If you face foreclosure today, you are among many in the same situation. You are no doubt feeling desperate, helpless and you don't realize what options are available to you. Foreclosure causes stress as it threatens your health; you have trouble eating, sleeping and functioning! The phone rings constantly, and you don't even have to look at your caller ID to see that it's your mortgage companyAGAIN! They are relentless! They interrupt your dinner, your family time, and your sleep! There are hundreds of thousands of people who are either facing foreclosure or are already in foreclosure today. The major contributors to the increase in foreclosures are the resetting of interest rates on adjustable rate mortgages (ARM) and the declining values of real estate. Those with the ARM are experiencing a significant increase in their monthly payments. They would like to refinance, but with declining values, they now owe more than their home is worth and they are trapped in a mortgage that they cannot afford to pay. This is a very tough situation to be in. You would love to just relax in the evening, enjoy your family and not be bothered with constant phone calls from your lender. The good news is you have options and there are people who specialize in helping, no matter where you are in the foreclosure time-line. If you've done all you can and you just want out, you can walk away from this debt while satisfying your lender with a short sale. Your lender might be willing to accept a lower price than what is owed on the home if you want to sell it for what it is worth in today's market. Your lender is familiar with this and he will have an appraisal or value check done on your home before deciding to agree to a short sale offer. If you are considering a short sale, you should work with a specialist who has experience in working short sales. A good short sale negotiator will help you with the process of compiling the paperwork for the bank and they will do a comparative market analysis on your home to support a short sale offer. The short sale benefits both the homeowner and the lender. The homeowner is allowed to satisfy their debt with a short payoff and not have a foreclosure recorded on their credit report. If the short sale negotiator is really doing their job, they will get a written release from the lender to the homeowner, on the debt owed, so that the homeowner is not forced to pay the deficiency. The lender benefits by cutting their losses and taking what they can get now, rather than incurring the additional legal and financial expenses of foreclosure, while market values continue to plummet. If they wait out the redemption period, which varies from state to state, and evict the homeowners, fix the home to make it marketable, by the time the property sells, chances are good that it will be worth even less and their loss will be greater. A short sale is an option when you feel that there is no reason to or no possibility of keeping your home. When you sell it on a short sale, you do not expect to get any of the closing proceeds. You do get the benefit of satisfying your mortgage debt and preventing further damage to your credit report. You also get to put a stop to the relentless phone calls and intimidating letters from your lender, not to mention all the letters you may be getting from attorneys or foreclosure consultants offering their services.
For instance: A buyer purchased a property in 2005 using and adjustable rate or interest only mortgage that was due to reset in two years. So today, the interest rate adjusts, causing the monthly payment to rise by 25-50%. This is one scenario, another one could be that the buyer simply lost a job or had some other financial hardship which is causing them to have trouble paying the mortgage. In this situation, once three mortgage payments are missed the buyer is heading toward foreclosure.
Sometimes a buyer can renegotiate the terms of the loan and have the lender add the past due amount to the "back end" of the loan and have you pay it off. This is done on a case by case basis.
One alternative is for the buyer to refinance into a better loan. Unfortunately this is rarely possible, because now the buyer has missed payments and has worse credit than when they started, not to mention there is likely no equity in the home.
Another alternative is for the buyer to file bankruptcy, which we all know is a serious endeavor which should be avoided if at all possible. It will leave the buyer with no credit for many years.
A third option is to simply let the house go into foreclosure and walk away. This option will leave your credit ruined for 7-8 years and make it highly unlikely that you will be able to to purchase another home within that time frame.
So in reality, the best option for someone in this situation is to hire a Realtor and try to proceed with a short sale. This way, you get the property sold before it forecloses and basically ask the lender to forgive any left over debt after the home is sold.
It's called a short sale because the lender will end up "short" on recovering the money they lended on the property. This however is good for YOU because you can get out of the property and not be responsible for the remaining debt. On the other hand, you may be subject to being taxed on the amount that you are forgiven. So if you owe $600k on your property, but that is all you can get for the property on the market, then after real estate commission and other fees you will end up with around $550k or so. This means the lender must agree to forgive the $50k balance, which would mean that the IRS will treat that $50k as taxable income. I would say that being taxed on 50k which is being forgiven, is better than having a foreclosure or bankruptcy on your credit any day.
In a short sale, the property needs to be priced attractively to make it move quickly. This doesnt hurt the seller, because remember they are facing losing the property anyway, and the money is going to the lender, not the buyer. For this reason, it's the lender who accepts or rejects the offers that come in, and they also must approve the commission being paid to both real estate agents involved. This is one reason why many Realtors refuse to work short sales, they can end up working for months and never get paid if the lender doesn't approve the commission (or the sale itself).
Both Eileen Gill & Hamid Grinage are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Eileen Gill has sinced written about articles on various topics from Foreclosure Help. This article was written by Eileen Gill, who specializes in assisting people who face foreclosure. Eileen's mission is to help people save their credit by selling their home with a. Eileen Gill's top article generates over 14800 views. to your Favourites.