Foreclosure would ruin your credit for over seven years.

Have you contacted the lender of that mortgage when you are unable to make the payments? The lender may negotiate with you on payments or selling the property.

The lender does not want the hassle of foreclosure and would most likely be willing to talk to you about selling it and/or forgiving the prepay penalty.
Keep in mind that if you file for bankruptcy, your credit will be ruined for 7-10 years. So, you will not be able to buy a home, car, etc. And you should always have a good reason why you cannot sell your house?

You can reason it out by answering questions such as: Is it because the current sales price is lower than your mortgage? Can you have a realtor help you with renting out the property at a lower rental rate?

If you end up going down the bankruptcy/ foreclosure route, keep in mind that your credit, and your family, will be affected for a long time. 

Becuase there is a chance you might get a better rate on your new home and lessen your financial strain until you can sell the rental home after the prepay expires. And there is a chance you were not given a good loan on the rental by your lender.

Moreover, your lender also might have priced you for maximum rebate which would also have made your prepay a “hard” pre-pay. Foreclosure can remove the financial burdon only so much.

The IRS views forgivness of debt much the same as earned income. Bankruptcy will not remove a tax lien. A deficiency judgement could result if the property doesnt sell high enough at auction. Filing a bankruptcy case will cost more including attorney fees than the prepay penalty.

Trustee fees will likely cost close to as much as the prepay. You can lease option the property for 1 -2 year’s and then sell it when the prepay penalty has expired. Another thing to consider is that should you be foreclosed upon and then file bankruptcy the end costs compared to end benefit arent even close to making the latter choice a good idea.

Your credit will have a double major negative and your insurance rates, future credit rates, and employment opportunities can all suffer costing you much more than at present

 


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