By Louise Bolger
Foreclosures loom on homeowners' horizon
sun staff writer
Gradually Ive been noticing newspaper articles and
Internet stories about the increasing rate of foreclosures
as a by-product of the national slow down in real estate values.
So far its just a whisper, a minor acknowledgement of
a looming future problem. If youre one of the unfortunate
homeowners or investors who are facing large mortgage increases
and are gradually slipping toward foreclosure, time to face
reality and salvage as much as you can out of a desperate
situation. There are several options, not all of them are
pleasant, but they should all be considered. Selling the property
is naturally the best option. If you dont have enough
equity in the property to cover the outstanding mortgage,
known as a short sale, you will either have to come up with
the balance or ask the lender to reduce the loan amount to
avoid a foreclosure. In 2005 40% of all closed sales involved
no down payment money and were adjustable rate loans, so its
not surprising to see many of these loans starting to default.
No matter how many letters you receive from the bank, you
cant ignore them. Believe me, the bank or mortgage company
holding your note does not want your property. They are in
the business of lending money not selling real estate. Contact
your lender, they will most likely be very motivated to find
a way to resolve your problem if they can. Frequently its
possible to work out an extended or partial payment plan allowing
you to stay in your home until youre either on your
feet or your property begins to appreciate.
You can also approach the lender about a pre-foreclosure sale.
Essentially, you agree to help the bank sell your home before
it goes into foreclosure. You can also voluntarily give back
your home to the lender via a "deed in lieu of foreclosure."
Neither of these arrangements will allow you to keep your
property, but it will protect your credit rating. The last
thing you want is a foreclosure against you, it will take
years to get past it before you will be able to acquire financing
The last stage of a foreclosure is a public auction of the
property. This is where the property is literally sold on
the courthouse steps, not a pretty sight. Properties who have
large notes on them or other liens generally do not sell at
public auction and end up being taken back by the lender who
then markets the property in an attempt to get as much as
possible in order to satisfy the outstanding loan.
If youre tempted to purchase a foreclosed property,
be forewarned that you will probably be purchasing with little
or no inspections and without warranties. In fact, you may
even be purchasing a property with owners or tenants still
living there and will have to proceed with an eviction.
Speaking of auctions, voluntary auctions have also started
infiltrating the marketplace. Owners who want a quick sale
without a negotiating process, or properties that are particularly
unique could benefit from an auction sale.
There are two types of auctions; absolute, which guarantees
the property will sell on auction day regardless of price,
or reserve, which means the seller can accept or reject a
sale. Auctions are heavily promoted by auctioneers and allow
pre-auction open houses allowing for inspection of the property.
With all the sand we have around us, its very tempting
to put your head in it if youre having financial problems,
but that would be a mistake. In the highly leveraged world
we live in, preserving your credit rating is the most important
thing you can do for your financial health. Get your head
out of the sand and take your medicine, youll feel better
in the morning.