7 Common Options To Someone In Foreclosure In Az And Tx
As of the summer of 2010, 1 out of 10 homeowners are delinquent on their mortgage
. The FDIC reports that the 2 most common reasons for foreclosures are job loss and unexpected increases medical bills. This stat is no surprise when you consider that 1 out of 5 Americans looking for a job are unable to find one. Also, the price of health care has increase dramatically. When you combine increased expenses with decreased income, problems arise. And when the going gets tough, costs have to be cut. And sometimes the biggest cost to cut is the mortgage.
Increased costs with decrease income and dropping home values are causing decent, hardworking American families to make difficult decisions. Bad things happen to good people in this economy, and not being able to afford your home does not make you a bad person. What other options does the homeowner have if they are in financial distress and behind on payments?
Option 1- Bring loan current. This option is paying the lender everything that is owed in one lump sum to include missed payments, any late fees associated with these payments, foreclosure fees, legal fees and the principal owed during the delinquency.
Option 2- Loan modifications. Loan modifications occur when the bank agrees to reduce principal, interest, and/or payments. However, not many homeowners have success with this strategy. As stated earlier, the number one reason for people going into foreclosure is due to job loss. If no income is coming in from a traditional job, then there is little chance that a mortgage company will reduce your loan principle, interest rates, or payment. Therefore, its no surprise that only about 23% of people asking for help are put into a loan modification program.
Option 3 Forbearance. Forbearances are when a mortgage company allows you to delay your payments or spread your missed payments over the next specified number of months until you are caught up. However, keep in mind that until your past amounts are brought current, you will have a negative mark against your credit, even during months when you are paying more than your requirement!
Option 4- Deed in Lieu of Foreclosure. According to Nolo.com, with a deed in lieu of foreclosure, you give your home to the lender (the deed) in exchange for the lender canceling the loan. This process will not work if you have multiple liens on the house. The major problem though is that banks are in the business of collecting cash, not property. And the banks are holding onto more property than they would like so this options very seldom works. Plus, in many mortgage agreements, it is stated that if the buyer goes into default, the bank will only take the property back through foreclosure. Finally, the affect on your credit score with a Deed In Lieu will be the same as a foreclosure.
Option 5 Bankruptcy. This option is widely misunderstood and possibly the worst option for homeowners. Bankruptcy will only pause a foreclosure, not eliminate it. As stated earlier, most mortgage agreements state that if the property goes into default, the bank will take back the property through foreclosure. Therefore, you will have both a bankruptcy and foreclosure on your credit history for the next 10 years!
To make matters worse, since you have declared bankruptcy and cannot default on your financial obligations again, many banks will target you for a deficiency lawsuit. Suppose, for example, you owe $700,000 on your house and it sells at auction for $500,000. If you have recently declared bankruptcy, the bank may be able to sue you for the difference between what the property sold for and the amount owed, which in this example was $200,000! Of course, maybe you have a bank with a heart that wouldnt do this to you?! Seek legal counseling prior to deciding on a bankruptcy.
Option 6 Foreclosure. Do nothing and let the bank take the house back. What is foreclosure? Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process will negatively impact your credit by dropping your score 85-200 points and preventing you from purchasing a house again for another 3+ years. In addition, it may take you longer to rebuild your credit due to foreclosures. Plus, you may be sued for deficiencies by the bank for the difference between what the house sold for at auction and what you owed. Also, anytime the bank forgives a loan amount greater than $600, they are required to send the homeowner and IRS a 1098 from the bank. This 1098 form states that since the $200,000 write off from the bank to the homeowner is no longer an expense, it is considered income and is now taxable.
Option 7- Short Sale. A short sale occurs when a third party negotiates with the mortgage company to accept a discount on what is owned and release their interest in a property in exchange for a cash payment. Since the bank is taking a financial loss, the seller is not allowed to financially benefit from the transaction.
Some of the drawbacks of a short sale are similar to a foreclosure, as your credit score will be negatively impacted. But you may be able to purchase a house again after 24 months. Also, you may be sued for deficiencies and taxed as well, although if you have a knowledgeable investor working your short sale, he or she can negotiate with the bank a satisfaction of the loan result, meaning that the accepted short sale would satisfy the loan and no remedies would be needed. And if you do receive a 1098 from the bank after the short sale, contact Endurable Property Solutions before filing your income tax returns, and we can assist you with applying for debt forgiveness.
Homeowners facing foreclosure today are going through enough misery and stress and deserve options other than foreclosure. Doing nothing or declaring bankruptcy is probably your worst option. If you are behind on your payments and owe more than the property is worth, you do have a way out of this mess.
by: Curt Maly
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