There are options if you are in Foreclosure

by Dan Krell © 2005
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Popular culture has a way of taking an item or an event and making it over simplified for the lay folk so as the item or event becomes a trite expression of a generation or decade. You can spot this happening when certain new buzzwords fly about the air. The event or item becomes trendy and ingrained in the psyche, then eventually becomes passe. This has become the case of trying to buy a pre-foreclosure. A pre-foreclosure is when the homeowner still owns the property, most likely is still living in the home and is facing a sure loss of their hard earned money and home.

As a Realtor, it used to be pretty common for a buyer to say, “Oh, and I am interested in buying a foreclosure,” at the end of the first meeting. Lately, it has become trendy for buyers to assert that they are looking for a pre-foreclosure because it is believed that the home is still in good condition. The main reason for these assertions is that buyers believe they are getting a great bargain. Unfortunately, it is far from the truth. Most people, who buy a foreclosed home, pay a premium because the market is very strong. Even when the home is distressed, the buyer will pay top dollar for a home is a particular neighborhood, knowing that they will have spend another $50,000 to $100,000 to fix the home. Certainly a pre-foreclosure will sell for market value.

The unfortunate player in this scenario is the original homeowner who faced a hardship or two and fell behind on their mortgage payments. Many people facing late payments or foreclosure usually lack information of where to get help. The U. S. Department of Housing and Urban Development (HUD) recommends that the first thing the homeowner should do is to call their lender if they are falling behind on their mortgage payments, or they know they will have problems making the mortgage payment. By calling the lender and explaining the situation, the lender will usually provide options to help the homeowner through the hardship. HUD also highly recommends that the homeowner call a HUD-approved housing counseling agency to assist. Information on the housing counseling agencies is available on the HUD website www.hud.gov.

According to BankRate.com, lenders want to help the borrower as much as possible. The last thing the lender wants is to spend thousands on legal fees to foreclose on a property then have to sell it. Some of the options that lenders extend to delinquent homeowners include a forbearance and mortgage modification. These provisions are usually more prevalent with FHA and VA backed mortgages, however, they are also offered for conventional mortgages as well. A forbearance is a special repayment plan where the lender arranges payments such that it will allow the homeowner to make mortgage payments after the financial crisis. Usually this is a fix for a short-term financial crisis.

If the homeowner is seriously behind on your mortgage, the lender can modify the mortgage. A modification is when mortgage payments that have not been paid are added to the principal of the existing mortgage. This allows the homeowner to essentially catch up and get back on track.

Recently, it has become common to see many pre-foreclosure sales. This when the owner has fallen behind in their mortgage payments or is even in the foreclosure process and sells the home on their own or through a Realtor. In most cases, this may be the last resort for the homeowner because they cannot pay the mortgage even with the modifications. Although the homeowner cannot keep the home, this is usually a good arrangement because the homeowner can pay off the mortgage and get the equity out of the home to apply it towards the purchase of a smaller and more affordable home.
If you or someone you know has the misfortune of falling behind on the mortgage, talk to the lender, they want to help.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This column was originally published in the Montgomery County Sentinel 3/28/2005.
Copyright Dan Krell 2005.