Foreclosure. It’s a paralyzing event, and certainly one of
the biggest misfortunes that can befall someone in their lifetime. It damages
credit, and can ruin marriages & livelihoods with ease. If not handled
correctly, the negative impact of a Foreclosure can last for decades. Because this experience is so incapacitating,
we thought it would be appropriate to discuss the different options available
to someone in this type of situation.
Option #1: Do
Nothing.
-A Foreclosure will
complete on the Auction sale date, and the Bank will end up taking possession.
The homeowner will be evicted.
-Lien holders may
impose deficiency judgments or 1099s for taxes on forgiven debt to the
homeowner. A deficiency judgment is debt,
and damages debt/income ratios, as well as the ability to qualify for loans.**Certain homeowners may be Tax exempt;
Speak to your CPA.
-“Foreclosure” is
recorded on the homeowner’s credit report for ~10 years, and their rating drops
significantly. This makes it very difficult to qualify for new credit, and
increases interest rates on existing credit accounts. It will be ~ 4 years before being able to
purchase a new house.
Option #2: Catch up
on payments.
-The homeowner must ask their Bank for a “Payoff
Statement.”
-The homeowner must pay 100% of
balance. Partial payments are rejected
whilst the Foreclosure is in progress.
Option #3: Forbearance
Agreement or Loan Modification.
-Forbearance:
The Bank will ask for 40-50% of arrears and costs up front, with the remainder
balance due over the next 9-12 months.
The Forbearance payments are in addition
to regular mortgage payments. The
Foreclosure stays pending and occurs if a payment is missed or partial. **A
very high percentage of Forbearances fail, and the Bank keeps what was paid.
-Loan
Modification: The Bank will ask for 40-50% of arrears and costs up front,
with the remainder balance due/placed at the end of the loan. Payments may
increase due to loan type, and the interest rate will increase due to damaged
credit. The Foreclosure stays pending, and occurs if a payment is missed or
partial.
Option #4: Deed in
Lieu of Foreclosure.
-The Homeowner voluntarily gives
their keys & house to the Bank, in exchange for stopping the Foreclosure proceedings.
-The Homeowner is
still exposed to deficiency judgments or 1099 for Taxes, which damages credit
similar to a Foreclosure.
-“Deed in Lieu” is
just as bad as “Foreclosure” on a credit record.
-A Deed in Lieu of
Foreclosure is not possible if there are junior liens attached to Title.
Option #5: Re-Finance
-Due to missed payments &
damaged credit, Banks will typically only offer 60-70% LTV.
Option #6: Sell,
working with only a Real Estate Agent
-The Property must sell for a price significantly more than is owed, in
order to pay the mortgage in full.
Additional costs associated with closing are incurred, such as
commissions, concessions, settlement fees, recording fees, insurance, Taxes, utility/water
bills, & status/transfer fees.
-Most Real Estate
Agents don’t specialize in Short Sales, and don’t want to deal with them.
-Very few Real Estate Agents know the loopholes of the Short Sale
system.
Option #7: Short Sell,
working with Foreclosure Solutions & Real Estate Agent
-The Bank will sell the property at
a discount (short), in order to avoid the expenses associated with foreclosure
& property ownership.
-The homeowner &
Real Estate Agent receive the benefit of working with a company that
specializes in this field, and are experienced in Short Sale negotiations. This allows the Real Estate Agent to focus on
their specialty: Marketing the property for a Buyer.
-Nearly all costs
associated with the sale of the Property are covered/paid by the Bank;
including commissions, concessions, and Title fees.
-Deficiency Judgments
may be negotiated away.
-Replaces “Foreclosure”
on the homeowner’s credit record with “Settled Debt,” which is much less
damaging. Credit rebuilding can begin sooner.
-NEVER guaranteed,
since it is dependent on Lender approval.
Option #8: Foreclosure
Deferment.
-The Homeowner may be eligible to
defer the foreclosure auction for 90 days.
They must occupy the property as a principle residence for the 90 days following
the “Notice of Election & Demand” filing date. They must intend on remaining in the
residence.
-The Homeowner will receive a
deferment notice from the Bank, and will need to contact a counselor within 20
days. The Counselor will explain several
avenues that the Homeowner may pursue, in order to avoid the foreclosure
auction.
Option #9: Bankruptcy.
-Stalls, but does not stop
foreclosure.
-May help with discharging debts
afterwards, if the Short Sale isn’t accepted.
This discussion, and
these “options” are merely & solely for informational purposes only. No
agent employed by Foreclosure Solutions is an attorney, CPA, or Tax
professional. We are not authorized to provide legal or financial advice. It is highly recommended to seek your own
legal & financial advice.
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