Recently, the National Association of Realtors issued a press release voicing the organization's concern "-over the rising rate of defaults and foreclosures occurring in many areas around the country." It was an attempt to warn consumers to steer clear of exotic mortgages and predatory lending practices. Although the warning is an important one, it does very little, literally, to help homeowners avoid the common trap of digging themselves deeper and deeper into debt, and comes far too late for the millions of individual homeowners and families who are already facing foreclosure.
Over the years, when it comes to foreclosure, I have come realize one thing above all others: Homeowners facing foreclosure are often too embarrassed or terrified to seek help. What few of them realize is that the longer they wait, the fewer their options. Wait too long, and you end up losing your home, your credit, and any equity you may have built up in that property.
I encourage everyone involved in real estate, including homeowners, lenders, and real estate professionals, to work together stem the tide of foreclosures. Homeowners-you need to need to know your options; and real estate professionals-you must make distressed homeowners in your area more aware of their options. What options am I referring to? Well, for starters-
- Contact the lender: Homeowners facing foreclosure often make the mistake of avoiding their lender, which is exactly the wrong thing to do. If you are facing foreclosure, contact your lender early, explain your situation, and find out your options.
- Contact family members or friends: Ask for help. If you were in a position to assist a family member or friend who was facing a similar situation, how would you feel if they didn't ask you for help?
- Reinstate the mortgage: If you can come up with enough cash to bring mortgage payments up to date, the lender may agree to hold off on foreclosure proceedings.
- Negotiate a forbearance: If you contact your lender early enough, they may be willing to restructure your payments to help you get back on track after a temporary financial setback. Even if you think it is too late, it's never too late to ask!
- Refinance out of foreclosure: With a good credit history, you may be able to consolidate your debt with a loan that requires a total monthly payment of less than you're paying on all your other loans put together.
- Sell your home: If you owe less on the home than what you can sell it for, consider selling the home and find more affordable accommodations. Selling the home is what 90 percent of those who are facing foreclosure really need to do, but unless you act quickly, you may run out of time.
- Negotiate a short sale: Lenders typically want to avoid foreclosing, because it costs them money. You may be able to convince the lender to accept less than the total amount owed on the mortgage. Again, you never know unless you ask.
- Sell the home and renting it back: A real estate investor may be willing to purchase your home and then lease it back to you or sell it back to you on a lease-option agreement, which is like a rent-to-own agreement. Be careful though with these types of agreements: always seek the counsel and advice of a lawyer when dealing with lease-option and rent-to-own agreements.
- Give a deed in lieu of foreclosure: If you owe much more on a house than what you can sell it for, you may be able to offer the lender the deed in exchange for them not foreclosing on you. You lose the house but retain your credit rating.
- File for bankruptcy: Bankruptcy is rarely the best choice. In most cases, it simply buys you some time, but is often the most costly option.
- Do nothing: Doing nothing is, by far, the worst option. It ultimately leads to losing your home, any equity you may have built up in that home, and compromising your ability to qualify for future loans.
In addition to encouraging homeowners to know their options, I strongly recommend that they know their redemption rights. In areas with a redemption period, homeowners may retain possession of the home for three months to a year after someone buys the property at a foreclosure auction. Many disreputable investors fail to properly inform the homeowners of their redemption rights. As soon as they buy the property at auction, they show up at the house and claim that the homeowners must leave immediately. By knowing your redemption rights, you can prevent this from happening.
I also want to warn any homeowners who are facing foreclosure to watch out for greedy investors and con artists. When foreclosure rates rise, the con artists crawl out from the rocks they were hiding under to prey on the vulnerable homeowners. To protect yourself, know your options and know your rights.
Jason Vombaur- The "J" Team
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