The New “F” Word

Posted on June 24th, 2008 by saman

Foreclosure has become almost a curse word today but is unfortunately becoming a very familiar word in today’s real estate market. There are several reasons why homeowners find themselves in this predicament but the important thing to remember is that there are a number of options available and things you can do in order to avoid the emotional and financial strain of foreclosure.

A short sale is a maneuver where homeowners will be able to avoid having their homes foreclosed on by the bank. The lender needs to agree to the short sale because the amount that a homeowner can get on the house because of a short sale is much lower than the amount that is owed on the mortgage. The bank or lender can forgive the difference in amounts and take the loss but in the majority of cases, the homeowner still has the responsibility to take on the loss. The homeowner may be responsible for tax liabilities and legal fees that come out of the short sale. Each homeowner needs to research the ramifications of the short sale in order to have the knowledge to protect themselves.

A foreclosure can come up very quickly for the homeowner who has to endure some hardships. Divorce, illness, unemployment and tax liens can all contribute to getting behind on mortgage payments and this leads to foreclosure. It is very important for the owner of the home to communicate with their bank or lender. A bank will probably work with the home owner that is only a little behind on their payments as a result of unforeseen circumstances. They are less likely to work with a home owner that just gives up. Banks and lender are obligated to cover their losses. They are also pressured by society to help people stay in their homes so it is beneficial to them to help the homeowner solve the problem.

Predatory lending is a negative trend that has become part of the real estate market. There are some unethical lenders that will convince a home owner to buy a house that they cannot afford because they are actually hoping to foreclose. Predatory lenders may also offer to refinance over and over again or offer to give loans that cost more than the true value of the home. A homeowner should do their best to avoid these types of lenders. Also, as with any legally binding contract, it is not wise to sign something that is hard to understand. It is always helpful to get the assistance of a lawyer if that is possible.

A short sale is often the best option when trying to avoid foreclosure. It may even be possible to keep the equity in the home after the loan and any applicable penalties and fees are paid. If trying for a short sale the homeowner needs to be prepared to show the bank financial statements, divorce decree, tax returns, payroll stubs, a current credit report and any medical bills. Banks need to see these documents in order to see if the homeowner is indeed in a position where they need to do a short sale.