Surviving A Foreclosure
Is it possible to survive a foreclosure? By that I mean, is it possible to maneuver your way through a foreclosure where you can save your home and afford to make the payments. No one really knows the absolute answer to this question because every lender abides by different rules. However, I think that many make the mistake of just giving up instead of thinking their way through the process.
In this Hub I would like to offer a possible strategy that may help you negotiate yourself out of a foreclosure situation. Let me first of all say, this is just based on my opinion and some rationale thinking. If you are one of the unfortunate ones that have been negatively affected by our current economy maybe something I say may give you some ideas. My main point is to not be a victim. See if there is a way to solve your situation. In some ways you have control considering the dire situation that financial institutions are facing. Therefore, read this HUB at your own risk, my opinion and $2.35 will get you an Grande Americano at some Starbucks.
Let's start with the current real estate market. It is no mystery that in most markets the price of real estate has gone down. With the recent efforts to get people in homes the ever popular 80/20 lending has put a lot of people into a difficult situation.
If you purchased your home using the 80/20 lending you have two loans on your home. The first loan was made at 80% of your purchase price while the second mortgage was made at 20% of your purchase price. This means that you borrowed 100% of the purchase price, which was probably pretty close to the actual value of the home at the time of purchase.
With the current devaluation of real estate you are probably upside-down on your home. You may be in a position now where you are facing foreclosure because of a pay cut, layoff, or business failure. Maybe you now have a paycheck, but the payment structure is too high. Are their any alternatives?
I think so! Let say that you purchased your home for $300,000.00 using the above method described above. Not accounting for the minor principle reduction from whatever payments you have made you owe $240,000.00 on your first mortgage and $60,000.00 on your second mortgage.
If house values in your area have dropped 25% then your $300,000.00 home is now worth $225,000.00. Think about this for a moment because this is very significant (although you must adjust the numbers to your situation). In essence your first mortgage that was at 80% of your value is now partially unsecured. Only $225,000.00 of the $240,000.00 is now secured by your home. Your second mortgage is basically an unsecured loan even though there is a recorded deed against your property.
What typically happens when a family gets into financial problems they try to pay everyone with the little money that is coming in. The result of this type of payment plan is that everything goes behind and not is accomplished. Obviously if you have a car and a Mastercard it would make far more sense to keep your car current and let the Mastercard go behind. What is Mastercard going to do repossess your underwear?
Well, the same is true with the home. From a strategic standpoint If I had limited income coming in then I would make a strategic decision about how I could put the odds in my favor so that I could keep my home.
Let's thinking of our home loans from an investment standpoint as well as from the legal structure of home financing. The two loans on our home are called a "First" mortgage and a "Second" mortgage for a reason. The are recorded in "positions." In other words the first mortgage has the first priority. The second mortgage is second to the first. In other words the second cannot do anything to the house without taking care of the first mortgage. What this means is that if your second mortgage is going to foreclose on your home they will have to either make the payments on the first mortgage and keep it current or pay the first mortgage off.
If your first mortgage goes into foreclosure they have no responsibility to the second at all. In this situation the lender holding the second mortgage will be notified of the default notice filed on the first mortgage and their only option is to bring the first current, pay the first off, or walk away from their investment.
Considering the numbers we discussed earlier, if you had a loan on a piece of property in the amount of $60,000.00 would you spend $240,000.00 to save your $60,000.00? To make matters worse, would you spend $240,000.00 to get an asset worth $225,000.00 to save your $60,000.00?
The answer to these questions is "Absolutely NOT!" That is called throwing good money after bad money. While no one wants to walk away from $60,000.00 from a financial standpoint it would be the smartest decision.
Now, let's bring it back to our home. This is what I would do if I had the above numbers (or numbers where my second mortgage exceeded my homes value), limited income, and wanted to save my home.
First off I would do whatever I could to keep my first mortgage current. If I came to a place where I knew that I could not keep both payments current I would not split my money between the two mortgages. I would pay my first and allow my 2nd to go delinquent. At some point your 2nd mortgage will contact you regarding your delinquency. They will do everything they can to get a payment out of you, but if you know your numbers you will be in control. At this point I would talk to them very straight and offer to settle with them. These companies know that they are in a total loss position and any company with any sense will not foreclose in a situation where they are going to throw good money after bad.
If you are a good negotiator you could actually settle this debt for pennies on the dollar. The key factor in this is you must get the mortgage released off of your property during this negotiation so I would recommend arranging for payment to go through a title/escrow company.
How much is a company willing to settle a debt like this? Who knows? But if you are looking at losing $60,000 in our example and you could collect 5% or 10%, why would you not take it? Again, it comes back to negotiation and will also depend upon the amount of money you can come up with.
My point in all of this is to try and get a person to think about options. Instead of just falling victim to the big boys why not think your way through it? Why not come up with a strategy that takes advantage of the crisis that has caused you to be in a situation where you could lose your home? As the old saying goes, "Nothing is certain but death and taxes" so I guess all other things are subject to negotiations.
Take charge of your life and win!
Here's an article I came across that supports my thesis that lenders need to move houses
- Federal government is selling lots of homes in South Florida -- South Florida Sun-Sentinel.com
Foreclosures force the government to put hundreds of homes on the market at deep discounts