someone before the final foreclosure proceedings begin. These types of sales tend to have advantages to everyone involved.
You can remove yourself from the debt without a huge hit on your credit score. The buyer often gets a home at a very good price, and the bank is spared the expense and trouble of going through the foreclosure process.
Is Short Sale and Pre-Foreclosure Sale the Same
The short answer is no; not necessarily. A short sale is when you sell your home and owe more money on the mortgage than the actual value of the home. So in essence, you are asking the bank to accept a ‘short’ payment for the loan.
In fact, you can make a short sale on your home without it being in pre-foreclosure, but most people opt not to do that because it does count as a hit on your credit score.
What About the Taxes
While making a short sale and getting out from under the mortgage sounds like a good deal, there is still the potential for tax issues.
If the bank forgives the amount of money that was short, meaning they agree not to sue for the difference between the old balance and the new loan amount, then the government considers this difference to be taxable income. What that means for you, is that you will be responsible for reporting that dollar amount on your taxes.
There are some ways around this. One is the Mortgage Forgiveness Debt Relief Act. Here is some valuable information on this program.
Does It Affect Your Credit Score
Any time you do not completely pay a debt in full, it affects your credit score. A short sale, or pre-foreclosure, does show up in your credit history. However, it does not have the negative impact that a full-blown foreclosure would.
Attempting to sell your home and provide a way for the bank to get their money shows good faith. It is difficult to determine the exact hit on your score, but it is always better to try this route if at all possible.
No one ever wants to make the decision to take a loss on their home and have to start over. Life sometimes throws us setbacks, though, and we have to make the tough choices.
If in doubt on how to handle a pre-foreclosure, always seek legal advice.
When you are ready and want to talk to someone reliable and knowledgeable about buying your home, reach out.