Facing A Foreclosure? Beware of the “Ostrich Syndrome!”
Are you facing a foreclosure? You’re not alone. RealtyTrac, an online service that lists foreclosure properties throughout the U.S., reported a record 1 in every 226 homes in California has filed for foreclosure.
The rising unemployment rate in the current economic downturn is fueling the foreclosure firestorm. The surge will continue despite President Obama’s various stimulus plans for homeowners designed to help borrowers avoid foreclosure by providing incentives to lenders to ease restrictions on refinancing for people who owe more on their mortgages than their homes are worth.
If you are among the hundreds of thousands in foreclosure, you may feel desperate, frustrated, angry, depressed, helpless and confused about your options. If you’re like most people, your natural inclination in the face of a crisis is to do nothing – hoping it will pass or go away. It won’t go away! Emulating an ostrich by sticking your head in the sand and doing nothing won’t improve your circumstances. You can avoid what I have termed the “Ostrich Syndrome” and recover from a financial disaster by taking bold, swift action now. Here’s what you can do.
Talk to Your Lender
Call your lender (banker) and tell them you are experiencing financial hardship and that you are unable to make your current monthly mortgage payments. Ask your lender for advice and help. The lender wants to help because the alternative is for the lender to foreclose and try to sell the house in this recessionary housing market. The lender knows s/he is unlikely to recoup their loss.
In some cases lenders are willing to renegotiate your mortgage or agree to a loan change. They might change the interest rate or change the amortization table (the amount of time you take to pay off the loan) to cut your monthly payments. Other options available to stop foreclosure proceedings include:
Pay the Delinquency and Reinstate the Loan – Under most circumstances, must accept payment of the full delinquency and reinstate the loan. Of course, that assumes you are able to secure the funds to repay the debt. For example, some people can refinance their property. Others may cash in 401Ks or sell assets (such as jewelry, stocks, or bonds) to get the funds to pay off the debt. Others may borrow money from relatives. At the time of repayment, the delinquency may include certain legal costs if you are already in foreclosure. Many lenders require certified funds for reinstatement.
Forbearance– This is a fancy word for temporarily delaying your loan payment for a short period and then instituting a loan repayment plan. The most common way of resolving a loan default is to work out a plan, which will let you repay part of the delinquency balance each month, along with your regular monthly installment. If you are temporarily unable to meet your monthly mortgage obligation, your holder may extend forbearance by agreeing to suspend payments for a limited time until you are able to begin a repayment schedule. In some cases, the lender may simply add the payments that you missed to the principal of your newly modified loan balance.
Private Sale – If you do not believe you will be able to reinstate your loan and cure the default, a private sale of the property will enable you to meet your obligations and receive any equity you may have built up. Although there are exceptions, most private sales result in the seller receiving more than the amount owing on the loan.
Deed in Lieu of Foreclosure – If you will be unable to cure the default, and a private sale does not seem realistic, your lender may consider accepting a deed in lieu of foreclosure. If there are no liens on the property, and your lender agrees to accept a deed, you will have to sign legal documents transferring full ownership of the property to your lender. Be careful! Some credit reporting agencies may still consider this a foreclosure transaction and show it as such on your credit report!
Prepared By Cliff Keith and Start Fresh LLC
Disclaimer: This information is not legal advice. Please consult a real estate attorney and/or a CPA to decide if this information applies to your particular circumstances.