Foreclosure Options

Foreclosure

This sections intention is to give homeowners pending foreclosure, or other hardships regarding their home financing, a perspective to their financial options and possible solutions. This website in no way claims or represents itself as a legal service. Please consult an attorney for legal advise and representation.

Most homeowners want to save their house from foreclosure, although there are some who actually want out of their mortgages, due to some financial situations. These could be related to the Triple-D's (divorce, death, debt), along with upside-down financing, major home repairs, and other unique issues.

Whatever the case my be, falling behind in house payments causes damage to ones credit score. Thus, some of the solutions to follow well be hindered by poor credit.

You should be trying to increase your income or decrease your spending habits. Find a second job, or put another family member to work. Rent a room out in your house. Turn off luxury services, such as cable/satellite tv and cell phones. Sell an item such as an extra car or boat.

Truly, banks and mortgage companies do not want your house! They are in the business of making loans and selling paper notes. If you are trying to save your home, communicate your situation with their "loss mitigation" department. The best solution is a payment "workout", "forbearance agreement" or "loan modification". The sooner the better!

Know that you own your house, and prior to a foreclosure auction, you have the right to sell it. What the lender has is a signed trust agreement, that if you fail to make proper payments an assigned trustee can sell your home at auction to recover their funds.

Loss Mitigation

The best solution to a foreclosure problem is to contact the "Loss Mitigation" department at the lenders office and request a "Workout", "Loan Modification", or "Forbearance Agreement". This may allow you to keep your home with the original loan, and you will not have to pay closing costs or lender fees. Do not hesitate, call them NOW!

But, you may have to re-qualify for the loan all over again. There will be a down payment plan, and maybe stricter terms at a horrible interest rate. You may want to find somebody to help negotiate the terms with the lender, if you are inexperienced

You may need a reasonable down payment to get into the plan, so start saving money! You must be able to afford the house, and that means a positive cash flow each month. Listed are some common solutions to build-up funds for the down payment and recovery of your loan:

  • Another family member might get a job.
  • Family member may have to get a second job.
  • Cancel luxury services. (i.e. Cell Phones, Cable/Satellite TV, Magazine/Newspaper Subscriptions)
  • Sell off luxury items. (i.e. Extra Car, Boat, Motorcycles)
  • Cut food cost with coupons, eat out less, pack your lunch.
  • Cut fuel costs, take a bus, plan your shopping and other trips down to one outing.

Unfortunately, most people will not qualify or be able/willing to pull this off. If they don't, they will be back in foreclosure within months. About 85% don't make their second payment. One other problem is that the house is still over valued in the current market, and it can not be easily sold. The housing market values will rise again, but it will be several years away.

Refinance

Many would like to just refinance with a new mortgage and keep their home. This would pay off their current loan and give them a fresh start, maybe at a better interest, better terms and a lower monthly payment.

The reality is most can not!

With already being behind in the current payments, their credit is damaged. Also, they don't have the funds to pay for an appraisal, closing costs and a large down payment. Most don't even have equity built-up or are top heavy, owning more than the house is worth on the declining market. With strict LTV (Loan to Value) guidelines from the sub-prime mortgage meltdown, only 65% of the home value would be covered at a higher interest rate. This would make the new monthly payments even larger than the current. Which surely they could not make, and they will be behind again within a few months.

BEWARE OF SCAMS: There are dishonest companies offering to lower your payments and even get you money back. These are con-artist. They are actually taking the deed, selling your house back to you at a higher rate, and will finally evict you.

Bankruptcy

If your financial problem is larger that just a foreclosure, where you owe money and multiple credit cards are charged to the maximum, then filing bankruptcy may be your best solution.

A bankruptcy will allow you to restructure your finances, stall the foreclosure, and restrain the creditors.

You will get to stay in your home, for at least the time being. This will allow you time to sell the house, if needed. Make sure the bankruptcy court and/or attorney approves any sell. These funds will go toward your other debts filed with the bankruptcy. If you owe more than the house is worth, then a short-sale by a Realtor/Broker or Investor might be a solution. They will deal with the bank/mortgage company's "Loss Mitigation" department to take less money then is owed. This will allow them to sell the house within the current market values. You will get no funds from this other than maybe a moving expense. The ideal here is to save your credit. A foreclosure will remain on your credit report for 10 years, but a short-sale will only stay for 2 - 4 years. Of course there is still the bankruptcy, which stays on your credit report for 7 years.

Most all your debts will be lump into one big payment plan. You must stay in the plan to keep your home. The foreclosure is just stalled. If you fail to make the payments, then the foreclosure starts right where it left off. The clock starts ticking again, with only days until the trustee auction, and you loose your home.

Unfortunately, over 50% of the people fail to complete the bankruptcy plan, and eventually loose their homes or have to go another route.

Sell or Rent

SELL with Realtor

You can list you house with a Realtor and might get close to full retail market value.  But, if you owe more than you can sell it for retail, you may have to do a Short Sale (see below) and get no equity back.  This just saves your credit, but a Short Sale will remain on your credit report for 2 - 4 years.

The problem is that the housing market is flooded with other foreclosures, and many houses have sat on the retail market for over 180 days with no sale.  You don't have this kind of time with a foreclosure.  You may have less than a month to sale.  (less than 21 days depending on pre-foreclosure)

  Also, you have these issues:

  • Get the house ready to show.
  • People will be coming and going now and then.
  • Buyer may demand some repairs at your expense.
  • You pray that the buyers funding goes through.
  • You have to pay the Realtors 6% commissions.
You will be under a lot of stress!  If the Realtor can't sell your house in time, you will loose it and any equity you have built-up.  The Realtor looses nothing but their time.  Call and Investor QUICK!.


SELL to Investor

An Investor will make you a cash offer to purchase your house quickly.  But, if you owe more than you can sell it for retail, you may have to do a Short Sale (see below) and get no equity back.  This just saves your credit, but a Short Sale will remain on your credit report for 2 - 4 years.  The bank/mortgage company does not want you to receive any funds from a Short Sale and the process may take up to 9 months for approval.

With an Investor, you will get:
  • Fast closing.  (loan is out of your name)
  • Stops foreclosure quickly and easily.
  • Sell in "as-is" condition.
  • Paid all cash or certified funds.
  • Moving assistance.
In order for the Investor to purchase your house "as-is", he may require an inspection, title search, contractor quotes for repairs, deal with the "Loss Mitigation" department, and at the same time possibly find a future buyer for the house after repairs.   These factors take additional time, but Investors move quick and normally can close within 2- 5 days depending on your agreement and situation.  This does not apply to Short Sales.

Of course, the Investor's cash offer is going to be way below market value. He has assumed many issues with the house, has to finance repairs, cover utility costs, pay interest on any loans, pay for marketing, and pay monthly notes until the house is resold or rented.

The Investor may have a house that you can rent.   There are usury laws that prevent you from renting your original house.  Also, you might ask about a Lease Option (see below), which can help you build back your credit and buy the rent house over time.

To sell to an investor now, click: I Want to Sell My House Fast.


RENT

You might want to consider leasing (renting) your house out, and letting the renter payments cover your mortgage payments.  You should only consider this, if you could live with another family member or find a less expensive room, apartment or house.  Being a landlord is not an easy task.   You will have to make repairs as needed, renters do damage to a house, you need to keep insurance, and renters don't pay on time.

You might want to offer a Lease Option (see below) to a renter.   This offers the renter first option to buy the house at a later date, on an agreed amount, if their credit allows.  You should get a large non-refundable option fee upfront, that goes toward the cost of the house at sale, if they choose to buy.  If the renter chooses not to buy at a later date and moves out, the option fee is waive and is yours to keep.

You could rent a room in your house to a boarder, which will increase your income (check Deed Restrictions).  Be careful and screen your applicants.

The Lease Option fee or Boarder solution can help with your immediate financing problem.  Make sure you have cleared up the foreclosure issue by some means.

Walk Away

Many people are packing up and just walking away from their houses.  They are leaving behind memories, but walking right into 10 years of bad credit, what a horrible thought.

We understand your despair, but walking away is not the right choice.  You have several options mentioned here, along with family out there that can assist you.

As a last resort, you may want to offer the mortgage company the "Deed in Lieu" of Foreclosure.  They may even provide $1,000 - $1,500 for your moving expenses.  The government program "Cash for Keys" assists in this process.

If your house is way over valued to the current market, stop making those large payments.  You are just throwing away money each month.

Talk to a Realtor or Investor ASAP (As Soon As Possible).

To sell to an investor now, click: I Want to Sell My House Fast.


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