What I Know About Foreclosure

One of the most important pieces of advice you can heed if you are FACING foreclosure yourself is this:  get out while the getting is good.

Obviously none of us wants to leave our house.  I understand that.  I don’t mean to simplify the situation to make it sound like you can easily walk away from a home that you feel attached to.  Nevertheless, I think many people convince themselves that for one reason or another, they CAN’T move.  Well, I’m here to tell you that that’s all in your head.

There are many obstacles that seem insurmountable when you are facing foreclosure.  You know you can’t pay your debt.  You may feel like you can’t uproot your kids, or like you’ll have nowhere to go if you do move, or like you can’t possibly sell your house quickly enough, etc.  I’m here to tell you that these are all mental barriers.  They SEEM terrible, but in the grand scheme of life, these are not really all that bad.  I personally lived in a car for about 3 months of my life.  Not the most comfortable place I’ve ever lived, but it was actually somewhat enjoyable.  Why?  It was an adventure; and now I always look back on that period fondly.  It’s funny how time gives you a better perspective on the events that unfold to form your life.

As for how to deal with each of the various contingencies that may cause you to fret over your inability to pay your home loan, each has it’s own remedy.  Many of these problems stem from fear that you’ll have nowhere to go.  If this is the case, do you have family?  Friends?  Most of these people are surprisingly willing to help out a friend in need, so long as you don’t “get comfortable” and overstay your welcome.  Also, remember, rentals are very easy to find.  If you have any income at all, you should be able to find something that suits your needs.  If you don’t have an income, there are many government sponsored programs that will give you one… or at least help find you a place to live.  Homelessness these days is primarily a choice: one often caused by ignorance of the resources available to prevent homelessness, but a choice nonetheless.  If you need help finding the resources that are available to you, email me.  I’d be glad to help.

Still, others have a problem of being “upside-down” on their loans.  This is a little harder to fix, because you obviously can’t sell your house without owing the difference between what you sell it for and what you still owe.  Nonetheless, when faced with the possibility of having you auction your home to recover their money, many banks are willing to settle for less than what is actually owed.  They absolutely WILL NOT allow you to walk away from this kind of transaction with any money though, so don’t think you can con them into accepting less than what is owed and then sell your house for more and pocket the difference.  Don’t try to screw with them and they won’t try to screw with you.  I call this concept, financial karma.  Also, if you’re going to try this, it’s best to get a professional help you negotiate the terms of this deal.  The bank doesn’t like to deal directly with homeowners, so look for a reputable foreclosure mitigation specialist to assist you.

Another possibility, if you are upside-down, is something called “owner surrender” or “deed in lieu of foreclsoure.”  This essentially means that you agree to give your house to the bank, without them having to foreclose, and in return, they agree not to royally screw your credit for the next 7 years.  I know this SOUNDS terrible because you’re giving up a very real possession (a house) and getting only something intangible (decent credit) in return.  However, if you think about this in a “big picture” way for a second, you’ll realize how much this helps you.  Say you have an income, but your interest rate went up rendering you unable to pay your mortgage:  on top of this, you’re upside down on your loan.  Deed in lieu of foreclosure is actually a REALLY good deal for you here because 1) your house has negative equity (meaning it is worth less than nothing to you) and 2) your credit will be destroyed if you allow foreclosure… and this will result in you not being able to buy or even rent another place.  For that matter, it can have a negative impact on your employment as well.  If you give the house to the bank in this situation, you get to absolve yourself of some of your debt AND you get to live a decent life afterwards and get back on your feet.  Compared with losing your house, your ability to get another, and your employment, this is a real bargain.

Lastly, comes people who just don’t think they can sell in time.  First, if you are serious about selling your house to pay your debt, the bank will usually give you an extension.  You need to get in touch with the trustee in charge of your case and tell them what you intend to do.  The will usually oblige because the bank loses so much money trying to take your house from you and then remarket it, that it’s often easiest for them to just “eat the loss” for a little while while you do the legwork for them.  Also, if you’re worried about timing (selling REALLY fast), it’s probably best to contact investors.  I know this sounds scary, and it IS in many cases.  Probably half of these guys will offer you so little for your house that you’ll want to slap them.  On the other hand, some of them will offer you something closer to it’s actual value.  A good rule of thumb is that you should never even consider accepting more than 15-20% less than the fair market value of the house.  In many locales, this is approximately the tax value.  The key to selling your house quickly is finding a buyer that wants a bargain and giving it to them.  You can’t do it without making it a bargain, but you also can’t afford to lose money that you don’t need to.

On the investor side of this, if you actually have some equity built up in your house, you should have no problem finding help.  There are good, but somewhat convoluted plans that can help you 1) maintain your residence while you find another 2) market your house for as long as is necessary to attain a fmv (fair market value) offer, and 3) still give an investor some wiggle-room to make a small profit from helping you.  If you’d like to know how to create this kind of arrangement, email me.  I’ll be glad to explain the finer points.

Anyway, when it’s all said and done, the point is this.  The WORST thing you can do when you’re facing foreclosure is just sit there like a bump on a log and wait for it to happen.  You are helping no one and only prolonging the inevitable.   It’s only human nature not to want to face an ordeal as stressful and embarrassing as foreclosure, but if you have the courage to do it, you will be glad you did.  And then you can look back on it years later and say “well, that wasn’t the most comfortable period of my life, but it WAS an adventure.”