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Strategic Defaults

Walking Away From Your House

Strategic default is the new concept in how homeowners are dealing with mortgages on homes that are underwater. A strategic default is simply when you stop paying your mortgages . Many homeowners are considering strategic defaults on their mortgages. It is estimated that over eleven million homes are now underwater in America. More than three and a half million homeowners are behind in their mortgage payments. There are already a million and a half homes currently in the foreclosure process.

The New York Federal Reserve estimates that there are an additional 3.6 million foreclosures that will be taking place in the next few years. Does it make sense to keep paying a mortgage on a home where it will be many years before the home regains its former value? A columnist named James Surowiecki recently wrote in the New Yorker Magazine that paying mortgage payments for a home that is underwater is “setting a pile of money on fire every month”.

Mortgage Payments: A Moral Quandary?

For some families there is a moral quandary in making the decision to stop making mortgage payments on a home that is underwater. Should families be embarrassed or feel they are going to lose respect as they break their mortgage contract obligations and stop paying their mortgage? Companies utilize the bankruptcy process to default on their financial obligations when they feel it is appropriate. So why shouldn’t individuals consider it is a business decision as to whether they should pay their mortgage payments when their home is underwater and it is unlikely it will ever get back to its former value at anytime in the near future?

Penalties For Not Paying Your Mortgage

Obviously the first penalty is that your home will eventually go into foreclosure. However the foreclosure process in the State of New York, as in most other states, is a slow process. This means you won’t be forced to leave your home in the short run.

The second issue involves your credit score. Not making mortgage payments will definitely have a negative impact on your credit score. It is estimated that your credit score will go down a minimum of 85 to 100 points if you default on making mortgage payments.

Strategic default is not something to be taken lightly. It should be considered as a last option. Your first option should be to make a mortgage modification. Mortgage modifications allow you to rework your mortgage to more favorable terms.

If you decide to strategically default you should save the funds that had formally been allocated to make mortgage payments. This will give you the ability to retain an attorney to fight the foreclosure in court. It will also give you money for a down payment on an apartment that you may need to rent down the line.

Tax Implications of Strategic Defaults

If a portion of your debt is forgiven by a financial institution the forgiven amount is considered taxable income by the Internal Revenue Service. You may end up receiving a 1099 from your bank that you will have to declare on your income taxes. You should talk to a tax professional with regard to how to handle this tax issue.

Strategic defaults are not for everybody but more and more people are making this choice!

Foreclosure Lawyers

If your house is in foreclosures we can help you. The Law Offices of Elliot Schlissel have been helping New Yorkers stay in their homes. To start with we can help you with the mortgage modifications. We are familiar with the problems mortgage modification programs have. We can also assist you with a forensic audit with regard to your mortgage. Should you be served with a summons and complaint we will appear in court for you and attend settlement foreclosure conferences. During these conferences we will press the financial institutions to cooperate in giving you a mortgage modification. We will submit answers to the formal compliant submitted by the banks. Our answers will allege defenses such as defective mortgages, defective foreclosure law suits, predatory lending, foreclosure fraud and other real estate related defenses.

We will advise you with regard to all of your foreclosure options. One of your options may be a foreclosure related bankruptcy. There are two types of bankruptcies that can be utilized in foreclosure. A Chapter 7 bankruptcy and a Chapter 13 bankruptcy. There are benefits and drawbacks to each of these bankruptcies. When you file bankruptcy it immediately stops creditor harassment. All debt collection activity has to come to an end when a creditor receives notice of a bankruptcy filing. Foreclosure proceedings also are immediately frozen upon the filing of a bankruptcy. At the end of the bankruptcy process you receive a discharge of your debts. We educate our clients with regard to reestablishing credit and the end of the bankruptcy. There are many bankruptcy myths such as you will never receive credit again that are simply untrue. At your initial free consultation with our office will we describe the bankruptcy process. We will explain to you what bankruptcy exemptions are and why it may be necessary to file bankruptcy. Feel free to call us for a free consultation 1-800-344-6431, 516-561-6645 and 718-350-2802.

New Bankruptcy Law Exemptions in New York

bankrupt1-150x150Homeowners previously had an exemption of $50,000 for the equity in their home. Now each party on the deed has an exemption on Long Island for $150,000 in equity on their home. Therefore, a husband and wife who own a home together have $300,000 in exemptions when they file bankruptcy. This means homeowners on Long Island can file a Chapter 7 Bankruptcy, have $300,000 of equity on their home and still beat their creditors!!

New Bankruptcy Exemption Law in New York

The new bankruptcy law went into effect on January 22, 2010. In addition to the home equity allowances, new rules concerning jewelry, art, a computer, a cell phone, pets and pet food have been listed to the exemptions. The new bankruptcy exemptions are designed to reflect the current valuation of homes and the costs of living in New York.

We’ve anticipated that there will be more bankruptcy filings in New York State due to the liberalized exemptions. With $300,000 in exemptions, most middle class families in financial trouble will be able to file bankruptcy on Long Island and still keep their homes. This will make filing a Chapter 7 ( or straight bankruptcy) a better option for homeowners with credit card debt and other financial obligations.

Under the new exemptions, renters can now use the homestead exemption and claim another $1,000 in personal property or cash as an exemption in their bankruptcy. The new law also allows New Yorkers to choose between the Federal Exemptions and the State Exemptions when they file bankruptcy. Homeowners facing foreclosure now have a better option when they file bankruptcy.

New York and Long Island Bankruptcy Attorneys

At the Law Offices of Schlissel DeCorpo, we have been filing bankruptcy for our clients for more than thirty years. Our office has been involved in more than four hundred bankruptcy cases on behalf of our clients. We file Chapter 7 and Chapter 13 bankruptcies. We discuss with our clients the type of bankruptcy that is best for them. We help our clients reestablish credit. We can, in some situations, eliminate second mortgage liens. The bankruptcies we file can be utilized to stop foreclosures. In addition we provide detailed foreclosure defense representation for our clients. We assist our clients in mortgage modifications. We maintain a foreclosure blog to provide information on foreclosure issues for our clients. We litigate defective foreclosure lawsuits, predatory lending, defective mortgages and bad faith on behalf of financial institutions. Feel free to call us for a free consultation at 516-561-6645, 718-350-2802 or 1-800-344-6431. Our phones are monitored 24/7.

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