Not surprising, a lot of the people who meet with me at my Halcomb Singler, LLP, office in Carmel, Indiana, are there because they are concerned that they have fallen behind on their home. My clients have many different options regarding either attempting to keep their home or deciding, after considering their options, that they would rather let the home go and move on. For purposes of this blog posting I will discuss a little bit about a few different ways to let a home go in Indiana. Don't ask me why this photo is relevant.....I just couldn't resist posting an angry Donald to my blog.
Unfortunately, surrendering a house is not as easy as it may sound. You have probably heard of people "walking away" from their homes/mortgages, but it is not quite that easy in Indiana. There are, however, several ways to surrender your home whether during Chapter 7 Bankruptcy, Chapter 13 Bankruptcy or outside of bankruptcy. One of the most important points to keep in mind is that you are responsible for a home until the property is no longer deeded in your name. When you buy a home that home is deeded to you immediately. That deed is filed with the recorder's office in the county in which the home is located and it serves as notice as to whom owns that house. The deeded owner of a home is responsible for cutting the grass, maintaining the home so that it does not become so run down as to qualify as a hazard, may be responsible if someone is injured on the property and is likely responsible for the payment of homeowner's association dues assuming that there is an HOA. As a result of these obligations, it is important to understand when a house will no longer be deeded in your name.
One way to get a house "out of your name" is to do a deed in lieu of foreclosure. Just as it sounds, this means that you deed your house back to the bank and they agree to take the house back from you instead of filing a mortgage foreclosure. This sounds like a great option at first. However, it is important to point out that the agreement you sign must actually say that you will not be liable for any deficiency balance when the house sells. It is also easier said than done to get a mortgage company to agree to this and send the required documentation.
Another option is what is called a short sale. Most Hoosiers have heard of this option. You list your house for sale and when you get an offer from a potential buyer for less than is owed on the house you must get approval from the lender or lenders to sell the property for less than the home is worth. This can be a very time-consuming process. If you have attempted to call a mortgage lender's loss mitigation department in the last 3 years you understand that you are going to wait a long time to speak with someone, the person you are speaking with may or may not have any clue about short sales (even though they are in the short sale department) and the lender probably lost all of the documents you sent them regarding the short sale 6 times. I admit I am maybe being slightly overly cynical with this, but I have had all of these things happen. I also received the same letter each day (just with a different date) 30 days in a row from a lender when I was attempting to negotiate a deed in lieu of foreclosure for my client....so I guess I am allowed to be a bit cynical.
Option 3= do nothing. In Indiana if you don't pay your mortgage for long enough the lender will probably file a mortgage foreclosure. I say probably because there are certainly some houses that even the bank doesn't want back. However, if you own a decent home the bank will likely foreclose and eventually obtain a judgment and sell the house at sheriff sale. When the house is sold at sheriff sale it is no longer going to be in your name, so you won't have to worry about cutting the grass, etc. However, if the house sells at sheriff sale for less than you owe then you may be liable for the deficiency balance on the mortgage and the lender may chase you down to try to collect.
Additionally, there are potentially tax considerations to think about in any of these above options. Typically, if you owe a debt that is forgiven then you owe income tax on the difference. For example, if you owe Bank of America $120,000.00 on your home and then do a short sale for $100,000.00, Bank of America may send you a surprise that next January of a 1099C for $20,000.00, which is the amount equal to the loan. The Mortgage Relief Forgiveness Act of 2007 basically says (I am oversimplifying this greatly) that if you surrender your home through deed in lieu of foreclosure or short sale and that the home was your primary residence that you will not owe income tax on the forgiven debt. However, that Act expires at the end of 2012 and no one knows how and if it will be extended or changed.
Of course, both individual and joint bankruptcy debtors have the option of "surrendering" their homes in bankruptcy. Again, just because the box marked "surrendered" is checked on the bankruptcy petition does not mean that you can simply walk away from the home and not worry about it ever again. You have to cut the grass until the home goes through mortgage foreclosure and eventual sheriff sale or you will get a ticket from the local municipality. This process can take months. You are also potentially going to be liable for any homeowner's association fees that are incurred after the date of the filing of your petition. As a result, many homeowners who surrender their homes in bankruptcy opt to continue to live in the homes until just prior to the sheriff sale. This way they can maintain the home, not to mention having a "free" place to live for what would likely amount to several months. And, when a home is surrendered in bankruptcy there are no tax implications.
As you can see, there are a LOT of options even once you decide that you don't want to keep your home in Indiana. It is difficult to write about these options generally. If you are living in the Indianapolis area and are considering your options to get out of your home I would be happy to meet with you at my Carmel office to go over potential options. Just give me a call at (317) 575-8222 or click here to set up an appointment.
Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.
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