Jroufanis

Help! Don't Know What to do..

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Hello Everyone, This is my first post, and I am very glad to see that a site like this exists. I would like to thank everyone on here in advance for their time and help.

Here is my issue:

In August of 2006 I did something very stupid.. My sister and husband were looking to refinance their home and couldn't, so I offered to help them out and purchase their home at a good rate and have them pay the mortgage every month... Almost 2 years have past and theyre going through a nasty divorce and he has stopped paying the mortgage as of last July.

I had an excellent credit score and because of this situation my credit has turned to garbage. The house is currently going into short sale. Now im getting letters from credit card companies saing that they are cancelling my credit cards. I have never been deliquent with any of my cards.

What can I do to help my situation? I don't know where to start. Is there anything I can do? Please help me. Show me some light on this situation..

Thank you all again in advance

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ugh...what a bad situation to be in.

Your credit cards are cancelling b/c they are seeing where you are not paying/losing your home and that's causing your score to drop badly. It's made them scared so they cancelled. They probably also raised your interest rate on all your cards for the balances left. They can do that. Even now, with the economy the way it is, people with excellent credit are getting cards cancelled or the rates raised for no reason other than the credit card companies are scared.

There's really not a lot you can do but talk to the credit card companies. Atleast if they are cancelling your card....make sure they can drop the interest rate on the balances left. Pay them off as quick as you can.

Try not to be late on any credit card payments. Even if they are cancelled or the rates have been raised....make your payments on time. Even with the mortgage wrecking your credit......you need to keep up with the good tradelines you have.

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I agree with the above post. Keep paying the credit cards on time even though they are closed. The short sale on the house be sure to get a 1099 for your taxes bc you get a tax exemption so that you won't have to pay that!

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I agree with the above post. Keep paying the credit cards on time even though they are closed. The short sale on the house be sure to get a 1099 for your taxes bc you get a tax exemption so that you won't have to pay that!

Again, not true. You will be required to pay taxes on the amount the mortgage lender forgives in the short sale. But they will 1099 you for that amount and you WILL have to pay taxes on that amount unless you can prove insolvency to the IRS (no assets and no means to pay).

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There are a few more things you should know about short sales....

They do as much damage to your credit as a foreclosure, sometimes more. The mortgage lender will 1099 you for the forgiven amount. You will be required to pay taxes on the forgiven amount unless you can prove insolvency. If you just refinanced this house 2 years ago, you had to be able to prove that you were able to afford the payment. Unless, you did a subprime no income verification or no doc (no documents proving income or debt). If that is the case, and you were in fact not able to afford the payment, you could be brought up on fraud charges for lying on your loan application if these facts are uncovered by the IRS while trying to prove insolvency to get out of paying taxes on the forgiven amount.

Anyone out there that is considering a short sale, do your homework and weigh your options. If you are having problems making your mortgage payments, call your mortgage lender right away. You may be able to get them to suspend payments for a period of time, modify the loan or put all late payments at the end of the loan as long as you start making your payments on time (forbearance). These days, banks do NOT want to foreclose on any more properties, their REO (Real Estate Owned) departments are seriously backed up! Call them and find out if there is anything they can do.

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i wasnt sure by your post whether the home in question was your principle home by how you file your taxes or a 2ndary home. the reason i wonder is if it is deemed a 2ndary home per how you file taxes in the past, then if you short sale you will be held for a irs tax liability on anthing over $599. that is not paid in the short sale. th mortgage debt relief act allows an exemption to this but only on a principle home, under 2 million. i have a feeing this will leave you with a large tax bill to the IRs. a short sale is a very good option when you only have one property. when its a second property the tax bill means often times a bankruptcy is a better option. you can refer to the IRs website regarding mortgage debt relief act of 2007. it has been extended to 2012.

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