Avoid Foreclosure Now
I was amazed that my property value had decreased 30% since 2007
. Not believing it, a Denver magazine announced my zip code as the hottest zip code to buy in! What happened? Foreclosure
What is foreclosure? "Foreclosure is the legal process by which amortgee or other lien holder, usually a lender, obtains acourt orderedtermination of amortgagor's equitableright of redemption. Usually a lender obtains asecurity interestfrom aborrower who mortgages or pledges an asset like a house to secure the loan. If the borrowerdefaults and the lender tries toreposess the property,courts of equity can grant the borrower the equitable right of redemption if the borrower repays the debt. While this equitable right exists, the lender cannot be sure that it can successfully repossess the property, thus the lender seeks to foreclose the equitable right of redemption. Other lien holders can also foreclose the owner's right of redemption for other debts, such as for overdue taxes, unpaid contractors' bills or overduehomeowner's association dues or assessments.
The foreclosure process as applied to residential mortgage loans is abank or other secured creditor selling or repossessing a parcelof real property after the owner has failed to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Commonly, the violation of the mortgage is adefault in payment of a promissory note, secured by alien on the property. When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that "the lender has foreclosed its mortgage or lien". If the promissory note was made with a recourse clause then if the sale does not bring enough to pay the existing balance of principal and fees the mortgagee can file a claim for a deficiency judgment. "(Wikipedia)
Please keep in mind, the lenders do not want to foreclose. They are in the mortgage business not the property management business. With the way the economy is now, it is very likely that they will receive the property back instead of receiving their money.
Don't get confused, the lender WILL foreclose on a person's home if they feel that this is the only way the situation can get resolved. This is also their last choice. They prefer to work with home-owners to help get them back on track. Here are the steps you must take to avoid foreclosure:
1. Bring You Loan Current: The majority of foreclosures are due to loss of income. There may be no way to catch up on the loan. If you expect a source of income in the near future, it may benefit you to ask family or friends for a short term loan.
2. Loan Modification: Most homeowners do not contact their lender because of embarrassment, and/or don't believe the lender can help. Loan modification is when the bank agrees to reduce principal, interest, and/or payments. Keep in mind, while going through the loan modification process, it does not necessarily stop the foreclosure. Communication is key during this process.
3. Forbearance: This is when your lender allows you to delay your payments or spread your missed payments over a specified number of months until you are caught up. Again, if you expect a source of income in the near future, then this may be a good solution for you. Keep in mind that until you're past due balance is current, this will report negatively against your credit, even during months when you are paying more than required.
4. Deed in Lieu of Foreclosure: Be sure to confirm this with your lender, with a "deed in lieu of foreclosure", you give your home to the lender (the "deed") in exchange for the lender canceling the loan. The lender promises not to initiate foreclosure proceedings, and to terminate any existing foreclosure proceedings." This option, if accepted by the bank, is a quick and easy way to walk away from the house, doesn't require a sale, and may look better on a credit report than other options. Be certain to get this agreement in writing and understand what the lenders plans are for any unpaid payments.
5. Bankruptcy: This is misunderstood and possibly the worst option for you. Bankruptcy will only slow a foreclosure, not eliminate it. Most mortgage documents state that if the property goes into default, the bank will take back the property through foreclosure. Not ideal, you will have both a bankruptcy and foreclosure on your credit report for the next 10 years! Plus, you may still be required to work out a repayment plan for the house. Seek legal counseling prior to deciding on a bankruptcy.
6. Foreclosure: Do nothing and let the bank take the house back. This is the one this that will negatively impact your credit score the most. Your credit score could drop 200-300 points and prevent you from purchasing another home for 24 months. The lender may sue you for unpaid amounts or for the difference between what the house sold for at auction and what you owed. Or they may send you a 1099, stating that the difference is income and you can be taxed on it.
7. Short Sale: A short sale is when a third party negotiates with the lender to accept a discount on what is owned and release their interest in a property in exchange for a cash payment. The seller is not allowed to financially benefit from the transaction. It is better to use the services of a Real Estate Investor rather than a Realtor. An investor has more experience with these types of creative scenarios than a Realtor. Plus, the investor will agree to purchase the house, providing the bank with a signed Purchase Agreement. This Purchase Agreement increases the likelihood of a bank accepting a discount. Most Realtors try to negotiate with the bank and then find a buyer after the negotiations. This strategy leads to a very low success rate.
If you're behind on your mortgage payments or facing foreclosure, receive a hassle-free offer on your property.Contact the author or other real estate investors.
As stated, the lender does not want to foreclose. Foreclosures cost the lender BIG money and hurts their ability to borrow money.
Avoid Foreclosure Now
By: Kate O'Toole
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