Eight Options for Homeowners Facing Foreclosure

Jul 8, 2009

The good news is that national foreclosure statistics are down significantly in the second quarter.  According to businesswire.com, national filings were down 11% to 205,031 and pre-foreclosures were down 10% to 494,078.  The bad news is that a lot of families are still in trouble.  So far this year half a million families have lost their homes and more than a million more are in various stages of pre-foreclosure.  In fact, the numbers should be much worse, but indications are that banks are already overwhelmed by their existing property portfolios and are wising up to the fact that flooding the market with cheap REO (lender owned) properties forces prices down and hurts everyone in the long run.

By all indications, the economy is starting to improve, or, at worst, stabilizing.  However, that is a small consolation for the millions of Americans who are already facing foreclosure or are unable to make their mortgage payments.  Most frustrating of all is the difficulty to find good advice on the options to foreclosure.  Everywhere you turn for help someone new has the answer–for a price!  The internet is awash with pay-to-play foreclosure services.  It is almost impossible to get a straight answer about your foreclosure options without writing a check.

So here is a brief description of eight common options available to homeowners facing foreclosure.

1.  Make Your Loan Current: The simplest and cleanest option is to make up your back payments and penalties.  In reality, many people don’t have the savings to do this and the banks will not accept partial payments.  The next step is to try to borrow the money.

2.  Borrow the Money: You may be able to borrow the money from friends or family, or you may want to try consumer lenders.  Just make sure you understand the terms, fees, and payments or you could end up in worse shape then you were before.

3.  Forbearance or Loan Modification: It is surprising how few people actually talk to their bank when they are in trouble.  The bank does not want you house, and if there is any way they can modify your loan and payments so that you can afford it, then they will do it.  If you haven’t called your bank then do it today!  The process may seem intimidating and you can hire a service to help you, but be careful, some of them will charge you $3,000 or more with no guarantee of success.

4.  Refinance: Many Americans are facing foreclosure because the terms of their mortgage adjusted dramatically and their payments skyrocketed.  With today’s low interest rates, refinancing can make a lot of sense.  Do this before you get behind, because credit score requirements have tightened over the past year, and late payments may disqualify you from refinancing.

5.  Declare Bankruptcy: Bankruptcy will stop foreclosure temporarily.  However, the bank can petition to have the house exempt from bankruptcy protection and proceed with the foreclosure.  If you aren’t careful you can end up with both a bankruptcy and a foreclosure on your record!

6.  Traditional Sales: Sometimes it is best to just sell the house and move on.  Depending on your house and the local market, you may be able to sell quickly.  Remember, what you owe and what you have invested in the house have very little to do with its actual market value.  You have three choices when it comes to selling.

a.  Use a Realtor: A Realtor will get your house on the market fast and should have an established marketing plan.  They can advise you of repairs needed and can give you a good estimate of the home’s value.

b.  For Sale by Owner: You can also try to sell your house by yourself.  This will save you the Realtor commissions, but it does take time.  You will be taking all of the phone calls, doing the advertising, and hosting the showings.

c.  Auction Your House: Very few people consider auctioning their house.  It is quick and easy, and you can hire a service to do it for you.  Set your reserve price (the minimum amount you will accept) to cover the loan pay-off and auction company fees.

7.  Non-Traditional Sales: These types of sales are typically made with an investor and include such options as Subject To, Cash Sales, Lease-Options, and Land Contracts.  These transactions can be closed very quickly.  You may not get top dollar for your house, but you may get some cash in your pocket and be able to get on with your life.  Before you enter into the agreement, research the type of sale involved and consult with your legal professionals!

8.  Short Sales: Many homeowners have no equity or owe more than their house is worth.  If they can’t keep the house then they are facing a Short Sale.  Basically, this means that they sell their house at market value and the bank receives a short pay-off.  Since the bank is not getting all of their money back they must approve the sale.  This process can be very slow and tedious.  You may want to hire a Realtor or Short Sale Negotiator to hand the processes.  Depending on your state laws and loan type, you may have a tax liability for a portion of the “forgiven” debt.

There is no magic pill for the millions of Americans facing foreclosure.  The plain truth is that we as a nation and individuals are in an ugly situation.  The best thing we can do is to take action.  Find out all you can about your options.  Research the options I have presented on the internet.  Talk to your attorney and accountant if you have one.  If you don’t then most states provide free counseling for individuals facing foreclosure.  Foreclosure won’t just fade away, so take action today!

© 2009 Matthew Shozda

www.EducatingHomeowners.com

www.TucsonREInvestors.com