How to Avoid Foreclosure on Your Raleigh Area Home
October 2nd, 2007 Categories: Mortgage and Finance
US forclosure rates have increased at a staggering rate and unfortunately Raleigh home owners don’t seem to be immune. Foreclosure can de devastating and take years to recover from. Many people get caught in the trap of believing this is the only way out, when in fact there are usually more options available. Here are a few things every Raleigh homeowner who thinks they may be facing foreclosure, or knows someone who will, should know.
The banks do NOT want to foreclose on your home. Bank are in the business of lending money and collecting interest as it is paid back over time. Banks are not in the real estate business. Foreclosing on a house is an expense and a hassle for a bank. I’ve always heard that the typical costs for a bank to complete the foreclosure process is about 20% of the value of the average home. A typical $200,000 home will cost the bank about $40,000 to go through the foreclosure process. In this case they would net only about $160,000. If they financed the house at 100%, that’s a $40,000 loss.
You may have a deficiency judgment filed against you. When the bank cannot sell the house for an amount sufficient to cover the unpaid mortgage balance, they are allowed by law to file a deficiency judgment for the balance against the borrower who defaulted.
Foreclosure damages your ability to find another home. Your credit score and credit report are more important now than ever before when attempting to finance a home purchase. A foreclosure can stay on your credit report for years and prevent you from owning another home. Renting is not always a good alternative either. The typical landlord collecting rent is looking to make a profit and will charge a rent that is greater that his mortgage payment to accomplish this. Also keep in mind that you will loose the tax advantage of deducting interest payments and you will no longer be building wealth in the form of real property equity.
So, what are the alternatives? The first thing to keep in mind is that the clock is ticking. The time to seek out alternatives is really not after the foreclosure notice has been received.
Seek credit counseling. If you don’t understand your options well enough to make an informed decision, it is always a good idea to seek professional advice. The US Department of Housing and Urban Development (HUD) maintains a list of HUD approved credit counseling agencies. HUD can be reached at 800–569–4287. I also work with several lenders locally who can put you in touch with a reputable credit counselor.
Ask for a Special Forbearance. If you have had an unavoidable change in your financial position, such as unexpected medical expenses or a decrease in wages, the bank may be sympathetic to your situation. Remember, they do not want to foreclose because they usually loose money when they do. Many borrowers may qualify for a new payment structure that will allow them repay the lender in a more manageable time frame that is agreed to by both parties.
Investigate the FHA Insurance Fund. FHA borrowers may qualify for assistance from HUD. There is a special insurance fund that in some cases can make a one time payment to bring a mortgage up to current status. Visit www.hud.gov/foreclosure to find out if you qualify for assistance from this fund.
Refinance your home. Seems obvious, but you might be surprised at the number of individuals who wait until it is too late to pursue this option. If you have an Adjustable Rate Mortgage (ARM) that is beginning to index your payment upward, you may qualify for a fixed rate mortgage, or some other program, that can lower your monthly payments and buy you some breathing room.
If you think you may be at risk of foreclosure, remember, you usually have options. The bottom line is don’t wait until it’s too late. The bank would probably rather get a phone call from you explaining that there’s a problem, rather than finding out by noticing you’ve missed your last two payments.
Bob - what a great article - you are a real resource for your community. I am new to the RET blog family and enjoyed visiting yours.- Cyndee Haydon
Cyndee - Thanks for stopping by and welcome to the family. You’re going to really enjoy the RET.