New Law eliminates Debt Relief in certain
circumstances!
Those Experiencing Financial Problems Have Alternatives to Home Foreclosure
James R. DeBoth, President--Mortgage Market Information Services, Inc.
Despite the health of our current economy and the unemployment figures, companies
get bought and downsized, which results in people losing their jobs and sometimes
their homes. Medical emergencies can wipe out savings, and numerous other
problems can develop that make you face the possibility of a foreclosure.
However, it is important to remember that there are alternatives to a
foreclosure.
The first thing to remember is that your mortgage company is in the mortgage
business, not the real estate business. The mortgage company doesn't really
want your home. To a lender, foreclosure is the last resort, especially since
the process is expensive, time-consuming, and unprofitable. What the people
at the mortgage company want is their money. If you are running behind in
your mortgage payments, the loan is considered delinquent. However, as long
as you are up front and honest with mortgage lenders, they will usually be
willing to work with you.
As credit analyst Rick Swartz with Kern County Credit Consultants in Bakersfield,
California points out, they can't really work with you to help you solve
your problem if they don't actually know there is a real problem. If you
do happen to lose your house in a foreclosure, you will also wind up with
a black mark on your credit history that will stay there for years; one that
will scare off potential lenders who could help you get another house in
the future. Therefore, Swartz says that "it is essential to keep communications
open with your lender. Make sure you are regularly talking to your lender
about the status of your mortgage. Some lenders will help with options and
strategies, but communication is essential."
If you have a Federal Housing Administration (FHA) loan, "the FHA has a hardship
program. However, you will need to prove the hardship. If you do, the FHA
can help you restructure the loan." Ironically, Swartz adds, "you have to
qualify to show that you really are that bad off, and sometimes you have
to come back a month later, when things have gotten worse."
If you have a Department of Veterans Affairs (VA) loan, the agency has advisors
who, in some cases, you can call on to help you work things out with the
mortgage lender. They may be able to help you work out an alternative payment
program to help deal with your particular situation.
However, if you have a conventional loan, just call up your lender and tell
him or her your problem. Lenders will quite frequently work out a deferred
payment program. If, for example, you were out of work for awhile, or had
other major expenses, but you are once again able to make payments, the lender
might let you add a portion of the past-due amount to your regular payments
every month until you catch up. However, there will be interest and maybe
even some penalty payments, which are often labeled special processing fees.
Nevertheless, if these fees mean you can keep your home instead of losing
it, they are well worth paying.
If you know there is no way that you can come up with the money, or if the
lender refuses to work with you, you can save everyone involved, including
yourself, a lot of trouble by selling the house. If the house is worth more
than you owe on it, you can sell the house, pay off the mortgage debt, as
well as the back payments and penalties, and still end up with some money
in your pocket. In the end, you will be in good shape.
When you cannot get enough money out of the house to satisfy the lender,
you can go for a short sale. This is also referred to as a deed in lieu of
foreclosure. Swartz says that in a short sale the lender avoids the cost
and aggravation of having to go through foreclosure, which requires lawyers
and the courts, and the owner avoids the black mark on the all-important
credit report.
"Let's say you bought the house for $90,000, you still owe $70,000 on it,
but the market is down and the best that you'll get for it is $65,000," Swartz
explains. "In a short sale the lender will take the $65,000 and waive the
$5,000." The less money the mortgage company will have to waive or lose--the
more likely it is to go along with the deal. While
the lender might be willing to forget the $5,000, the IRS certainly is
not.
Swartz says the IRS treats the $5,000 as income, since the lender
has, in effect, given it to you by not forcing you to come up with it to
pay off the balance of the debt. Looking at it from the IRS particular point
of view, the lender will write that $5,000 off as a loss, an uncollected
debt. The IRS figures
that it has a right to find someone to pay the taxes on
it. Even if you do have to pay taxes on it, it will not
go on your credit record as a foreclosure, which will make it a bit easier
for you to get your finances and credit history in good enough shape to go
out and find another house.
When facing the possibility of a foreclosure, it is very important to remember
that there are often a number of real alternatives. The first thing you need
to do is contact your mortgage lender. You may be able to work with your
lender to come up with a deferred payment program or a entirely different
alternative payment plan. Even if a new plan won't work in your money situation,
you may be able to sell your house to pay off the mortgage debt and save
yourself and everyone else involved a lot of trouble. In the final analysis,
be sure to explore all your options before settling for a foreclosure.
