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Bankruptcy Vs Foreclosure: Which Is Better?

Monday, April 20th, 2009

Decision making is something you just can’t avoid no matter what kind of situation you are in. Tough decisions are even harder to make. Sometimes, as a homeowner, you might be in a dilemma as to what to choose among bankruptcy and foreclosure of property. Perhaps the information given below might help point out the right direction for you and help you make a better decision, with regards to your circumstances.

No matter which option you choose, here are a few things that might remain the same – you will still lose your home; you will damage your credit rating severely while your credit score would plummet by about 200-300 points. The effects of either of these options are long lasting and have severe implications on your future credit availability, reputation and other financial matters worthy of consideration.

Choosing between bankruptcy and foreclosure is like choosing how you would like to die – use an aspirin overdose or just get shot. You must realize that any bankruptcy event will linger on your credit report for more than 7 years. While Chapter 7 bankruptcy is strictly for unsecured loans, the way it links to your home loan is when you might be in a position to pay off your mortgage when you file bankruptcy with your unsecured loans like cards and bank overdraft. Chapter 13 bankruptcy is another option you might like to consider; the big brother of your Chapter 7 version.

When you file a chapter 13 bankruptcy, the courts will mandate you to pay your remaining debt in an easy, payable manner within a stipulated, pre-set time – the priority is usually to pay off your protected and secure loans and at least 25% of your unsecured ones within 5 years. The amount is usually set to be additional to the mortgage payment and when you can’t do the same, the lender will request for a stay request and proceed for a foreclosure process. An individual applying for a bankruptcy in his or her name and that wouldn’t affect the credit ratings of his/her spouse, unless the property is a joint-ownership.

You will also do well to remember that in the event of a short-sale approach to the foreclosure, there is a likelihood of have to pay up a mandatory deficiency balance if the lender so decides. It is best if you leave the entire fact gathering to competent professionals like agents and attorneys, but take the decision which best suits you.

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How Foreclosures or a Short-sale Can Rip Your Credit Rating To Shreds

Sunday, April 19th, 2009

Irreparable damage is done to your credit rating when you experience a foreclosure or some of the other related possibilities– not as bad as foreclosure or bankruptcy, but are damaging nevertheless. However, most of the agencies and people of less repute wouldn’t take the trouble to tell you the far-reaching consequences of foreclosure, short sale, etc.

A foreclosure, as you would have sensed, is the mother of all of those things that can damage your credit rating with the effects killing you each day for over 10 long years and also setting you back by a whopping 200-300 points on your FICO score. A short sale of your property, as a response to avoiding foreclosure, can cause your credit rating to drop considerably and can set you back about anywhere from 855 to 125 points on your FICO score – this might show up as “foreclosure arrangement”, or “debt settlement”. Additionally, a deed-in-lieu might just be as lethal as a foreclosure itself since it entails a transfer of ownership.

Foreclosure is always best avoided. It might allow you to stay rent free for a while until you will be asked to leave, but the negative consequences a foreclosure has on your credit rating – which implies that your ability to avail credit for important things like student loans and car loans etc is severely affected because that’s how severe FICO along with potential lenders take this event to be.

Often overseen, but a critical aspect that should help you choose between a foreclosure or a short-sale, is the tax part of it all. IRS considers any discharged debt as an income and hence you will be taxed on that. For instance, if you declared bankruptcy due to foreclosure of a property worth $300,000, this debt which is now discharged by bankruptcy is considered income and you will now have to pay tax on that amount. A short sale, on the other hand, causes your debt to be forgiven – the difference between the mortgage amount and the amount the lender sold it for. This forgiven debt is also taxable.

Another aspect to consider when choose from a foreclosure vis-à-vis a short sale is  how long a homeowner can wait before buying another home or being able to avail a new home loan. Most homeowners think that short sale will let them avail a new home loan in a short time period, which is unfortunately not the case. A set of guidelines from Fanny Mae, stipulate that individual home owners must wait out for at least 24 months before they would be considered for new home loans. It might also help to remember that in the event that the short sale generates much lesser an amount than the mortgage due, the lender can proceed to file a deficiency judgment which is like a thorn in the would and something the homeowner has to battle with again.

Nothing is as easy as it might first sound and a homeowner must look into all possible options before settling with any one option. Heresy and casual advice should never be paid attention to. Think creatively and take help from competent professionals to arrive at customized solutions that would bail you out of this problem fully. You might want to transfer ownership to an investor by signing a deed but bring your mortgage payments up to current from the proceeds that came from dissolving your equity. More such solutions are possible when you approach it the right way.

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Posted in Foreclosure, Foreclosure Help, Personal Finance, workoutsolution | 1 Comment »

6 Incredibly Accessible Options to Avoid Foreclosure

Saturday, April 18th, 2009

The prospect of losing your home could be quite an overwhelming and sad situation for any homeowner, but is now increasingly common with many homeowners who are unable to pay the mortgage payments. The reasons for not being able to make the payments can be anything from losing a job to an unforeseen medical emergency. Foreclosure, though, can be avoided if action can be taken promptly and initiate one or more specific steps which we will discuss in this post.

In the event that lenders deem it is necessary to go ahead with a foreclosure, they issue a standard notice called as a Notice of Default (NOD) when you already up to 60-90 days due to pay the mortgage. Failure to make payments will automatically lead to the foreclosure which is incidentally expensive for the lender to follow through and use. Hence, lenders always look to see if you could utilize one of the many options available for you to work on and settle for something better than a foreclosure – better for both the parties. Here are some of those options:

Partial Loans

By availing a partial loan from a mortgage company, homeowners can have access to interest-free loans which needn’t be paid until the homeowner is able to make the first few mortgage payments off or liquidates the property in a sale.

Forbearance Plan

In a simple act of giving you more time to consolidate your finances and help you make the necessary payments, at its simplest level, lenders might just agree to forbear some time. This can give you some time to raise cash and arrange for alternative funds.

Repayment Plan

Yet another way, lenders can think of getting their missed mortgage payments back is to divide the total sum of missed payments and have you pay it in increments in each month. For instance, if you owe $3000 until now, it can be divided into 12 installments of $250 each. These little installments can be paid along with the actual mortgage payment. This allows you to catch-up with your payments in case you’ve missed them.


FHA Secure

The FHA has a few programs on its shelf which can be used by a homeowner to prevent foreclosure. FHA secure, one such program, grants FHA insurance for a loan picked up from an FHA approved loan vendor. This allows the homeowner to pick up an additional, loan which he could use to pay up the mortgage payments he missed.

Interest Rate Modification

Since the increase and decrease of the mortgage payments primarily occurs due to the maddening fluctuations of the Interest rates, especially in the case of adjustable- rate loans, lenders might consider locking the interest rate at which the rest of your mortgage payments have to be made. This helps when interest rates fluctuate too much or when there is economic uncertainty.

Debt Forgiveness

Allowing you to scrap all the pending payments and then let you start paying from now on – a rather rare occurrence but still a possibility, depending on many factors of course – is a wonderful option if you manage to get it, that is. This really depends a lot on the lender, your relationship with the lender and needless to say, your credit history.

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3 No-Brainers To Save Your Home From Imminent Foreclosure

Friday, April 17th, 2009

Foreclosure, at best, is something every homeowner wants to avoid. It also happens to be an extreme solution to a problem that could have been solved in a much better manner if you could act on it swiftly, armed with necessary and sufficient information. A lot of heartache, headache, time, money and effort could be saved if you just paid attention to certain rules and not allow scamsters, fraudsters and others to take advantage of the situation and add salt to the wound.

The approach path to a foreclosure is rather simple –  if it weren’t for the agony that accompanies such a path. When the lenders proceed with the foreclosure option, they file a NOD (Notice of Default) which is like a lighthouse to let you know that you are in dire-straits—well, almost. A period of time is usually allowed for you to bring your payments up to date and to allow you to payback what you owe on your mortgage. This is also called as “reinstating the loan”. You might also be allowed to negotiate and willing to work out an agreement with your lender. In case that doesn’t work for you and if you are unable to make any payments after your loan has been reinstated, you are left with just three options: a short-sale, take recourse of a deed-in-lieu or finally, sell your home.

Understandably, none of the options are as rosy as solutions must usually be, but at least two of the three options above might just work to secure your home and prevent it from foreclosure anyway.

Deed-in-Lieu: How does it work?

Instead of giving away the keys of your home to the lender, you might as well sign an official agreement – a deed-in-lieu – which typically transfers ownership of the property “on paper” to the lender. However, under the terms of the deed-in-lieu, you will be allowed to stay at home and live there until you find another home for yourself and your family. You may also make it clear to the vendor that you would still retain the rights to ownership of the house at least as long as the process leading to the foreclosure continues.

Have you thought about short-selling your property?

Depending on the situation you are in, you could consider selling your home for a price that is much lower than the actual value of the property. This is also called as “pre- foreclosure redeemed” is yet another option when faced with the problem of a foreclosure. Needless to say, you will need the help of an experienced real estate agent who has plenty of experience in this matter and must also be highly recommended. Conduct a background check if necessary and certainly research everything you can about the real estate agents you’d deal with here.


Sell Your Home, or at least a part of it

Yet another option for you would be to sell your home . If the real-estate markets are doing well where you live, it might even enable you to pay off a part or even the entire amount outstanding on your mortgage. If your situation isn’t that dire, but when foreclosure seems to be a likely possibility, you might even want to hire or sell out only a part of your property. In either case, you will need to resort to a highly competent, trust-worthy and well-networked real estate agent and also an attorney who can specialize in real estate deals and transactions.

When you get into any of these contracts with any third-party, with the help of the above mentioned professionals, you must ensure that the terms of the contracts are very clear about almost anything that might come up later. For instance, if you were renting out or selling only a part of your property, your contract should have clear terms about selling the remaining part of your property, if needed – the part of the home you still own.

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Posted in Foreclosure, Foreclosure Help, Personal Finance, workoutsolution | 1 Comment »

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