Interesting Article on Foreclosure

[benrock100]

Check this out. Interesting perspective.

[SinkingFast]

In case the link gets broken or the article is moved, I've posted the text here:

Going into Foreclosure?
Posted by Mister Mortgage at 10/12/2007 12:18 PM and is filed under Credit
Going into Foreclosure?



Are you behind on your mortgage? Are you afraid of losing your home to the bank? In this day and age of Sub Prime financing, many are faced with this situation. Before you give up and decide to throw in the towel, look at all of your options. Your worst enemy at a time like this is being uninformed. There are options out there that can help your situation if you know where to look. If you find yourself close to losing your home or getting behind on your mortgage, I would take the following steps----

1) "Try to negotiate with the bank or lender"

My experience has been that there are situations where banks or lenders will be willing to listen to your cries for help. Remember that financial institutions are not in the business of foreclosing on customers and selling their homes. They want to avoid this from occurring as well. Especially in this day and age where there is a depreciating house market and little equity in most homes, banks often are faced with a situation where they will take a substantial loss on a foreclosure transaction. Imagine this common situation- A couple bought a home 2 years ago with 100% financing for $200,000. It was an interest only loan, and the couple has paid nothing on the principle, meaning they still owe $200,000. The home has not gone up in value, and can really be sold for no more than the initial price of $200,000. Take into account that the bank has to pay transaction and lawyer fees for the foreclosure transaction, realtor commissions to sell the property, home improvement costs for anything that needs to be fixed in the home before selling, and any other misc. dues like property taxes or association dues. After all is said and done, the bank is taking a tremendous loss on having to take over the property. Then there is always the possibility that they won't be able to sell the property at all. This is not something the bank wants to involve themselves in if they can avoid it.

So what can you do? First I would contact the bank and see if they are willing to work out a repayment plan to get you caught up. In some cases you will be required to pay more for a few months to get caught up. If you cannot do this, some lenders will allow the extending of the mortgage term and forgiving the months you missed by charging more interest amortized over the life of the loan. This is a plus for both you and the lender. You keep your home, and they lose little. Unfortunately it is not always this easy, but if you present it professionally, you may be able to accomplish this yourself. If you need 3rd party help, and most will need it, contacting a loss mitigation company would be your best bet. These are 3rd party companies or professionals who know how and can negotiate with the bank to save your home. Many times they will be able to get the mortgage company to do a modification of your loan and change the terms and payment options. Lets say you have an adjustable rate that is has risen dramatically. A loan modification may be able to get you into a fixed rate for the life of the loan. It is the loss mitigation rep's job to show the lender both sides of the dispute. They are very good at showing the bank what they stand to lose if they do not modify, versus what they will gain if they do.

2)"Refinancing"

Refinancing is another option to look into, however many times it is just a short term solution. First of all, if you are in a situation where you about to lose your home, chances are your credit is not doing too well. Many mortgage companies will not refinance you if you have current mortgage lates or are in the process of a foreclosure. The lenders that will be able to help you are usually "Sub Prime" mortgage companies or what the industry calls "hard money lenders". True, if you refinance with a loan like this you will be able to pay off your current mortgage and get back to even, saving your home from foreclosure. The problem is, that if you refinance into one of these programs, chances are it is a high rate and your payment may actually be higher than it was before. If you got behind on that payment, you'll probably get behind on this one as well. It's a vicious cycle where you'll probably end up right back where you started. If you are able to find refinancing terms where you can fix your rate and save money every month, maybe consolidate some debt, it is a good solution to foreclosure. If you find your payment higher than it was as a result of the refinance, stay away. Unless your financial struggles were a circumstantial situation that has since been fixed, you'll probably end up right back where you started.

3)"Selling your home"

In many situations, selling your home is an option. Maybe this home and it's payment are just too much of a burden for you. If you sell it before the foreclosure goes through, than maybe you can salvage your credit, and buy another more affordable home in the near future. For many this is a reasonable solution, however there are some potential problems. First off, be wary of buyers who come to you first. Many people can obtain lists of homes going into foreclosure and prey off people looking for a good deal. They may scare you into thinking you have to meet their price and as a result, sell for way under value. Don't rule this out as an option if you have no other choice, but if you have time, first try and sell your home for close to what it's worth. Don't sell yourself short in the beginning just because of the situation. Secondly, be aware that even a committed buyer with a sales contract is a deal that can fall through. Always have a backup buyer or a backup plan. A home is not sold until you walk away from the closing table. Much can change or go wrong before everyone signs on the dotted line.

There are some individuals who will buy your home from you at a cheaper price, and then rent it back to you while you get yourself into a better financial situation. The idea is that down the road you can buy it back from them. Again, just make sure you are not selling yourself short, and make sure you evaluate if this could ever become a home you will be able to realistically afford. If you are smart and realistic, this can be a solid option to consider.

4)"Walk away"

Huh? What? That is what most of you are saying right? Well in SOME cases, this may be your only option. Let me be the first to say that I do not wish this upon anyone or encourage it unless completely necessary. But in some cases it's the best thing to do. Lets say you are that couple we spoke about before. You owe $200,000 on your property. You tried to modify your loan, negotiate with the bank, and got a loss mitigation company involved. None of that worked. So you got an offer to refinance your home but your payment will go up $500 a month and you know you'll just be back in the same situation in a year from now. You tried selling your home, but your best offer was $160,000, meaning you'd have to show up at closing with $40,000 out of your pocket--Which if you had it you would not be in this mess. You've tried to borrow money from friends and relatives to catch up on the payment but to no avail. So what's left? Walk away. You are not the one taking the loss on the home at this point. The bank has to handle that. You did not give up any equity, and why hold on to a house you owe more on than it's worth anyway right? Assuming you can find a place to rent or another place to live, your biggest problem at this point is a foreclosure on your credit. Believe it or not, this is not the end of the world. Keep your credit clean, pay rent on time, and lay low for a while, and eventually you will be able to buy another home. Usually after about 4 years of this, lenders will once again want your money.


Benjamin Lee

[HHM]

Nothing particular new or insightful. Actually, it's a bit of an oversimplification and really doesn't take into account how the securitization of mortgages effects the options available to consumers when trying to figure out their options.

This is not pride of authorship talking but if you want to read about some of your options, see this post.

http://www.bkforum.com/showthread.php?t=11877