We are enduring an unprecedented financial crisis, already named the Great Recession, that has caused the largest collapse of real estate prices on record, even greater than during the Great Depression. Much can be said about the causes of it, but whatever they are, there have been countless human consequences as a result - unforeseen hardships can change the joy and satisfaction of owning a home into a difficult and even unbearable burden. Maybe you've lost your job or your clients, or had your hours cut back, or have unexpected medical bills beginning to pile up, or any other unforeseen circumstance. No matter what the cause of your troubles, ignoring the problem won't help, it will only make it worse, and result in more drawn out and more severe consequences. It is best to face your circumstance, evaluate your options and act quickly to best deal with the issue.
The following are some examples of how to prevent a foreclosure on your home:
1. Contact Your Lender - If there is no way you can keep up with your home payments, and you’ve exhausted your options to generate additional income, then it's time to get in direct relationship with your lender. Do this without delay, and ideally before you default! Your goal in contacting your lender is to create an agreement that will alter your mortgage so that foreclosure proceedings can be stopped, and you are able to sustain the payment for the time being. Many lenders will not consider a loan modification, or a short sale until you are behind in your payments, but that is not necessarily true for all lenders.
2. Contact Your Realtor – A licensed Realtor who has experience in handling short sales can describe to you the typical process that is involved in helping distressed homeowners. Feel free to contact us any time, wherever you might be in the process.
4. Contact Other Professionals – You may want to contact a real estate attorney as well as a tax accountant to review any tax or legal consequences. This is always a good idea. We can make local recommendations for you.
3. Review Your Options - After contacting your lender or the servicing company that handles the loan for an investor, and your realtor, you may have other options available. Typically lenders are not required to make adjustments to your loan, but many will consider it a viable option--one that benefits the lender and you and can include refinancing.
Possible options to discuss with your lender and your realtor, and other advisors include:
Deed in Lieu of Foreclosure - In this option, your lender may accept the return of the title to your home, but beware that the lender may still sue for loss and report any uncollected funds due to loss to the IRS as taxable income to you. This option will still have negative effects on your credit report. Re-Amortization - In this option the payments you have missed are added to the balance of the loan, making your account current. Your debt will increase and your monthly payments will be higher unless the lender also agrees to extend the term of the loan.
Loan Modification – There are various options that a bank may present to you here, including a reduced interest rate for a short or longer period, or an interest only period. It is very unusual for lenders to reduce the principal amount owed however, and many of our clients have been frustrated with this process.
Short Sale – Many homeowners have come to the point of understanding this as their best possible option to avoid foreclosure. In this option, the lender accepts less than what you owe on the property, relieving the homeowner of debt. Lenders are often willing to accept a short sale because it greatly reduces the expense and time involved in foreclosure proceedings. In most cases, a short sale does less damage to your situation than a foreclosure. Any of our REALTOR team members can help you consider this option.
A note of warning, beware of any company claiming that they guarantee they can stop any foreclosure no matter what you owe. The Federal Trade Commission recently compiled a list of warning signs that a "foreclosure fixer" company may be a scam. Those warnings include any company that requires you to pay for services upfront, tells you to send mortgage payments to it directly, or asks you to turn over the property deed, or tells you to avoid contacting your lender directly.
Here is a testimonial from homeowners after completing a successful short sale with our team:
Timothy, Thanks to you and your staff for all the hard work. I know it was challenging. Dave and Rhonda