Foreclosure?

Foreclosures are becoming more and more common across the United States. Just as there are many reasons why foreclosures occur, there are many ways to postpone or stop foreclosure.

Foreclosure education: A common misconception about foreclosures is that a foreclosure is the act of the bank taking property back from the borrower. Foreclosure is a much more complex transaction. Foreclosure is the process of the lender or the foreclosing entity filing legal documents to auction the property through the local court system. The entity that is foreclosing on the property files paperwork for the local court system to legally take the property and auction it on the courthouse steps. This auction happens on the first Tuesday of every month, otherwise known as Texas Tuesday. At the auction the property will go to the highest bidder. Typically the bank that is foreclosing on the property tries to buy the property back in order to have the chance to re-sell the property for a higher profit. If another entity buys the property, the funds go towards paying off the debt that is owed to the foreclosing entity. The remainder is still filed as a debt against the original borrower that was foreclosed on.

Now that we have that part out of the way, we can begin to explore the options of stopping and/or postponing foreclosure.

I have a saying and it should hold true in helping find solutions to avoiding foreclosure as well as many other areas of a person's life. The saying is: "Nobody gets help on a secret." What this means is that if nobody knows that you need help, you will never receive help. While staying in constant communication with your mortgage company is crucial, contacting an experienced local REALTOR® is crucial as well. An experienced real estate agent should be able to help guide you through all of your options.

The best advice I can possibly give anyone that is late on their mortgage payments and wants to avoid foreclosure is not to avoid the phone calls or any other communication form his/her lender. Keep the lines of communication open and let them know that you are having trouble making your payments. If you ask for help the mortgage company will help educated you on your available options.

The mortgage company will more than likely work out a deferment with a re-payment option. Initially they will ask you to provide income information. Be honest when giving the income information. False information may hurt you and keep you from getting into the programs. The income information will show to the mortgage company if you have the necessary income to afford the repayment options that are available. Many times local hardship situations, such as income being affected by  Hurricane Ike, Hurricane Rita, temporary job loss due to layoffs and the declining economy can help prove your need for hardship "work-out" programs. If the mortgage company requires documentation to prove your income, don't give up, get them the paperwork they need. It could be the difference in getting assistance towards keeping your home and foreclosure.

If the re-payment plans and "work-out" programs are not an option you should begin working with your REALTOR® to begin exploring equity options. If you have enough equity in your home your REALTOR® should be able to help you find the best option to unlock this equity. Examples: 1) If you are locked into an ARM and have yet to go 30 days late on your mortgage payment(along with maintaining an acceptable score) it may be best to re-finance into a more affordable mortgage payment. 2) If you have plenty of equity in your home, need temporary relief, and look to be in a better financial position shortly, it may be best to take out a HELOC (Home Equity Line of Credit) to help get back on top of your bills and give yourself some breathing room. 3) If your home is too expensive and you wish to down-size it might be best to sell and use your equity as a cushion for the months to come while you lower your monthly mortgage payment by purchasing a more affordable home (this could be the best long-term solution).

If there is little to no equity left in your home, it may be time to consider a short-sale. Banks do not want to foreclose because chances are they will lose much more money in a foreclosure than working with the borrower on s short-sale. A short-sale is basically selling the property for less than what is owed on the property. In this situation the mortgage company takes a loss in order to sell before foreclosure to save money. Make sure to get a REALTOR® involved to help expedite this type of transaction, it is very time consuming and requires someone with experience to quarterback a short-sale to a successful closing.

The last option is not actually stopping foreclosure, but a good piece of information to pocket some cash before handing over your home to the authorities. Real Estate Brokers or Asset Managers are often hired to help vacate homes in order to begin selling the property. Many companies that wish to make the eviction process smooth give the asset managers/real estate brokers an option called "cash for keys". "Cash for keys" is a process where the former homeowners are offered cash in exchange for vacating the property quickly and without further damage to the property. Typical cash for keys is $1,500, but is often negotiable.

There is much more to know about foreclosures, but I hope that the information on this page helped to answer your general questions about foreclosure. Even more, I hope that it gave you just enough education to give you hope and possibly stop the foreclosure process for at least one family.

Feel free to contact us with any further questions or comments regarding anything that has to do with real estate.