Foreclosure Isn’t Always the Answer
Each week my company publishes a newspaper insert for our local paper featuring homes, open houses, and auctions. Usually the editor also features a local charity (e.g., United Way, Elephant Sanctuary, etc.) that I don’t pay a lot of attention to. I know, my bad. I should be more sensitive to the needs of charity. This week, however, the feature story was about avoiding foreclosure and my neck loudly cracked due to the speed of pouncing on the article.
The article is packed with good advice and since I’m all about sharing the good stuff, I’m passing it on to you. First, credit where credit is due: Janet Mills is broker of the Rutherford Office of Bob Parks Realty and wrote the article from information provided by Thom Scott of Fusion Real Estate Consulting.
If you are a home owner behind on your mortgage payment, you first need to be in touch with your lender. Don’t put your head under a rock and hope the problem goes away - it will not. By keeping an open line of communication with your lender, they should be more willing to help you through the problem times. If there’s no way you can ever get caught up on your loan, however, a short sale is a better option than foreclosure.
The Short Sale results from a negotiation with your lender. This is often helpful to both lender/seller when the value of the property is equal or less than the money owed and the owner can no longer afford the monthly payment. The negotiation involves setting a reasonable market price; the owner and the lender agree to accept the price the market will bear. This can result in less than the amount owed on the property. This will create a deficiency, i.e., a remainder on the loan that will not be paid off by the sale. The lender can forgive this deficiency, or it can be recorded as an amount owed by the owner to the lender.
Forbearance is another option closely related to the short sale. This is also negotiable with the lender to reduce the amount of your monthly payment for a defined amount of time - and you won’t be reported as being late or deficient to the credit bureaus, according to the article.
Forbearance will require all the same documentation and information as the short sale, plus a detailed budget showing all income and expenses for the household. However, it can work to the owner’s advantage. While the homeowner is making the newly negotiated payment and if you have negotiated correctly, the bank is reporting that you have made your payment on time. You are actually building positive credit while you work yourself out of a difficult situation.
When people are in a state of financial distress, they often don’t reach out for the help that’s available to them. We urge you to make some phone calls for help… your lender is a great first step or find a financial advisor who can also help you find solutions. A simple search on Google for “Financial Advice” brought over 15 million links. Reach out. Get help.
