Reading this may be the best thing you do this year...
A Foreclosure on your credit record will negatively impact your credit rating for a minimum of 7 years. You may be denied credit in getting a car loan, home loan, credit card, or student loans. The bank may get a judgement for the amount you owe that follows you for years. You may also owe the government thousands of dollars in taxes. There may even be an impact on your employment and insurance or on your ability to get a place to rent. A foreclosure is one of the worst things you can do to damage your credit.
Millions of families are facing foreclosure in America. No one saw this coming and yet now the process is playing out in greater Santa Barbara, Goleta, Carpinteria, even Montecito. It can be embarrassing to lose your home. Your name will be published in the paper. It can make you feel helpless. Like there is nothing to do but wait until the bank kicks you out.
But the truth is that you have options to get you out of this situation that are far better than foreclosure. A foreclosure on your record is basically the same as saying "they gave up and walked away" or "they didn't try to work out a solution". That's how the credit rating companies view it. They don't care that the mortgage rates changed. They don't care that the bank won't help you refinance because the home has lost its value. They don't care that you might have hit a tough spot and missed a few payments. A Foreclosure is the last thing you want to let happen.
So, what else can you do? Well, you can take action now to save your credit. Here's a secret...the bank doesn't want to take your house! The bank doesn't want to own your house. They want to lend money, not own real estate. They would love to have you stay in it and keep paying them. So, if you can catch up on your payments, call your bank and tell them you want to work out a payment plan to catch up. They are finally willing to listen. They have loan modification programs that they can offer you that may lower your payments enough that it makes sense to keep your home.
What if that's not an option? What if the payments are too high to afford? What if you are several months late with no ability to catch up?
One option is bankruptcy. If you are insolvent (which means you owe more than all of your net worth), this may be an option to consider. It is a step not to be taken lightly. If considering bankruptcy, you should get professional financial and legal advice as well as interview at least three bankruptcy attorneys.
If bankruptcy is not what you wish to do, and a foreclosure is looming in your future, you should consider what is known as a "SHORT SALE". There is a lot of confusion about how a short sale works. A short sale is where the home is sold at a price that is less than what the bank is owed.
Why would the bank be willing to accept less than what is owed? Because they will stop losing money on an asset that has lost value. Here is an example. Let's say you bought a home for $800,000 in 2005. Let's say your mortgage is $700,000. But now, in 2009 your home is worth a little less than $600,000. You can't refinance because you owe more than it is worth by $100,000. All of your equity is gone. So, let's say you put it on the market for $550,000 to make sure it sells quickly (because if it doesn't sell quickly, the bank gets it back at foreclosure). You get an offer and that offer is presented to the bank for approval. That's right, the bank gets to now decide if it is worth taking $150,000 loss ($700,000 - $550,000 = $150,000).
The bank will probably take that offer. They will send out their own appraiser to see if it is priced close to today's value. Even though they are owed $700,000, the bank is smart enough to know that they will not be able to sell it for anything close to that. They would only be able to sell it for today's value.
Here's another good reason why the bank might take $550,000. If you are no longer making payments, that's money they are losing every month along with property taxes. It takes several months to foreclose. Then, once it is now the bank's property, they may have to make repairs and it could take a couple more months to list it for sale. All the while, the bank is bleeding money on the property.
Further, the future real estate market is uncertain. If prices keep going down, maybe it will only be worth $530,000 or possible less in another few months. So, the bank wants to cut its losses.
So how does a "short sale" benefit the seller?? Because the bank treats it like a debt that has been settled. It means you worked it out. You resolved it. You didn't "just walk away". Yes, it will have some negative impact on your credit, but you can begin building your credit in a short period of time. There's no foreclosure on your record. In a couple of years, your credit may be fully restored if you keep your payments current on your other obligations. That's huge and so much better than a foreclosure.
You can do a short sale on your personal home. You can also do a short sale on a rental property that you own. Do you know someone who was told to buy a rental around 2004 or 2005 for the tax break and now is losing over $1000 a month?
Plus, under certain circumstances, there may be legitimate tax avoidance on your taxes if you do a short sale on your primary residence. You should talk to your CPA or tax attorney for financial and legal advice and implications.
When you do a "short sale" the bank will pay almost ALL of the closing costs. They pay any back property taxes, missed mortage payments, title insurance fees, escrow fees, and real estate fees. As the seller, you end up with no money from the sale, but you have avoided a foreclosure and can get on with your life.
So, where will you live? You will probably need to rent for a while. And it's easier to get a rental if you don't have a foreclosure on your record.
As a Realtor, I have specialized training that has helped me become an expert in helping people get through a "short sale". Most real estate agents do not have any experience in how to do a short sale. It is critical to work with an agent that has closed more than one or two short sales.
The time to act is now! If a "Notice of Default" has been recorded on your property, you may only have a few months or weeks left. If a "Notice of Trustee's Sale" has been recorded, you may only have a couple of weeks, but there is still a chance it can still be accomplished if you call me today. Don't delay, call me today at 805-451-9998 and let's figure out if you can leave with your dignity and do the least amount of damage to your credit.
For a free and confidential consultation, please fill in the information form below so that I can start to help you now.
