It’s an odd tendency in our society to revere those stoic folk who smile and nod through crisis, never giving a clue to the worry in their lives.  Although there are many times when a stiff upper lip is the most prudent public face; if you suspect that warding off a foreclosure sale of your home is in your future now is not the time to keep your concerns to yourself.

Would you be surprised to learn that in one small McHenry County Village 20% of November, 2006’s Real Estate transactions were in some way related to a foreclosure or pre-foreclosure process?  This information is from the MLSNI database only and does not include private transactions or sheriff sales at the county courthouse, so the actual number could be higher.

A true foreclosure damages credit scores for years and delays financial opportunity for the victim.  With such dire outcomes, wouldn’t you expect that we homeowners would rush to get help to avoid such drastic, crippling consequences?  Such is the cruel irony.  Most homeowners are so worried about admitting their financial trouble that the process goes too far before any remedy is sought.

Armchair economists are quick to theorize why more and more homeowners in McHenry County find themselves facing some sort of financial crisis involving delinquency in their mortgage payments.  In spite of kernels of truth in the dangers of credit card debt, interest-only mortgages and the financial difficulty of divorce, the contributing factors fade to the background once you are faced with the terrifying prospect of losing your home.  If you are struggling with job loss, poor health or a death in the family the crisis is more personal and more painful than a purely financial situation.  It is easy to see how this complex web of practical and emotional factors distorts the ability to face what feels like a lonely economic quandary. 

First come the letters from the mortgage holder and then come the wakeful nights.  Now is the time to face the difficult task of trusting someone with the truth of your situation. Don’t let the embarrassment of this admission prevent you from getting help.  Take a deep breath and decide who to trust!  Sharing the problem with an ethical professional is the first step toward resolution and you will be surprised at the tools available to craft your credit recovery.  It will not be easy, but the sooner you get help, the better your chances of getting back on your feet.  Professional Real Estate Brokers or attorneys who have experience dealing with mortgages and pre-foreclosures can negotiate directly with the bank on your behalf to work out a short sale and are good starting points if you think that a sale of your property will be the outcome.  Otherwise, meet with your mortgage company or credit counselor to create a payment plan as a first step. 

If the property must be sold, but there is not quite enough equity to pay back the mortgage, penalties and late fees, the lender may agree to a “short sale”.  The short sale benefits you because you are able to sell the home, leave the property and the high payments behind to start over in a more affordable house.  The bank agrees to accept less than full payment to release the mortgage; thus the name “short” sale.  Your home will be placed on the market and once under contract with a buyer the negotiation with the bank begins.  A patient buyer will wait out the transaction – and it can take months.  It is an arduous process in which you may be asked to submit and resubmit current financial documents to the bank.  Here is where you will benefit from the expertise of a professional who has worked through the details of a short sale before.  A negotiated sale reduces your credit rating, but a few years of responsible bill paying will improve your standing.  In many cases, the amount of debt left unpaid by the short sale is paid back by signing deficiency papers.  The payments are manageable and stretched out over time.  Beware of the hidden costs of a “forgiven” amount of debt.  This amount becomes taxable gain in the eyes of Uncle Sam.  After all, you did actually borrow this money and if it is not repaid the government considers it income to you.  Make arrangements with the IRS to handle the tax event connected with the short sale.  As difficult as it can be, avoiding foreclosure by working through a pre-foreclosure sale will benefit your long-term financial standing. 

For more information or for a good starting point contact the not for profit agency in Woodstock: Consumer Credit Counseling Service of McHenry County, Inc. 

Elise Livingston is a Real Estate Broker in McHenry County, Certified Residential Specialist, Accredited Buyer’s Representative, Graduate of the Real Estate Institute and a director for the McHenry County Association of Realtors.

Originally printed in McHenry County Woman Magazine