Yesterday I started to talk about foreclosures and short sales - there is way too much confusion about them, so I'd like to simplify things a bit.
I finished up by mentioning the case of owing more on your real estate then it's actually worth or "Being Upside-down". How could that happen?
Several ways:
- Regardless of your loan type, if you live in an area with extreme depreciation, the value of your home could be going down faster then you can pay down the loan.
- If you have an interest-only mortgage, ANY amount of depreciation would make the home worth less then the loan balance since the principle never gets paid off.
- If you have been using the minimum payment on an option-ARM you would be experiencing negative-amortization - you're making monthly payments, but they don't cover the amount of intrest owed each month. This increases the outstanding balance. So even if your home's value didn't go down, the amount owed would be increasing. If you're one of the many that has that type of loan, I hope your Broker / Lender made that perfectly clear.
Of course, the lower the initial Loan-to-Value (LTV) the safer you would be, regardless of the loan type.
So what is FORECLOSURE?
Let's start with PRE-FORECLOSURE - you've stopped making your monthly mortgage payment, now you are in DEFAULT on the loan. A red flag goes up at the bank and they let you know that you had better get back on track, quickly. At this point, get in touch with the bank DO NOT just ignore the problem! The bank isn't going to say "You seem like a good person - don't worry about it!" - but you could possibly work something out with them before the worst happens.
You could go the route of the SHORT SALE - it's called that because by taking less then what they are actually owed, the bank is taking 'a short'. Here's where it gets a little complicated. You can't sell the house for what's owed so you list the property and any offers that come up go straight to the bank to approve or disapprove - you as the owner have no say in the matter.
The banks really don't want to take your property from you, they already have more than enough and then they have to pay their lawyers for their work, re-list the property and try to sell it themselves (and pay more agents). So, yes, they will take less then what is owed in many cases - but how much less?
More information on short sales -->>
Marc J Blasi
Realtor® - Luxury Homes FL - A Thomas Real Estate Company
Mortgage Broker - Knightlines Mortgage Services, LLC
(561)-282-7406 Cell
(561)-282-3330 Office & e-Fax
www.PalmBeachRealEstateAndLoans.com
www.RealEstateDarwinism.com
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Marc what I have been running into more and more lately is people that took out a home equity or line of credit that took them way beyond the value of their house. I just did to refinances that we were only able to refinance the first mortgage and could not include the second in the refinance. These people had very high interest rates on the first, and are lucky that FHA will refinance the first mortgage even if the combined debt on the first and second is over 100% of the LTV, as long as the bank holding the second is willing to resubordinate.