Alternatives to Foreclosure
in New Jersey
Given the cooling climate of the housing market in New Jersey, many homeowners are finding themselves with mortgages that have not been surpassed by current fair market value of their property. This is especially true for those who borrowed at high rates and bought at inflated prices. Many of these homeowners are unable to get out from under the water and even find themselves facing the very real possibility of foreclosure after falling behind on payments. At the conclusion of the New Jersey foreclosure process, the homeowner’s property is sold at sheriff sale. If the value of the mortgage exceeds the value of the property, there is a strong possibility that the sale will not satisfy the mortgage amount, and the homeowner will remain liable to the lender for the remaining unpaid balance of the mortgage debt. This is called a deficiency judgment.
To avoid still owing on a mortgage for a home sold off, a homeowner may utilize two options to avoid the potential deficiency judgment altogether. They may seek a deed in lieu of foreclosure or attempt a short sale. In attempting a deed in lieu, the homeowner makes an agreement with the mortgage company to turn over the property in exchange for cancelling the loan. However, the probability of utilizing this avenue becomes more difficult as the number of mortgages on the property increases, i.e., second mortgage. In utilizing a short sale, the homeowner essentially obtains permission from the lender to sell the property for an amount that falls below the amount of the loan. Depending on the jurisdiction the homeowner resides in, the short sale may exclude the possibility of a deficiency judgment, if agreed upon by the lender.
While both methods may be appealing, each comes with several drawbacks. Completing a deed in lieu or short sale could have an adverse impact on the homeowner’s credit score and may even create tax consequences for any amount of the debt/mortgage that is forgiven by the lender. The lender would then send the homeowner a 1099-C form, requiring the homeowner to include the amount of forgiven debt as taxable income.
We often see clients who fall into this predicament. One helpful option is having an attorney renegotiate the mortgage to an amount that is affordable. Another helpful option is filing for bankruptcy protection as it may allow you to stay in your home, so long as you can afford the mortgage payments.
Ultimately, the best method to proceed under may vary on a case-by-case basis. We strongly recommend reaching out for a free consultation. We have decades of legal experience resolving these types of issues. We are always ready to help.
