As a Wisconsin Real Estate attorney and Waukesha and Milwaukee Foreclosure lawyer, A common question that comes up in the free phone consults we offer is “the bank started a foreclosure against me- what are my options?” While the answer to that question usually is the crux of the phone call, it pretty much goes like this:
Caller “I have a foreclosure against me and I need a Wisconsin foreclosure lawyer”
Me: “Well do you plan on fighting the foreclosure in court or do you wish to pursue remedies outside of court?”
The caller’s answer to my above question usually is either “I wish to work out an agreement to keep my home,” or “I want to get rid of my home” and either make money off the sale, or, in the alternative, protect their credit rating and ability to purchase a home in the future. For this post, I will focus on what a Wisconsin foreclosure attorney‘s answers to common questions would be if the individual was willing to part with the home. Here is a typical list of questions I may receive during our free consultation sessions:
Q1: Does a deed-in-lieu negatively impact my/our credit rating? Does it show on our credit report?
A: Yes, a deed in lieu affects the credit rating about as bad as a foreclosure (some say it is not as bad, but there is no statistical evidence to back it up)- it is typically labeled as a “deed in lieu” or “pre-foreclosure charge off” and the hit to your credit rating will be on you record for 7 years. However, the differences are:
- The deed in lieu is over with quicker than the foreclosure so you can start building your credit back earlier, and
- You can potentially buy a home again quicker- a conservative estimate is 4 years before you are potentially able to buy after a deed in lieu whereas with a foreclosure it could be up to 72 months before you can buy again (assuming good credit practices)
Q2: Are there costs to us for doing a deed-in-lieu?
A: The costs to doing a deed in lieu (DIL) are typically nothing or small, as for a condition of the DIL most lenders waive deficiency and are counting the time saved as the fees saved. As for legal fees, negotiating a DIL with the lender is part of your flat fee already, so that is no extra charge
Q3: Are deed-in-lieu settlements disclosed on future mortgage applications and can that negatively impact our ability to secure a new home in the future.
A: See question 1 above- you are likely looking at 4 years before being able to buy again (maybe sooner if excellent credit practices- just being conservative here)
Q4: How long does a deed-in-lieu show on our credit report?
A: The hit to your credit rating will be on you record for 7 years.
Q5 FOR SITUATIONS WHERE THE HOUSE IS WORTH MORE THAN THE MORTGAGE DEBT: (If we place the home for sale by owner or with a realtor and receive an offer for more than the payoff statement for my mortgage)
a. Do we have to pay taxes on property up through closing date?
b. Do we have to pay closing costs associated with sale?
A: Questions such as above are both answered “yes”- when the sale is a normal sale, and the only difference is there is a foreclosure case, and the property has not had a confirmed sheriff sale, you can sell the home, satisfy the judgment debt/payoff balance, have the foreclosure dismissed, and complete the sale. However, you must remain current on your debts associated with the property (or they will be deducted from your final sale amount you are to receive)
c. If there is cash left over do we automatically get it or do we have to file a claim for it?
A: There is no judgment nor is this in a short sale or sheriff sale setting- so like a typical sale you would be deposited with all surplus above your closing costs, realtor fees, and morgage payoff balance.
Q6. If we receive an offer less than the amount due on the 1st – then it becomes “short sale”
A: A short sale has to be applied for to the lender and approved by the lender- each lender has different ways of applying for a short sale- contact a real estate attorney or an agent if you need help with applying.
b. What happens to the current escrow account?
Depends if the escrow account is positive or negative- typically short sales are sold at a loss on the debt so the escrow would generally be forfeited.
c. Do we as the homeowner have to pay closing costs related to the sale?
A: Since the sale is at a loss to the mortgage balance, closing costs would come off the top first, then mortgage payoff would be satisfied as much as possible out of remaining balance, then deficiency is usually waived for the homeowner in default.
Q7. Does a short sale show on our credit rating? Does it impact future mortgage viability?
A: Yes, short sales are widely reported as different things (charge off, settled debt, pre-foreclosure, etc). There is also a lot of speculation on whether or not a short sale hurts your credit just as bad as a foreclosure- I am of the camp that while the hit isn’t quite as severe for people, the hit is still sever enough to not make much of a difference in the short term. However, the benefit is that- assuming good credit practices after the sale- you are looking at (potentially) being able to buy a home again around 2 years after the sale (essentially cutting deed in lieu time in half)
Q8. If we list for sale does it obligate us to accept any offer? Do we still have right to negotiate or refuse and decide to deed-in-lieu instead?
In normal sale, you have all rights of a normal sale. Same as for short sale, but you have to be careful to not miss timelines- (e.g. need the sale in general to complete in 4-6 months, lender approval timeframes, etc.) and usually if a short sale is dragging, that won’t be good cause to delay foreclosure judgment.
Hopefully the above questions are helpful for you in determining which option- deed in lieu, short sale, normal sale, or foreclosure- is best for your specific situation. If you have further questions, I encourage you to contact or speak with a Wisconsin, Waukesha and Milwaukee Foreclosure Attorney to further go over how to potentially keep your home or, in the alternative, determine the best course of action on how to proceed when a Wisconsin foreclosure case is filed against you.