Look, I will come right out and say it. Facing foreclosure is one of the most difficult and scary things you can do. However just like everything that scares us, we need to stare it down and face fear. If you are just hoping for the problem to go away, well I assure you it doesn’t. In fact it only gets worse if you ignore the problem. You could be left having to pay the owed balance or at least the difference between what you owe, and what the property sold for at auction. Here are 6 tips to help with foreclosure.
Assess Your Situation
This one seems so simple, yet most people will never do it. Simply sit down and assess your situation. So you were unable to pay the mortgage for 4 consecutive months, why were you not able to? If a hardship has occurred causing loss of income, has it been or can it be resolved? If you answered no then most likely you will not be able to have a loan reinstated. A Modification only works if you have rectified the hardship and can prove you will be able to pay a new higher monthly balance for a longer term.
Avoid Loan Modifications
This is going to be the toughest thing you hear today, but it needs to be said. A loan modification is probably not right for you. In most but not all scenarios a modification is going to raise the amount you pay monthly on your mortgage. Couple that with the ups and downs of the housing market and most of the time a mod does not make financial sense. You wouldn’t pay 2x the amount your home is worth for the next 30 years would you? Of course not. If you were going to pay that much it would make more sense to buy 2 new homes and rent one out for a profit. I know we all get attached to our homes, but the reality is, home is wherever you make it.
Do Not Sell Your Deed
Occasionally an unscrupulous company or person will offer you cash for the deed to your house. Although this is legal, they are lying to you by telling you this will resolve your issue. Selling your deed makes you not the legal owner of the property anymore, but you still own that debt because it is your mortgage. I have seen this happen so many times. Not only are you responsible for the debt on that property still, but you have just thrown all other options out the window. If you don’t own the property you cannot sell the home. You cannot do a short sale, a deed in lieu, or even a loan mod. Your deed is the only bargaining chip you have against the bank. Don’t give it up.
Consider Just Selling Your Home
If you do not owe more money than the current market value of your home, consider selling the property and paying off the bank with the proceeds. If you are not upside down on the mortgage you may even make some extra money. Then you can use that money made as a down payment on a new house and take out a new mortgage. This can be very beneficial especially if your home is now empty because the kids all left, this is the perfect opportunity to downsize to a more realistic and affordable living space.
Conduct a Short Sale
A short sale can occur when the debt on your property is more than the current market value. Let’s say you owe $400,000 on your house and it is only realistically worth $150,000 in its current condition. Well then, a short sale is perfect for you. In a short sale, the bank and all lien holders against the property agree to forgive all debt you have on your house if sold for a certain amount that is short of the full balance. The bank will also give you a small relocation budget (typically $3,000 or more) to move to a new home. A short sale takes specialized people to negotiate with the bank, do not trust just any real estate agent or attorney to handle the transaction and most that are not done by short sale professionals do not actually get sold. Additionally, you will pay nothing for this (at least not from a legitimate company.) The bank pays out all real estate related commissions and closing fee’s.
A Deed In Lieu
A last resort option is a deed in lieu, or commonly referred to by banks as “cash for keys.” In this transaction the bank will essentially buy your deed for a set amount so they can get you to leave the house quickly. You will usually be responsible for cleaning up the house, which may involve buying expensive dumpsters. However if you have run out of options this is a good last resort effort to get something from the bank to try and help you relocate.
Those are our 6 tips to help you during a foreclosure. However the most important thing to remember is you are not alone. The sad reality is that 1 in every 200 homes in the United States is going through a foreclosure. In some areas such as New York that rate is closer to 1 in 30. Know your options, be prepared, and above all DO NOT IGNORE IT!