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.