Expand Your Education with These Courses from
The Psychology of Consultative Selling: Skills for Sales Success: Part Four.
A Consumer Advocate Approach to Real Estate & Mortgages: Courses 1 & 2.
ACE: Purchase Reverse Mortgage Course.
At Home with Diversity.
Bundle 1: CIPS Core Course (US Version).

Debt Adviser: When to Seek a Deed in Lieu of Foreclosure

Have a comment on this article? Share on Facebook!

By Steve Bucci

(MCT)—Question: My husband and I are struggling to make ends meet. We’re retired and owe a lot more on our home than it is worth. The payments are too high for our fixed income, and we’re trying to find the best way to handle this. As far as we can tell, we wouldn’t be able to refinance the home at a lower interest rate since our debt-to-income ratio is too high. We are thinking instead of a deed in lieu of foreclosure, which I think would allow us to walk away from our mortgage. Our credit score will take a hit, but at this point in our lives, it doesn’t matter. Do you think this would be our most beneficial route to take? Thank you for your advice.

Answer: I’m concerned about the decision you and your husband have made to retire. Your inability to pay your mortgage should have been a warning sign that you weren’t financially prepared to retire. Of course, many people are forced into retirement because of illness or other circumstances that prevent them from continuing to work. But if you are physically able and willing to go back to work, I suggest that you strongly consider it.

Besides your credit, you may have more to lose by walking away from your mortgage. For example, any debt forgiven on a mortgage will be considered income by the Internal Revenue Service following the 2013 expiration of the Mortgage Forgiveness Debt Relief Act. So you would owe income taxes on the amount forgiven with a deed in lieu of foreclosure. Depending on how much your home is underwater, you could be looking at a very big tax bill.

Additionally, you’ll need to be sure that your financial problems will be solved by walking away from your house. If not, you’re probably going to need to get a job. And it is much harder to get hired with a bad credit report since many employers use them as a part of the hiring process.

Finally, losing your house means you’re going to need to find another place to live. Just like potential employers, many landlords check credit reports as part of the leasing process. And the foreclosure will be on your credit report for seven years.

So, bottom line, I’d suggest that before you do anything else, you should review your retirement plans with a financial professional. Meanwhile, update your resumes.

Bankrate.com’s Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of “Credit Repair Kit for Dummies.” Visit Bucci’s foundation at htttp://www.moneymanagement.org.

©2014 Bankrate.com
Distributed by MCT Information Services

Have a comment on this article? Share on Facebook!

Join RISMedia on Twitter and Facebook to connect with us and share your thoughts on this and other topics.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Copyright© 2016 RISMedia, The Leader in Real Estate Information Systems and Real Estate News. All Rights Reserved. This material may not be republished without permission from RISMedia.

Content on this website is copyrighted and may not be redistributed without express written permission from RISMedia. Access to RISMedia archives and thousands of articles like this, as well as consumer real estate videos, are available through RISMedia's REsource Licensed Content Solutions. Offering the industry’s most comprehensive and affordable content packages. Click here to learn more! http://resource.rismedia.com

Our Latest News >>