You should be asking these hard questions and getting a clear idea of what the risks are.
Under no circumstances you should put emotions into it.
A moral obligation clause was not part of your loan agreement with the bank. . after all, the same banks that have enjoyed the millions and millions of Government help to relieve themselves of past mistakes. . .the same should be applied to you!
Banks make decisions NOT BASED on moral obligations but for the best of their shareholders. .
Homeowners should have the same playing field. .except your shareholders are your children.
There is no simple answers regarding short sales and /or strategic default, but if you understand the risks you face, you can make the best decision for your unique situation.
Clarity is the key and this is an attempt to shine the light for your to see your options:
The difference between short sales and an Strategic Default are just related to the degree of risk when you decide to do such a step.
An Strategic default is a personal financial decision to "walk away" from your underwater mortgage. A successful Short Sale in a Strategic default ensures that your lender will not seek a deficiency judgment against you and you will simply owe nothing by selling your property.
The big misconception is that simply by walking away you will be relieved from a deficiency judgment that your lender will seek. . .nothing can be further form the true.
The lender has the right to seek a deficiency judgment when you simply walk away.
Why walk away and have this weighting over your head for years to come.. . by using a short sales in combination with the strategic default, you will have control and show the lender that you are trying to help them solve your mortgage crisis by at least helping them to dispose of it.. .and not loading them with an unwanted property that could be vandalized and start costing them money from the moment you walked away.
A short sale in this case could help you by resolve this issue by your lender renouncing any further repercussions against your assets in a third party approval during a short sale.
Maryland is a “recourse” state and as such you risk the lender coming after you with a deficiency judgment when you do a short sale or a strategic default.
In a non-recourse state, the banks or your lending institutions do not have access to the borrowers “other” assets. .they can only sue you for the value of the property in question.
Of course there are exceptions, you should seek legal counsel about your particular state laws
Back to Maryland,. .next question?
Yes and No
Yes because the amount forgiven by the banks constitutes income for you. . .and the IRS wants its share. The exemption is that for resident homeowners using the property as their primary residence, the government makes an exception and you do not pay any taxes.
Like everything else, please check with your account about your specific case when it comes to this taxes.
No, if you are an investor, you will be liable for this taxes.(there are always exceptions) But if the other option for you is being hundreds of thousands of dollars underwater with hopes of the value of your investment catching up to your mortgage in the year 2020 . . .a little tax should not hurt you that bad.
Disclaimer: I’m not advocating you neglect to pay your mortgage or simply walk away. I am advocating that you sit down and see all the options you have in front of you and removing any emotional ties to bring the right solution to your personal financial problems. Always consult with your attorney and accountant for specific questions about your case.