Before you send that Jingle Mail

You've just come back from the mail drop at the post office where you have put your house keys in an envelope and mailed them back to the lender. In mortgage business lingo, what you've done is known as "jingle mail." You are feeling a great sense of relief because those payments that you are behind on and have not been able to make, are no longer your concern. You are walking away and it's the lender's problem now. Or is it?
In my opinion, your problems may have just become more severe. Remember that the house you just gave up control of, is an asset. You should never give control of an asset you are financially responsible for, over to someone else. If you communicate with your lender before your situation get's out of control, you may find there are many things that can be done to improve the situation.
Your first contact should be with the "loss mitigation" department at either your lender or loan servicer. You will need to know, or ask about, options that might be available to you. Foreclosure should be your last choice. It is your worst choice and certainly one your lender doesn't want to make.
When you execute a mortgage, you are becoming personally responsible for the debt that will be created when funds are disbursed to pay for your house purchase or your refinance. We're not attorney's, we don't issue legal advice, but let me point out what might happen.
You've mailed back the keys on a house you owe $200,000.00 on, you're done! Several month's later at the foreclosure sale, your house is purchased by an investor for $150,000.00. Your lender didn't choose to bid to get the asset, because they had too many on their books as it was, and those empty houses were bleeding cash in expenses and upkeep.
I'm guessing you weren't at the sale. You were out of that mess, not your concern. You are fortunate that your lender chooses not to come after you for the $50,000.00 shortage. They could, they have legal recourse should they choose. You are in the clear, or are you? The lender has chosen to forgive your debt. Things are cool, getting back to normal.
One day you go to that same postal facility where you sent the "jingle mail" from and hhmm....."What is this?" The return address is IRS and you open the letter slowly. You are stunned. How can this be? They say you owe income tax at your tax rate on $50,000.00!!!! Your tax rate is 20%. What? How can I owe this? What do they mean,"discharge of indebtedness income?" I mailed in my keys. The lender forgave me. Guess the IRS didn't. Did your worries really end when you mailed in your keys?
If you think it can't happen, ask your attorney. Watch this blog or our newsletter for future articles and posts of tips to help you.