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Should you Stop a Home Foreclosure?


Foreclosure rates are rapidly rising and as a result many homeowners find themselves wondering whether they should even try to stop a pending foreclosure on their home given the current state of the real estate market. More and more homeowners are finding themselves in a situation where they owe more on their mortgage than the home is actually worth. In such situations, it is easy to see why owners may feel as though it is not even worth it to try and stop a pending foreclosure.

If you are facing a foreclosure currently or you are concerned that you may fall into this category in the future, it is important to make sure you understand the process as well as the options that are available.

As homes in foreclosure continue to rise, tripling in some areas, the number of advertisements offering to help owners to stop foreclosure seems to be increasing as well. In most cases, these advertisements stem from investors who are really offering homeowners the opportunity to use a short sell. A short sell occurs when a third party creates a negotiation with your mortgage company to a lower payoff on your mortgage instead of a foreclosure. The advantage to the investor is that they are then able to purchase your home extremely cheap. In some cases, they may already have someone else lined up to buy your home. The final result is that you will need to either rent your own home from the investor or move out of your home.

You may wonder why a mortgage company would be willing to accept a short sell. Under normal circumstances they usually would not be willing to accept such an agreement; however, current circumstances are far from normal. In most cases, when a bank forecloses on a property, it is not profitable for them. The mortgage company usually must pay to repair and clean the home before they can make it available for sell. By the time the mortgage company pays for those repairs and cleaning fees as well as appraisers, discounts and real estate commissions, they are already taking a loss on the property. In fact, it is not unusual for banks to lose as much as 35% on properties they foreclose. With a short sell, they may be able to take less of a loss than if they foreclosed and then tried to sell the property.

This is not to sell that short sells cannot be advantageous for owners. Homeowners who are behind on their mortgage payments to a point that they really cannot see any way in which they can catch up may find that a short sell really is the best option for their situation.

If you are considering a short sell; however, you need to make sure you seek professional advice. This is especially important if you are also considering bankruptcy. If you sell a home at a loss, it can be considered income in some cases. If you are filing for bankruptcy, matters could become more complicated. In addition, you may also owe taxes because it is considered to be income. Furthermore, you should be aware that a short sell may not always protect your credit rating. If you have fallen several months behind on your mortgage already when you exercise a short sell for the property, your credit may still be impacted. In fact, if you are at least 120 days behind on your mortgage it may still be considered a foreclosure even if the bank technically did not foreclose on the property.

If you consider purchasing another home in the future, this could impact your ability to do so, depending on exact loan requirements. FHA loan requirements state that buyers must not have a foreclosure within the last three years. In addition, borrowers must have very few, if any, negative remarks on their credit since the time of the foreclosure.

In some cases, homeowners simply must determine whether now is the time for them to cut their losses and walk away. As painful as it can be for many owners, this is often the best choice. A home purchase is an investment just like any other. If you are one of the many owners who purchased a home in the last five years and have now realized that you actually owe more money on your home than it is worth, it may not be worth it to you to try to avoid foreclosure and salvage the property. This is completely a personal decision and will depend on a number of factors; however, many owners have discovered that in certain situations foreclosure really is the best option.

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