A lot of people ask.. What happens if I just decide to throw in the towel and let me house go through the foreclosure process?
This is a great question because it is not all that simple. Sometimes letting your house go through the foreclosure process may be the right decision, but not the majority of the time.
I take it since you have arrived at this post, you may be going through the initial steps of the foreclosure process. You probably have stopped paying your mortgage and maybe have received a NOD or Notice of Default. This is typically the beginning of the foreclosure process, entering you into the pre-foreclosure stage.
However, we are not here to talk about how the foreclosure process works in detail or the different steps of the foreclosure process. I want to let you guys in on a couple things:
The repercussions of letting your home go through the foreclosure process
If there is ever a time you should let your home go through the foreclosure process
Your options to avoid foreclosure
If you decide to let your house go through the foreclosure process, the process will move forward as intended (depending on your state) and your home will be seized by your lender who is holding the mortgage. If you live in Syracuse NY, this can take up to 3 years (we have seen owners stay in there house anywhere from 3-10 years after the foreclosure process has been initiated)
Before we move forward, make sure you take the proactive approach when it comes the foreclosure process. Contact your lender immediately and let him know why you are going to be unable to make your mortgage payment and if there is a plan to help you get back on track.
However, we want you know that once the foreclosure process has been initiated, you do not have to move out immediately. You will have time to weigh your options, plan for the future and decide what route you will take with your home.
The Negatives of Letting Your Home Go Into Foreclosure
Typically, the last thing that we want to do is allow our house to go through the foreclosure process. The reason is because it will have a terrible effect on the status of our financials. Lets go over some of the short term and long term effects of allowing your home to go through the foreclosure process:
Credit Hit - your credit score will drop as much as 250-350 points
Tax Implications - any time a debt is forgiven it is considered a taxable event
Purchasing A New Home - it is not impossible but it is much more difficult to purchase after a foreclosure - most lenders have significant waiting period
Deficiency Judgments - Lender can come after you for difference between amount sold for at the auction and amount owed.
The foreclosure process is not a process that any one wants to go through. It can be very time consuming, stressful and cause tremendous uncertainties between your family. So before you give up and totally abandoned the mortgage on your home, consider the consequences.
When Going Through Foreclosure A Good Option
We deal with a lot of homeowners who feel that they should just give up and let their home go through the foreclosure process. While this is definitely not the best option, there are certain instances where we would not disagree with you.
In our opinion all of these scenarios have to be true in order for the numbers to workout in your favor:
You have little to no equity on the property
You know that you have no chance of making payments on the property
You live in a state that the foreclosure process is long and drawn out (Syracuse NY)
Now all of these variables have to be true and you have to be in a position where you can move so that you can rent this property out.
In this situation you will be able to collect rent on the property for the next three years while you let the property go through the foreclosure process and expire. This means that you will not have to make any mortgage payments and you will be collecting a hefty check each month. If you save up enough money through this process over the next couple years, you will have a good amount of money for a rent to own or renting a property.
Your Options to Avoid Foreclosure
Now this is the section of the article where we want your head at. We do not want you to think about letting your house go into foreclosure but instead thinking about ways to avoid foreclosure.
Communication is key - as soon as you know that you are going to be unable to make your payments, you need to contact your lender immediately and make them aware of your situation.
Some of your possible solutions will be:
Loan Forbearance
Loan Reinstatement
Loan Modification
Partial Payments
Sell Your House
Short Sale
Bankruptcy
Deed in Lieu of Foreclosure
Talk with your lender about these options before you consider taking the easy way out. Not all of these options will workout for you and your family, but there will be a best option and that is the option that you need to further look into with your lender.
Wrapping Up: Do I Let My House Go Into Foreclosure
We hope that this post has given you some insight into how we feel about this question. There is only one specific circumstance that you should just give up and let your house go into foreclosure. Other wise, we suggest that you try to stop and avoid the foreclosure process to the best of your ability. In most circumstances, the lender will be more than willing to work with you early in the process because it is very expensive for these banks and lenders to go through the foreclosure process. A lot of homeowners do not think this way, but the last thing these banks want to do is to add more bad debt to their balance sheets.
If you are going through the foreclosure process and are looking for an alternative option to stop the process, we think we may just be what your looking for. We offer a unique solution to the selling process and just may help you avoid all of these negatives associated with a foreclosure and let you and your family move forward without a blunder on your credit report. If this is a process that you would like to learn a little bit more about, just simply click the link below to learn more about the process.
HS Property Funds
Funds to Help, Problems to Solve
(315)516-8023
www.hspropertyfunds.com