It’s a very difficult decision that many San Jose and Bay Area residents have to make: to have your house go into a short sale or foreclosure. First, a short sale can prove to be difficult because the lender must agree with the value and then grant the short sale to go through before the debtor can sell their property. This can be a very timely process and may end with no sale at all. If the sale does go through, since the house is sold for less than what is owed, the debtor is taxed on the deficiency (the difference between the value sold and the value owed to the lender). Therefore, after a short sale, many debtors are left with thousands of dollars in taxes that they are unable to pay.
If the debtor decides to let the house foreclose, the first lender will take the house as the security and the debtor is no longer liable for any deficiencies even if the house is sold at auction for less. If the house is underwater and there is a second mortgage on the property, then the second mortgage becomes an unsecured creditor and collect the full amount in the second mortgage just like a credit card debt. However, a bankruptcy can discharge the full second mortgage along with any other credit cards debts and unsecured debts that the you may have. This is an option that many debtors can benefit from since it clears away all debt associated with the foreclosed home as well as the rest of the unsecured debts.
If you have any questions on short sales, foreclosures or bankruptcy, do not hesitate to contact the Law Office of Eddy Hsu and we can schedule and appointment to discuss your situation in more detail.