The number of homes in foreclosure is expected to soar over 11 million by year end. According to Bloomberg News, 3 million homeowners lost their home to foreclosure in 2008, while 4 million more were served Lis Pendens notices in 2009. Experts predict, 4 million more homeowners will be affected by foreclosure during 2010.
Homes in foreclosure affect more than homeowners. Mortgage providers lose money and are forced to manage distressed properties until they can be sold. When multiple foreclosures exist within a community, all property owners experience a decline in property value. When homeowners move away, less money is generated through property taxes. Local governments must make budget cuts which affect public safety, infrastructure, and school systems.
Property owners lose accrued home equity when property values decline, which can result in owing more on their mortgage than property is worth. When mortgagors owe more than the appraised value they cannot enter into mortgage refinance or obtain loan modifications. When property owners do not qualify for mortgage relief strategies they can be forced into mortgage bankruptcy or fall victim to foreclosure.
Many property owners are now attempting to enter into strategic foreclosure by walking away from their property. This action can lead to additional financial hardship because banks can obtain deficiency judgments to collect unpaid mortgage debt.
Foreclosure prevention options do exist, but borrowers must be persistent about communicating with their lender. Delinquent mortgages are handled by bank loss mitigators. Borrowers are assigned to work with a loss mitigator to arrive at a workable solution. Sometimes, mortgagors are unable to prevent foreclosure, but can engage in strategies that lessen credit damage.
Banks typically offer real estate forbearance or loan modifications first. Mortgage refinancing is another option, but borrowers must qualify for a new loan and be financially capable of paying refinance rates. If none of these options work, banks may offer real estate short sales or deed in lieu of foreclosure.
Real estate short sales can be complicated and usually take about six months to complete. In essence, banks agree to accept less than the full balance owned on the home mortgage. Banks normally require borrowers to have a qualified buyer in place before granting short sale approval.
Short sales are generally the last option available to borrowers unable to make future mortgage payments. Mortgagors work with a loss mitigator who acts as a mediator between the homeowner, bank, and legal counsel.
Borrowers must undergo a financial audit and provide bank statements, wage earnings, tax returns, and detailed list of income and expenses, along with a short sale hardship letter. Many lenders hold mortgagors responsible for financial deficiencies between the loan balance and sale price. Deficiency judgments are reported to credit bureaus and remain on credit reports for up to seven years after the debt has been repaid.
Some banks accept the sale price as payment in full and release borrowers from the mortgage notes. While short sales can provide financial relief, borrowers lose all funds invested into the property. Real estate short sales are reported to credit bureaus and remain on credit reports for up to ten years.
When lenders offer deed in lieu of foreclosure, borrowers must return their property to the lender. Banks either accept the property as payment in full against the home loan or issue deficiency judgments when the property sells for less than the loan balance.
It is important to research all available options to determine the financial impact of each. When necessary consult with a real estate lawyer or mortgage specialist. It is imperative to become proactive in order to avoid joining the ranks of homes in foreclosure.