1. Foreclosure is a permanent stain.
On all future mortgage applications and on many job applications, people will have to disclose that they lost property in a Sheriff’s Sale. This means that you will likely pay higher interest rates, which can add up to tens of thousands of dollars. This is a credit item that is asked specifically in all credit inquiries. There is no seven-year time limit on this item.
2. Possible deficiency judgment.
Your bank can still sue you after a Sheriff’s Sale and collect any amount they did not recover.
3. Badly damaged credit.
Credit scores will be lowered by 300+ points per loan. Along with bankruptcy, foreclosure is one of the most devastating credit issues you can have. A short sale has a lesser impact on your credit, and you could be back to normal within two years.
4. Tax liability.
The tax liability in foreclosure or deed-in-lieu of foreclosure may be higher than in a properly negotiated short sale.
5. Ineligibility for a government-insured loan.
A person who was foreclosed upon will be ineligible for a government-insured loan for 5-7 years, whereas in a short sale the time period is only two years. A foreclosure is the one credit report item that is almost impossible to have repaired.
6. Potentially damaging for employment.
Many current employers run credit checks. Future employers often do. A foreclosure can put a current position in jeopardy and prevent you from being hired to a good job in the future.
7. Negative on security clearances.
Security clearances and sensitive government positions, including but not limited to military and law enforcement, can be jeopardized by a foreclosure. Revocation of security clearance could trigger a job reassignment or a firing.
8. You have alternatives.
As your trusted short sale guide, I will explore every option with you to help you reach the best solution.
9. Do everything you can.
While it may not seem like it now, there will come a time where your current financial troubles will pass. You will feel much better knowing that you did everything in your power to avoid this devastating financial consequence that millions of people face today.
Since We’re Negotiating a Loan Modification or Short Sale, Does That Mean the Bank Will Stop Their Foreclosure Action Against Us?
In most cases, a mortgage lender will continue the foreclosure action even though they are negotiating a loan modification or short sale with the borrower. Just because someone is working on a loan modification or short sale does not mean that the bank halts the foreclosure proceeding. The perspective of the lender is that if the loan modification or short sale fails, then they can quickly finalize the foreclosure.
We have also seen situations where the bank negotiator states that they will temporarily stop the foreclosure action, but the borrower receives notice of an impending foreclosure sale. Those are frequently the cases of the left hand not knowing what the right hand is doing at the bank. In some loan modification and short sale programs, the lender agrees to stop the foreclosure action for the duration of the program. For example, the foreclosure action is halted on FHA (Federal Housing Administration loans that are granted a short sale pre-approval, known as an Approval to Participate (ATP. If the house does not sell during the listing period, then the borrower may transfer ownership via a deed-in-lieu of foreclosure and they will not be liable for any deficiency amount.
Will My Forbearance Lead to Foreclosure?
With the wave of mortgages that are currently in forbearance due to financial hardships caused by the Covid-19 situation, many homeowners and real estate professionals are wondering if these forbearances will lead to foreclosures. While it is certainly true that there will be a percentage of these properties that end up in foreclosure, the consensus among real estate experts is that the relatively high amount of equity in most homes will allow homeowners the ability to refinance, negotiate loan modifications, or sell their property before their default becomes a foreclosure. However, real estate experts rarely factor in big fluctuations in the market that can negatively affect home values and homeowner equity.
Unemployment is at all-time highs, commercial real estate is taking a huge hit, the rental market has been disrupted due to eviction bans, therefore, homeowners need to look at the economy, as a whole, to be able to properly plan for what is coming. Markets work in cycles, what goes up, inevitably comes down.
Warren Buffet famously observed, “Only when the tide goes out do you discover who’s been swimming naked.” What happens to home equity if the current real estate market deflates? The answer is that we would see a lot of naked homeowners in forbearance heading dangerously closer towards foreclosure.
Homeowners need to prepare now by arming themselves with knowledge and getting to know all of the options that are available to them. There is no crystal ball that can see into the future and tell us when the next swing in the market will come. Only those who are prepared for different scenarios will be able to make the right decisions for their property investments.
To learn more about the options that are available to you, contact Significa Short Sales. We are here to help you. Call us for a free, no-obligation consultation call, and our experts will lay out all of the options that are available to you.
We specialize in foreclosure alternatives such as:
1) Short Sales: If your property is worth less than what is owed, we specialize in negotiating the best short sale offer with your lender.
2) Bankruptcy: We facilitate the legal process with one of our strategic partners.
3) Deed in Lieu: Otherwise known as “Cash for Keys” — We will negotiate the best financial terms with your lender.
4) Forbearance: We will negotiate the best financial terms and payment schedule with your lender.
5) Loan Modification: We will negotiate the best payment schedule and financial terms with your lender.
