The bank bought the house back at the sheriff's sale this week. The same day I was approached by a realtor in the area who offered a quit claim deed and then to buy the property from the debt collector. Are we really 'free and clear' if we go this route?
I am not sure I understand your summary. What do you mean the realtor "offered a quit claim deed?" Do you mean the realtor offered to PURCHASE the property from you? If so, the realtor is going to need to pay off the "redemption value" of the property; (what your lender bid on it at the sheriff's sale.) If the property is not redeemed, it will belong to the lender, six months from the date of the sheriff's sale.
If the realtor is asking for YOU to provide a quit claim deed to THEM, then you will be transferring whatever interest in the property that you have, which, at this point, is simply the right to redeem the property. Presumably, the realtor would then redeem the property and become the owner. If that happens, the lender *could* pursue you for any deficiency in the loan. It is unlikely that they would do this, but it is a possibility. Under current federal law, (which is set to expire December 31), you would not receive a taxable gain as a result of having any deficiency waived by the lender.
This is unlikely to help you in terms of your credit record. It will still show up as a foreclosure. From an outside perspective looking in, this is a potentially good deal for everyone but you. If the realtor were willing to give you some financial incentive to do this, then it might be worth considering. Or if the realtor is a friend and you want to do him/her a favor. Otherwise, I am not sure how it helps you.
If there is something else going on, and I have misunderstood your situation, please feel free to post additional details.
*** LEGAL DISCLAIMER I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state.
Estate Planning Attorney
Be very careful here. There are a number of scams being perpetrated on unwary homeowners facing financial difficulty. Attorney Frederick is correct that they are really just purchasing your right to redemption, however you are still technically liable for any difference in the amount due to the mortgage company and the amount the property sold for sheriff's sale.
You personally still have a right to attempt a short sale in this matter and be in a much better position than just "quitclaiming" the property over to the real estate agent.
Or, alternatively, if you're not interested in that, you could try and do the "cash for keys" where the mortgage company would pay you a certain amount of money to leave prior to the end of your redemption period, as long as the property was left in good condition.
You're going to want to consult a qualified real estate attorney.
The information provided is based solely on the general information given and should not be construed as legal advice for your specific situation.