Short Sale – What Should You do With Your Upsidedown Mortgage?

If you are still uncertain about what you should do with your upside-down mortgage you aren’t alone. In some parts of the country there a still quite a few homeowners struggling with that very question. I will try to shed some light on what programs are still available to homeowners who still aren’t sure what they should be doing. After all it has been a crazy ride the last 5-6 years.


Short selling your home is probably the best solution for most folks who are struggling to hang on. The tax laws might soon be changing so if there is a chance you might not be able to hang on then you need to seriously look at a short sale as the best approach now. If you hang on too long and the tax break law expires and then the bank forecloses you could end up owing the IRS a substantial amount of money. I know it doesn’t seem fair but when have you ever heard of the IRS being fair?


The federal IRS tax on debt forgiveness is a strange concept but it is the law. If you have any debt forgiven the IRS considers this taxable income and therefore – like any other income – wants to tax you on that forgiven debt at your ordinary income tax rate. There are some exceptions that you need to talk to an expert about but the most common exception today is the 2007 Mortgage Debt Relief Act. If it’s your primary residence then there is a good chance you could qualify for this exception and not owe the IRS anything. But please remember that this government program along with most of the other ones will go away and some maybe sooner then others.


I suggest you get a consultation with a legal expert who understands the law and all the government programs. You will come away from the consultation with the knowledge that will allow you to move forward making the most intelligent decisions based on your own personal situation. There is way too much conflicting information out there and a lot of so called “experts” that shouldn’t be calling themselves an expert. Like almost all real estate agents. I know I am risking getting criticized for that last comment but when it comes to your situation regarding your upside-down mortgage it’s LEGAL advice you need! Real estate agents cannot and should not give legal advice. It’s actually against the law if they do give legal advice yet quite a lot of them are still doing it. I get clients in my office all the time that a in a legal pickle that tell me “my real estate agent told me to do it”. And all of them did not have an attorney advising during the process.


I give all my clients a free consultation and if I help them with a short sale it doesn’t cost them anything and they get a lawyer on their side. The banks have lawyers on their side and you should too.


I said there were still some other government programs available – here is a short recap of some of them:


Short Sale – HAFA – lenders are getting a little better at approving these and if you qualify for HAFA you can get $3,000.00 in moving costs. If you really think a short sale is where you should most likely be going then I would suggest you don’t wait much longer. These programs won’t be forever and most are scheduled to end in a year or two.


New Home Purchase – you can now get a new home mortgage ONE YEAR after a bankruptcy or short sale and sometimes a foreclosure. If you really think you would like to get another home and take advantage of the low rates and affordable prices then you should move quickly to resolve your current situation and get the one year clock ticking.


HARP 2.0 – this program is for Fannie and Freddie loans that are upside-down. You can refinance to get a lower rate. You must be current on your payments with a maximum of one late payment within the last year.


Streamline Rate Reduction – this program is for Fannie and Freddie loans that are upside-down. You can get a lower market interest rate reduction but you MUST be 90 days or more delinquent on your mortgage payment. Yes you heard me correctly you MUST be delinquent. Most people are surprised to hear about this program but I assure you it’s for real. It’s just recently started but contact us right away if you think you might get some benefit from this program.


HARP 3.0 – This program hasn’t been launched yet but should be coming soon. This program will be for NON Fannie or Freddie loans that are upside-down and current on their payments but have a high interest rate. This program would help the millions of people caught up in the housing crisis but continued to make their payments and currently can’t get any help just because they don’t have a Fannie or Freddie loan.

Loan Modification – these are still available and can help some people but most homeowners don’t qualify. Contact us and we will analyze your situation and let you know if you might qualify for this program based on your specific situation.


Keep Your Home California – this program can help certain homeowners. There are 4 different programs available with the holy grail – a principle reduction program. Unfortunately this program isn’t available to everyone with limited funds that will run out at some point. But if you contact us we will see if you might be able to get some relief under this program.


2007 Mortgage Debt Relief Act – set to expire at the end of 2013. Will congress extend it? I would say yes but it’s really anyone’s guess at this point. I can tell you that they aren’t even talking about it yet in Washington. I don’t think that would surprise too many people who have been observing what they are actually doing in Washington these days.


If you have any questions or concerns about your own personal situation I would be happy to give you a FREE one on one legal consultation. You can call me at 916.442.6400 or send me an email at or just visit my website


Ted Greene

California Attorney and

licensed Real Estate Broker