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Since the beginning of the current recession, the rising foreclosure rates were mostly affecting those borrowers who had adjustable rate loans coming due, or be converted, or mortgages considered risky, and subprime loans made to homeowners with poor credit. Though foreclosure rates continue to be high and are still climbing, there is a disturbing new trend taking place in the financial world that is surprising to many experts. This new trend indicates that fiscally responsible homeowners, throughout the country, are beginning to enter into the foreclosure process because of job losses. High un-employment is now affecting the middle to upper middle income classes very hard. These new type of foreclosures are accounting for about 50% of the new filings.
Reasons For Pending Foreclosure:
Home owners who are facing foreclosure often dread dealing with the facts that got them to that place. Few home owners actually plan to go into foreclosure. Most homeowners face sudden extenuating circumstances that force them to stop making timely mortgage payments. The following are just some of the many reasons homeowners get into a financial mess:
- Job loss / unexpected unemployment
- Sudden illness or medical emergency
- Death in the family
- Divorce / loss of second income
- Excessive debt obligations
- Job demotion or promotion denials
- Inability to pay an adjustable interest rate that increases
- Unexpected major home maintenance expense
How to Avoid Foreclosure
- Prevent the filing of a Notice of Default (NOD)
Lenders do not want to foreclose but will file a Notice of Default to protect their interests. If you know you are unlikely to meet your mortgage obligation, the first thing you should do is call your lender. Don't put it off, be embarrassed or ignore letters from your lender because those responses will make the situation worse, not better.
- Sell Your Home:
Interview real estate agents (Terrie Cox) to get an opinion of market value and average days on market to sell your home. You might be tempted to hire a discount broker, but many sellers feel they need the exposure and marketing that full-service brokers offer. Compare both to determine which best meets your needs and time frame.
- Short Sale:
When the homeowner owes more on the mortgages than what the value of the home is. Some would call this property "upside down". The process of a short sale includes marketing the home just like any other home, but you will need a write off by the mortgage holder to take less than what is owed on the property. This is why this process is called a short sale. It is a good idea to work with a short sale specialist like Terrie because she knows how to negotiate with the lender early on in the process so there will not be any hangups at the end.
Note: When a debt is forgiven by a lender, the IRS considers the amount forgiven as taxable income! You will have to pay taxes on that forgiven amount.
- Bankruptcy:
Many people decide to declare bankruptcy at a point when they know they cannot continue making payments and it is clear that the lender is ready to foreclose. Many times, if not the majority of times, bankruptcy does not prevent the lender from ultimately foreclosing on a home, it just delays and puts off the time when the homeowner will have to move out and the house will be sold. A bankruptcy attorney should be consulted before anyone decides to take the steps leading to bankruptcy.
- Deed in Lieu:
Deed-in-lieu deals allow borrowers to essentially give back the house in exchange for complete forgiveness of the mortgage debt. This is most appealing to those who are severely underwater on their loans. They get to hand over the deed and walk away free and clear of all the debt that would have been hard to discharge through a short sale. Lenders are now encouraging homeowners to take this deed in lieu of route if they can.
Mortgage lenders also may like deed-in-lieu's because it is a simpler, quicker process. Banks have the advantage here of receiving a property expeditiously without all the added paperwork and court judgments. While deed-in-lieu deals will hurt borrower credit scores the same as a short sale will, they won't hurt nearly as much as a foreclosure would and mortgage giant Fannie Mae has now said it will allow borrowers involved with deed-in-lieu's to qualify for government-backed loans just two years afterward, instead of four years as the rule used to be. These transactions don't work for everyone, including those who have second mortgages, but they just may be the trend of the future when it comes to foreclosure alternatives.
- Loan Modification:
There are many lenders who will work with the financially stressed Vancouver and Portland area homeowner to modify the mortgage loan on the home. Each situation is different and the lender may offer lower payments, either for a period of time to allow the homeowner to get back on his feet, or lower payments permanently. They may even be willing to rewrite the loan with lower interest rates, etc. The lender will also offer advice and make recommendations about other loan modification programs, some offered by other lenders and by government agencies.
Loan modification is not the same thing as 'refinancing' the loan. When getting involved with any loan modification program, proceed slowly and know the laws pertaining to loan modifications. Many loan modifiers have been shut down in the last year or so, and for various reasons. See an attorney if possible prior to doing any loan modification deal, with any lender.
*Government Loan Modifications:
The Federal government has allocated $75 billion dollars to subsidize lenders and servicers who offer a loan workout to their clients. Now, the banks will have a monetary incentive to offer help to qualified borrowers. In addition, homeowners who pay their new modified payments on time will be eligible up to $5000 credit to their loan balance.
Be very careful when agreeing to a temporary loan mod as the mortgage holder may not agree to your modification after your temporary period. All savings could become due at that point.
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