I was discharged from Chapter 7 Bankruptcy in April 2005. Given a denial for a loan modification by Chase, they stated that I am eligible for a short sale or deed in lieu of foreclosure. I would like to choose the option with the most advantage for me. Also, will it be reported on my credit given the bankruptcy?
Assuming you didn't reaffirm the mortgage debt in your 2005 Chapter 7, and that you're still in the house, I would suggest that neither a short sale or a deed in lieu are in your best interest. Don't pay them another dime and live in the house through the foreclosure process and six-month redemption period. If they haven't started the foreclosure process then you will likely have 9-12 months with no house payment to allow you to bank some money for your eventual move.
If you aren't living in the house, however, I would go the deed in lieu route as then the mortgage company would become responsible for maintaining the house etc.
I must agree with attorney Hirdt in that sitting in the house, paying nothing, until they foreclose gets you over a year of free residence while you save for better things.
While this is not my specialty area: Congress extended the Mortgage Debt Relief Act through to 2016; so any difference in the sales price of the home between what you owe, and what was paid is not subject to income tax by the federal government. And, Michigan is a "recourse" state, so any difference between what was owed and what was obtained through a foreclosure sale can be taxed to you as a loss by the bank. With short sales, banks are notorious for coming back to you right before the closing of the sale and demanding you pay the amount of any assets you own that they have found, in order to close the sale. With the difference between the price obtained at foreclosure sale, and the amount of the mortgage; you need to consider your tax bracket. Based on your specific circumstances there are different considerations that make either a short sale or a deed in lieu of foreclosure the better choice for you; and, there may be state or federal mortgage relief programs that the bank is not telling you about. The cost of a consultation with an attorney that specializes in mortgages and finance is well worth the cost in your situation.
The bankruptcy would discharge the debt on the mortgage. You don't owe any monies on the mortgage assuming that you did not reaffirm the debt. A short sale or deed in lieu will do nothing for you. I see no advantage for you to do either. Live in the house as long as possible and let it foreclose.
