Homeowners facing foreclosure in the Greater Charlotte, NC and Lake Norman areas need to arm themselves with the proper information when facing foreclosure. The foreclosure process is perplexing, even for those experienced in real estate. Real estate agents, attorneys, mortgage brokers, title companies, real estate investors and other real estate professionals all have differing views on the foreclosure process and what is the best route to take when a homeowner faces this difficult situation.
Below are the Top 5 Financial Hazards That Homeowners Facing Foreclosure Must Avoid:
1.) Loan Modification/Repayment Plan – This is a possible solution to foreclosure if the homeowner contacts the bank early in the process. Some lenders are willing to change the terms, such as interest rate or payment amount or extension agreement (extending the amortization period for the remaining principal). The homeowner must be employed and needs to have steady income to qualify. If a homeowner is not currently employed, has filed for bankruptcy protection or does not make enough income they will not qualify for a repayment plan. In most cases the repayment plan/ loan modification is structured in such a way that the new payment for the homeowner could even be HIGHER than the previous payment. Or, the new payment is very close to the old payment and a couple past due payment have been added to the back end of the loan. It is for these reasons that most loan modification plans are not approved by the lender servicing the loan.
2.) Deed-in-Lieu – This is a voluntary foreclosure. The deed–in–lieu takes place when a homeowner in default voluntarily signs a deed giving the ownership of their property back to the lender who issued them the mortgage. Homeowners may mistakenly decide that this is the best option so that they can move on with their lives; however, this is may only be an illusion. Many lenders are aggressively pursuing homeowners in default to pursue the deed-in-lieu of foreclosure option. The reason the lenders pursue this option is because it saves them a tremendous amount of money. A deed-in-lieu saves expenses associated with the foreclosure because the bank does not have to pay an attorney for the fees associated with the foreclosure process.
3.) Bankruptcy – Homeowner’s facing foreclosure often file Chapter 7 as a solution to the foreclosure. Many attorney’s will advise their clients that if they file for Chapter 7 that they will not need to worry about the house. While debts are erased, the bank still needs to be made whole and will need to sell the house. The lender will foreclose on the property to force the sale and repossess it. This results in double jeopardy for the homeowners, as they find that they not only have a bankruptcy on their credit history, but also a foreclosure. The damage done to their credit will eliminate their ability to get a new loan of any kind for five years for the foreclosure, with more years added for the bankruptcy.
4.) Refinance – When properties were appreciating, this option made sense. Today, most homeowners owe more than their property is worth. To complete a refinance, the bank will order a new appraisal and will lend out 80 to 90 percent of that number. If the house is over-leveraged, the homeowner and the property will not qualify for a refinance option.
5.) Mentally Checking Out – Often homeowners are so overwhelmed by the process of foreclosure and what it could mean for their immediate future as well as the years down the road, they do nothing: they mentally check out. This mistake will result in at least one of the following penalties, on top of losing the house, and one’s ability to be approved for a loan for at least five years. They are: 1) the 1099; and 2) the deficiency judgment.
Note: The above opinions are those of Michael Moulton and not to be construed as legal advice. They are based on his experiences in working with foreclosure situations with past customers. For more information on your particular situation, please contact his office at 704-885-0488.
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