|
|
|
Owners Facing Housing Squeeze Have Few Attractive Choices - 2008-03-23 |
|
OWNERS FACING HOUSING SQUEEZE HAVE FEW ATTRACTIVE CHOICES
Today, some recent home buyers are finding themselves squeezed between an unusually slow resale market and little, if any, appreciation in the past couple of years. In fact, in some areas, homes have actually declined in value, based on ability to resell in today's market.
To make matters worse, you may have accepted an adjustable rate loan when you bought, hoping that you could sell for a fast profit before your loan payments increased to unaffordable levels.
Now, you can't afford to make the new, higher payments. And you can't sell for enough to cover the high-balance mortgage which covers your property. You are literally stuck in an untenable situation.
What are your options?
* Call your lender and ask for help. Many lenders are smart enough to know that taking the house back after a foreclosure is a losing proposition for them as well as you. They will likely have to sell the house for less than the amount owed on the loan, and your credit will be severely damaged for several years to come.
What you may not know is that your lender might be able to restructure the loan in such a way that you can afford the monthly payments.
The lender can offer to recast the loan, a process in which the loan is re-amortized based on a longer period of repayment in order to lower your monthly payments. Recasting is most effective if you have paid on the current loan for ten years or longer, and becomes less helpful the newer your loan happens to be.
The lender can also agree to replace the loan with another loan, perhaps with graduated annual payments, so that you could continue to live in the house and continue to make payments on a timely basis. If the proposed monthly principal and interest payments are less than the currently accruing interest payments, you may be looking at a negative amortization loan.
The single distinguishing characteristic of negative amortization loans is that the principal loan balance actually increases each month that the payment fails to cover the interest charge. As a result, your loan balance goes up instead of down on a monthly basis. If the home is not increasing in value, such a loan simply postpones your original problem by digging your debt hole deeper month after month.
The only time I might recommend a negative amortization loan is when you are certain you will have an improved financial condition on a future date, such as an inheritance or a large bonus payment at year-end. Even then, it's never a good idea to enter into a plan to go deeper into debt on a continuing basis.
If your lender is open to negotiating a replacement loan, try to avoid any negative amortization. Unfortunately, your options get less attractive from
here:
* Next, you might ask if the lender would be willing to accept a "deed in lieu of foreclosure" with a release of liability. In this scenario, you agree to transfer ownership of the house to the lender along with the keys on a certain date. In exchange, the lender agrees to accept the house as payment in full, and to release you from any further liability in connection with the loan.
Unfortunately, few lenders find this option to be in their best interests. They may agree to take back the house to avoid the foreclosure process, but they plan to sell the house for whatever they can get, and then seek payment from you for any deficiency. In these negotiations, it may be helpful to have an attorney talk to the lender's representatives on your behalf.
* If this offer is rejected and you still can't make the payments, it's only a matter of time until the lender seeks to take the collateral for the loan through non-judicial foreclosure. In fact, it is not unusual for both this process and verbal negotiations to be going on at the same time.
If there is a second mortgage on your property, the lender must pursue foreclosure to wipe out the claim of the second mortgage holder on the property. Otherwise, your first mortgage lender might end up owing the balance on the second mortgage. This is because junior liens (such as second
mortgages) are wiped out in the formal foreclosure process.
* Finally, if all else fails, and the lender is planning on selling your house at a foreclosure auction, there is still one course of action you might consider. You may wish to seek protection from your creditors under a petition for bankruptcy.
The filing of a bankruptcy petition acts as an automatic stay on the process of non-judicial foreclosure, and the lender is prevented from taking any further collection action until the bankruptcy court has reviewed the circumstances surrounding your case.
However, filing a petition of bankruptcy is not an action your should consider lightly, and can have devastating consequences when it comes to your credit and your ability to purchase a home in the future. I strongly recommend that you talk with an attorney who can answer all your questions before taking this step.
|
|
Upcoming Events
BUYING FORECLOSURES IN GEORGIA
NEW for 2008: Bank-Owned Home Bonanza
This seminar has been updated and revised for 2008 to reflect the dramatic changes in the Georgia foreclosure marketplace. We are literally facing a flood of foreclosure properties, and there is profit to be made in each and every one of these homes.
Whether you want to build a portfolio of homes for your retirement or you simply want to find a better home for yourself and your family, this program is for YOU.
LAST CHANCE THIS MONTH!!
• Saturday, Oct. 11th, 2:00 P.M. until 5:00 P.M. - Renaissance Waverly Hotel in the Cobb Galleria
This COMPLETELY NEW SEMINAR examines the roots of today's foreclosure meltdown and explains how you can take advantage of this opportunity in your spare time.
Advance Tickets: $69; bring a friend for an additional $30.
Couples share materials.
Detailed information available under the “Seminars” button
This course approved for 3 hours of Continuing Education credit by the Georgia Real Estate Commission.
The Real Estate Investor's Institute will be held at Emory University on
November 22, 23 & 24, 2008. Make plans to attend.
Detailed information is
available under "Seminars."
This course is approved by the Georgia Real Estate Commission for 12
hours of Continuing Education Credit. Agents must bring license number.
|
Written Resources