Saturday, December 16, 2006
What Exactly Is A Foreclosure.
The foreclosure process from start to finish varies from state to state. The process in any state begins when the homeowner fails to pay or perform under the contractual terms outlined in their mortgage or deed of trust. Since the mortgagor, which is a bank in most situations, does not own the property (yet) they can not simply repossess the house the way a car dealer would and evict the homeowner for non payment. The lender must initiate a foreclosure by filing foreclosure lawsuit or notice of default and go through a proceeding to repossess the collateral that was pledged (the house) in exchange for the loan.
Options Availible for homeowners in Foreclosure.
Foreclosure can be a very difficult time for anyone who is experiencing it. They may be getting a lot of solicitations from people who claim they are able to help but may not have all of the information that they need to make an informed decision. Below are some options that are may be available to homeowners during this difficult time. It's sad but all too often I see people who do not know what to do so they simply do nothing. I'm hoping that this post can be of help to anyone reading it. Although these options may not work for everyone facing foreclosure; I hope that this information is useful for anybody during this difficult time.
1. Loan Modification - This is when you negotiate with the bank to change the terms of your loan. This could be by lowering your interest rate or increasing the length of your loan; both of which result in lower monthly payments.
2. Repayment Plan - Also known to banks as forbearance. This is where the bank allows you to spread your late payments over time (usually 6-12/mo). This will increase your monthly payments until the late payments were paid in full. This plan may be useful for anyone who has experienced a temporary setback such as a job loss.
3. Short Sale - A short sale is where the bank agrees to accept less than what they owe as a payoff. If you have very little or no equity in your home and/or your home needs repair the lender may allow someone to buy your home for less than what you owe. You need to be careful most banks will issue you a 1099 for unearned income or seek a deficiency judgement against you if you have to go this route. Everything is negotiable with the bank; keep this in mind if you are considering this option.
4. Partial Claim - A partial claim is done when you don't qualify for a loan modification, but you can now afford to make your regular monthly mortgage payments but no more. The bank loans you the money for you back payments in the form of a second mortgage, that is due and payable once the balance on your first mortgage is payed off. No interest is accrued on this second mortgage.
5. Deed In Lieu Foreclosure - If you cannot afford to keep the house but you still want to save your credit, if the lender agrees (which they most likely will) you can deed your property to the bank to avoid a foreclosure on your credit report. You can also negotiate to have any late payments removed from your credit report.
There are other options that a homeowner may take to avoid foreclosure, HUD has free housing counselors that you may contact for assistance. You can visit HUD's homepage at www.hud.gov. Most banks do not want to pursue foreclose, it is a very costly process. You always want to contact the bank to let them know your situation and find out about your lenders specific programs.
1. Loan Modification - This is when you negotiate with the bank to change the terms of your loan. This could be by lowering your interest rate or increasing the length of your loan; both of which result in lower monthly payments.
2. Repayment Plan - Also known to banks as forbearance. This is where the bank allows you to spread your late payments over time (usually 6-12/mo). This will increase your monthly payments until the late payments were paid in full. This plan may be useful for anyone who has experienced a temporary setback such as a job loss.
3. Short Sale - A short sale is where the bank agrees to accept less than what they owe as a payoff. If you have very little or no equity in your home and/or your home needs repair the lender may allow someone to buy your home for less than what you owe. You need to be careful most banks will issue you a 1099 for unearned income or seek a deficiency judgement against you if you have to go this route. Everything is negotiable with the bank; keep this in mind if you are considering this option.
4. Partial Claim - A partial claim is done when you don't qualify for a loan modification, but you can now afford to make your regular monthly mortgage payments but no more. The bank loans you the money for you back payments in the form of a second mortgage, that is due and payable once the balance on your first mortgage is payed off. No interest is accrued on this second mortgage.
5. Deed In Lieu Foreclosure - If you cannot afford to keep the house but you still want to save your credit, if the lender agrees (which they most likely will) you can deed your property to the bank to avoid a foreclosure on your credit report. You can also negotiate to have any late payments removed from your credit report.
There are other options that a homeowner may take to avoid foreclosure, HUD has free housing counselors that you may contact for assistance. You can visit HUD's homepage at www.hud.gov. Most banks do not want to pursue foreclose, it is a very costly process. You always want to contact the bank to let them know your situation and find out about your lenders specific programs.
How do homeowners end up in foreclosue?
Most people who sign a mortgage don't intend to just walk away from their responsibility to pay. A lot of people seem to think that homeowners facing foreclosure are just deadbeats who don't pay their bills on time. From my experiences in talking to homeowners in default this is not the case. Below are the top five reasons that I've seen most homeowners lose their homes to foreclosure. As you will see, most of time people experience a hardship which for the most part is beyond their control.
1: Divorce
2: Job Loss
3: Illness/Injury
4: Property Needs more repairs than the owner can afford
5: Mis-Prioritizing Bills
1: Divorce
2: Job Loss
3: Illness/Injury
4: Property Needs more repairs than the owner can afford
5: Mis-Prioritizing Bills
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