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|Vol. II, No. 1, August 2000
Here is the latest serving. Homeowners can leave a lot of money on the table when they lose the property to foreclosure. A few of those dollars have even ended up in my pocket. I suppose it is inevitable in some if not most cases. But what is really sad is the homeowner letting the property go back to the lender because no effort was made to do something to fix the problem. As Uncle Ben says, "it aint easy," but you should at least try because there are some good. . . .
What does our home mean to us? For most, it is the single biggest investment we will ever make. It is also the roof over our head, shelter for our families, and often our piece of the "American Dream." When misfortune strikes, whether from illness, loss of a job, or too much other debt, a common reaction to the filing of a foreclosure lawsuit against a homeowner is for the homeowner to become paralyzed. If you take to heart anything from reading this article it is this. When foreclosure comes you must take ACTION!
Losing your home to foreclosure has more impact than simply losing a place to live. It is preceded by a blackened credit report which only becomes darker if foreclosure is completed. Moreover, if the property is valued less than the amount owed the lender on the date of the foreclosure sale, the lender may be entitled to a deficiency judgment and seek repayment from your other assets. And finally, family and personal disharmony seem to be a natural consequence of such a stressful series of events.
What are your options? There are three key Foreclosure Solutions in my view.
1. Borrow Your Way Out Of Foreclosure. This is usually easier said then done. If you have friends or relatives that will support you in this time of need, you are lucky indeed. Other lenders are very leery of folks who are in foreclosure. Your credit is generally very bad and a new lender may be unwilling to take a risk on someone who has already defaulted on financial obligations with another lender. There are lenders who specialize in "subprime" borrowers, but they will expect to receive a very high interest rate and fees in exchange for doing business with you. There are also "hard money" lenders who are concerned only with the loan to value ratio associated with your property. That is, if the amount owed is low in relation to the value of the property, the creditworthiness of the borrower is ignored. The hard money lenders, however, are the most expensive lenders for folks with bad credit (or good for that matter). Once you are in foreclosure, trying to get a loan to bail you out is usually a wasted effort at worst, and terribly expensive at best.
2. Bankruptcy. Even though bankruptcy has a long lasting negative impact on credit worthiness, it can nevertheless be a fine way of keeping your home and protecting equity you may have. The best vehicle in this arena for a homeowner is Chapter 13. Chapter 13 is a financial reorganization for an individual. Of course, there are limitations and guidelines to follow, but for those who qualify to use this section of the bankruptcy code it provides many benefits. The key benefit is that it will stop a foreclosure. Then you are given an opportunity to begin making current mortgage payments and catch up on delinquent mortgage payments, attorneys fees and costs over time. You must have income to cover all your expenses associated with the plan and there are other requirements. But on balance, Chapter 13 can be an effective solution. On the other hand, keeping the house is not always desired. Sometime the overall debt load is too great or too many bad memories are associated with it. What then?
3. Sell The House. A house should be in its best condition if you expect it to sell quickly and for a good price. But how do you fix it up to sell it when you are behind with your mortgage payments? There is also a time consideration. Though foreclosure can take several months, a homeowner often finds it difficult to get everything done to prepare the house for sale, market it and close with a new buyer before the foreclosure sale. Then when the prospective buyer learns you are in foreclosure they may decide to wait you out and buy the property cheaper at the foreclosure sale or from the bank after the foreclosure sale. But if you can fix and sell it on good terms this is the obvious choice. Otherwise, there are investors who specialize in buying foreclosure properties. These investors will offer to buy your house usually at a low price. Considering foreclosure may leave you nothing afterwards, a small return may be appealing. Often such an offer enables you to obtain another place to live, moving expenses, and more. Be careful to deal with someone with experience and integrity. There are traps for the unwary here.
In any event, dont wait until the sheriff is about to put you out on the sidewalk before you start trying to solve your problem. Start Now! The more time you have, the less pressure you will be under. You will make a better deal with a clear head and the hounds away in the distance. TAKE ACTION!
The information provided herein is not to be considered legal or financial advice of the author. Readers should rely on their own legal or financial counsel regarding any matters described above. No warranties, express or implied, are provided. The foregoing may not be reproduced in whole or in part without the express written consent of the author.
© Jeffrey A. Icardi 2000