Short Sales, Foreclosures, Deeds In Lieu And Modifications In Washington State

By Washington State Estate Administration Lawyer William O. KesslerEven in today’s hot real estate market, many people are still in limbo with a mortgage in arrears and an upside down house. Coming off the disastrous burst of the housing bubble, many people have not paid their mortgages in many months or even several years. They all have one question: What do I do with my mortgage?

There are essentially four viable options outside of repaying everything owing under the loan:

1. Short Sale: This involves selling your house and offering to pay the bank less than you owe, in exchange for the bank’s promise not to sue you for the gap between the sale price and your loan balance. If you have a second mortgage, a short sale gets a little more tricky, but experienced real estate agents and real estate lawyers negotiate that process with you. Typically, the advantage of a short sale versus a foreclosure is lesser damage to your credit. The downside is typically that you do not maximize the amount of time living mortgage-free.

2. Deed in Lieu of Foreclosure: This means “giving the keys back to the bank,” i.e. giving the bank a deed to your property in lieu of (instead of) the bank foreclosing. It is fairly rare a deed in lieu makes sense because the damage to your credit is typically quite severe, yet you are potentially giving up months or years of zero mortgage payment.

3. “Walk Away” from the Mortgage / Allow Foreclosure: You certainly have the option to remain in the house, ignore the bank, and potentially maximize the length of time during which you live rent free. As mentioned above, the downside is typically greater credit damage versus a short sale, but a foreclosure often maximizes your zero-mortgage time.

4. Mortgage Modification: Under Washington’s Foreclosure Fairness Act passed in 2011, if the property is your primary residence, the bank has a legal obligation (if you want) to (a) “meet and confer” with you face-to-face to discuss your mortgage options, and later to separately (b) mediate with you face-to-face in an effort to reach a loan modification agreement. The mortgage modification process often proceeds on a parallel track with a short sale, deed in lieu and/or foreclosure. If a modification is successful, you usually go forward paying a lesser amount on a new term of 30 or 40 years, with some amount of principal and interest forgiven and/or transferred to the end of the loan term as a “balloon” payment.

If you are still suffering the effects of the housing bubble, please call William O. Kessler for more details, or one of the other attorneys at Beresford Booth.

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