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Foreclosure . . .
Any other options?
 Sometimes we are faced with difficult decisions and these days Foreclosure is something that a lot of people have to deal with. No one wants to lose their home through foreclosure, but it’s happening every day. It may be due to a death in the family, loss of jobs, divorce and especially now that the housing boom has ended.
The fact that when the economy was doing so well with interest rates being very low, a lot of homeowners took out additional loans using all their equity in their homes. Many are now overextended and can no longer make the payments. Subprime lenders allowed borrowers who didn’t qualify for loans from mainstream lenders to borrow. The rates are higher than traditional rates and usually are ARM (adjustable rate mortgage) meaning the rate is fixed for just a few years and after that the rate increases dramatically and that means so does your mortgage.
 This is not the sign you want to see in front of your home. Home ownership is a dream and a great accomplishment for most of us. So when faced with foreclosure, it can be dramatic, embarrassing, with a feeling of failure and sometimes carries the possibility of depression. There is also the negative financial implication that will follow you for years to come.
 “SHORT SALE”
may be an option and may leave you with a second chance without all the negative financial impact. A Short Sale can be defined as an arrangement or agreement between the bank or Mortgage Company and the home owner. The arrangement is that the lender will accept a lesser amount owed on the property to pay off the home from the seller. Usually this type of transaction happens when a mortgage is upside down, meaning that the owner owes more on the house than what the house is worth. The shortage; the difference between what’s owed and what the bank gets in the end is the ‘short sale’. This shortage may be written off by the bank or mortgage company. They may have you account for the shortage as extra income by sending you a 1099 which you will have to pay taxes on. New legislation allows for an exemption from the 1099 if the property is your primary residence. However, any property taxes will always have to be paid.
There are various determinations as to why it would be accepted, so it is crucial to check with your lender regarding this type of transaction. I recently went to a seminar regarding 'Short Sales' given by an attorney who specialized in them. Because she knows what's needed to make the deal work, she is able to gather all the information needed from the homeowners and present it to the lender. She only gets paid if the short sale goes through. Nothing comes out of the homeowner's pocket.
 DEED-IN-LIEU OF FORECLOSURE
could be called a similar option if someone is not able to financially pay their mortgage. A Deed in Lieu of Foreclosure is an instrument (deed) which a borrower passes on all interest is their property to the lender to fulfill a loan that is in default to avoid foreclosure. There are advantages to both the borrower and lender with this transaction.
This transaction must be voluntary and in good faith by both sides. The property must at least equal its fair market value and generally the lender will not proceed if the outstanding debt of the borrower exceeds the current fair market value of the property.
I hope that you won’t have to use any of this information, but if faced with the possibility of foreclosure it is worth looking into. The sooner you look into other options the better it may be for you.
Paul
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