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Bankruptcy Vs Foreclosure: Which Is Better?

Dean — Mon, 20 Apr 2009 18:00:00 +0000

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.

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

Dean — Sun, 19 Apr 2009 18:00:00 +0000

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.

6 Incredibly Accessible Options to Avoid Foreclosure

Dean — Sat, 18 Apr 2009 18:00:00 +0000

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.

3 No-Brainers To Save Your Home From Imminent Foreclosure

Dean — Fri, 17 Apr 2009 18:00:00 +0000

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.

10 Fatal Mistakes Home Owners Make

Dean — Thu, 16 Apr 2009 18:00:00 +0000

A home isn’t just bricks and mortar for many people. It is an extension of their dreams, a mark of achievement and a matter of pride. Still, some homeowners do mistakes; fatal mistakes that can cause their homes to be taken away from them. I, for instance, witnessed many homeowners facing a foreclosure and they have all made the same blunders, more or less. Foreclosure can be avoided and your home can be saved. You just got to know how. Here are some blunders homemakers generally do:

1.    Not Taking External Help for getting out of a Foreclosure situation: Information is available in abundance and there is really no need for you to pay up for agencies and specialists who tout to be able to help you to get out of your foreclosure problem. You don’t need them. Thousands of dollars as their fees can be blissfully avoided if you took the trouble of finding this information on your own. Many sites and blogs exists which dispense that information for free. Also, most homeowners end up as victims of foreclosure scams that is more like a mixture of salt and pepper on a fresh wound. Homeowners rarely watch out for scams wherein they innocently sign documents which entail transfer of ownership of property. To protect yourself, don’t pay up anything upfront — especially not without a valid contract ; read all the documents you will be asked to sign; do your due-diligence and perform research; take everything in writing and don’t forget to do due research on the background, reputation and competence of the company you are considering.
2.    Not Using Lenders’ Extensive Expertise: The lender isn’t an enemy, but still many homeowners will do the mistake of thinking so. Even though the lender has a right to ownership of your home in the event of a foreclosure, lenders are still the original “go-to” people. Homeowners usually forget that lenders are not in the business of foreclosures and that each foreclosure is actually a financial drain on the lenders too — their money sits on that property which they can’t utilize for anything, really. Develop the habit of taking consultation from your lenders. They will be more than happy to help because it is in their interest that they get their money back each month and in full. Know your options, discuss with your lender, and try to work out a solution for your problems.
3.    Not addressing persistent problems head-on: The dreaded reality of a foreclosure is now a reality; that is understandable, but inaction in such a situation is not. Many homeowners just freeze when faced with a problem like this. Not taking action here can cost you even more than doing something about it. Interestingly, they might give in to false claims and scam artists. Letting your home go is usually the last resort and if you are yet to pay your mortgage or if you are lagging behind in payments, there are simple solutions available for you — have talks with lenders, consider loan restructuring and much more.
4.    Not moving quickly enough: Some events in our lives are bound to occur, but not doing something about it quickly enough is totally our mistake. Most homeowners don’t take quick and adequate measures to solve their problems leading to the hole getting wider and creating that vicious cycle that leads to even more problems. The clock ticks faster when foreclosure is up on the horizon and you must move fast. Banks put pressure, threaten to take your home away from you or even be forced to pay up the due payments plus fines.
5.    Not Understanding that Uncle Sam Is Your Best Buddy: The government has been very thoughtful in this regard and has numerous programs for you to choose from to help yourself out of problems such as this. For instance, an interesting program called FHA Secure makes “traditional” FHA approved loans insured and backs it up by allowing you flexibility in choosing payment schedules, monthly out-pays and full-fledged lender support.
6.    Not knowing that even debt has priorities: Hierarchy is everywhere – debt included. If you are the typical homeowner, you would have other bills to pay apart from the mortgage payments – like utilities, credit cards and the like. However, one of the things overlooked by many is the high interest and other kind of costs involved when such credit is not paid up. Not paying up mortgage leads to obvious problems leading to foreclosure. So prioritize and pay.
7.    Under-estimating the power of a persistent approach: Starting from the learning curve involved – learning and educating yourself about your options, writing out letters, establishing contact with lenders, waiting for eons before you actually sit and talk to lenders. On top of that, there is no guarantee that anything fruitful would come out of it. The key here is to be persistent – almost to the point of being obnoxiously adamant—that you would see to the problem’s end.
8.    Not thinking outside the box: Pressure, for some, makes some people think creatively; while for some it can stunt creativity. Most homeowners, however, lose the gift of creativity in the melee that a situation like foreclosure causes. Have you thought of various ways you can solve this problem? Think of finalizing a lender work-out, budget cleverly, think of ways to bring in extra income to pay-up the increased mortgage, lease or rent out your home, sell a part of your house, use your residence as a community meeting rendezvous and many more options require you to think straight out of the box and bring constructive solutions to the table.
9.    Not buying your home smart: Even before you bought your home, there are various ways to ensure that you would never get into a situation like foreclosure. Again, awareness puts you ahead of the pack. Home Equity Line of Credit (HELOC) is one such way. Since emergencies like loss of job, natural perils, medical problems, etc., can sprout unannounced, the ability to grab access to low-interest credit becomes impossible then. Hence, programs like HELOC allow the homeowner to pick up extra line of credit in dire emergencies like those stated above. Care must be taken not to use this line of credit for unimportant expenses.
10.    Not exploring other options like bankruptcy: When you file for a chapter 13 bankruptcy, you can actually stall the entire foreclosure drama. However, this should be your last card. Think and judge if chapter 13 is the best bet for you because it has certain disadvantages too, especially over the long-term. In case you do decide to go ahead, make sure that you pay heed to the process, deliver the filings on time and make the necessary payments.

Lender Workout Solutions – Deed-In-Lieu of Foreclosure

Dean — Mon, 06 Apr 2009 15:00:43 +0000

This solution differs from the other workout solutions because in this solution you do not retain the property. In other words, you will have to move out of the home.

This solution is similar to the results of a foreclosure, but instead of the lender forcefully taking away your property rights, you surrender the property rights. In exchange for surrendering the deed to the house, you will not have a foreclosure on your credit report. Your credit report will still be damaged, but you can recover and get another mortgage in about two years.

Here are some helpful tips to acquiring a Deed in Lieu agreement:

Find a real estate attorney to help you through the process and the paperwork.
Have your home appraised so that you know the fair market value of the home.
You can offer a rental agreement with your offer for deed in lieu of foreclosure so that you still have a place to live.
If the fair market value exceeds what you owe on the mortgage, you can negotiate for a cash consideration from the lender to make up the difference.
Most lenders will require that you try to sell the home for 90 days before allowing a Deed in Lieu agreement.
Negotiate with the lenders what will be reported to the credit bureaus.

Lender Workout Solutions – Loan Modification

Dean — Sun, 05 Apr 2009 17:00:37 +0000

You can also contact your bank and request a loan modification. This is where the lender adds the delinquent amount to your loan balance and adds additional time on your loan. The bank will consider your total delinquency amount to include attorney fees and late fees. The bank will not accept a loan modification if you have very little equity in the home and/or your total delinquency is greater than 12 of your loan payments. In other words, the bank does not want to accept a loan modification if you do not have a significant amount of money invested in your home (equity), or if you are so delinquent that a loan modification would require adding more than one additional year to the term of your loan.

Advantages:

Keep Your Home.
May be able to turn an ARM loan into a Fixed Rate Loan.

Disadvantages:

Requires that you have equity in the home.
You will likely have to make higher payments.

Lender Workout Solutions – Repayment Plan

Dean — Sat, 04 Apr 2009 17:30:25 +0000

Like a regular Forbearance Agreement, this agreement allows you to re-pay your delinquent amount over time. You will be required to provide your recent financial information and an explanation for your delinquency. However, in this work-out solution the lender considers an on-going financial situation, such as a hospital stay.

In this agreement, you pay back the delinquent amount, but your payments are also lowered temporarily while the on-going circumstance persists.

Advantages:

Keep Your Home.
Temporarily lowers payments.

Disadvantages:

You keep your existing loan, which is bad if you have an ARM.
Requires that the hardship is on going.
You will eventually have to make higher payments, once your on-going situation is resolved.

Lender Workout Solutions – Forebearance Agreement

Dean — Sat, 28 Mar 2009 03:36:02 +0000

A Forbearance Agreement or Repayment Plan with your bank is the most common solution for avoiding foreclosure. This solution requires that you contact your bank and ask for a Forbearance Agreement. Just because you ask for a Forbearance agreement does not mean that you will receive one. Lenders do not want to create forbearance agreements for borrowers that have on-going financial problems that will not allow them to re-pay delinquent amounts within a reasonable amount of time (6-12 months).

A lender will want you to qualify for a Forbearance Agreement by providing your recent financial documents and an explanation for your delinquency. If you don’t provide an acceptable reason or if you don’t show enough income, you will not qualify for a Forbearance agreement.

Advantages:

Keep Your Home.

Disadvantages:

You keep your existing loan, which is bad if you have an ARM.
Requires that the hardship is temporary.
You will have higher payments to pay back the delinquent amount.

Lender Workout Solutions (Blog Series)

Dean — Thu, 26 Mar 2009 03:31:01 +0000

Over the coming days I will go over some lender workout solutions. A “Workout” solution is a one that allows you to workout a solution with your bank. There are two types of workout solutions: The first type of solution is where you keep your home. The second type of workout solution is where you leave your home.

The solutions that allow you to keep your home require that you have, or will shortly have the ability to pay your existing mortgage payments, and that you have the ability to pay off your delinquent amount over time. Conversely, the workout solutions that result in you moving out of your home require that you do not have the ability to pay your existing mortgage payments, and that you do not have the ability to pay off your delinquent amount over time.