A problem that is frequently happening to homeowners is their home has more mortgage than market value. With the severe decline in real estate markets across the country, the hardest hit areas have hundreds of thousands of “upside down” mortgages. Simply, this is where the amount owed on the property is more than the value at which the property can be sold, even if the homeowner is willing to make the payments and wait for possibly years. The adage is familiar to everyone “why throw good money after bad” with the result that homeowners across America are simply walking away from their mortgages and letting the lender take their homes back by foreclosure.
This market pressure of homes coming on the market further compounds the problem with falling home values and fewer homes being sold at any price except well below what was considered fair market value (FMV) just months before. The decline has stopped in many parts of the country and will stabilize in the coming months. Until then, the homeowner in a distressed market with an upside down mortgage is forced to make a decision about his future and whether it makes economic sense to make the mortgage payments or not.
One option to the homeowner who wants to leave his home is to offer the lender the deed to his home and simply walk out the front door never to return. So if the lender had a chance to get the deed why wouldn’t they take it so the foreclosure process with all its costs would be avoided? One reason not so obvious to the homeowner is the accounting practices of the lenders. It is more beneficial to have a foreclosure in progress than to have a bank owned property, called “real estate owned” (REO) property. While the difference is relatively small to the lender’s accounting system, when multiplied by thousands of foreclosures, the REO’s can be a financial catastrophe. More often, the lender has gotten a Broker’s Price Opinion (BPO) or appraisal as soon as the homeowner is 90 days late on his mortgage. The lender knows exactly how much trouble they are in when they take the home back by a deed in lieu of foreclosure or by a foreclosure action that turns the property into an REO.
If the property is encumbered by a second mortgage and other liens such as mechanic liens or any junior mortgages or judgments, the only way the lender can safely take the property back is to “extinguish” these junior liens and get free and clear title after the foreclosure action. So if the homeowner calls the lender and requests to give a deed to the lender, the lender will do his research first to see whether the foreclosure process is necessary.
A homeowner in foreclosure who has no junior liens, mortgages or judgments against his property should call the lender directly and request the procedure for the lender taking the deed from him. Caution – if the lender says the homeowner must fill out a financial statement and give a “hardship letter”, the homeowner must remember that the lender can use the financial information to get a judgment against the homeowner later if the residence is not the homeowner’s homesteaded property or if the homeowner has other assets that can be attached by a judgment. Get legal advice from an attorney who is competent in dealing with real estate transactions about what information is actually needed by the lender to take the deed, and remember if there are junior liens, the lender will never take back a deed in lieu of foreclosure no matter what they tell the homeowner.
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Repossession of houses and properties has been a problem for millions of people all over the country. The lack of money to pay for the loans and mortgages is the main reason for the occurrence of this problem. In order to deal with the increasing number of repossessions, the government has directly intervened. The financial traps and disruptions which have caused the problems are being corrected. This would include uncontrolled lending and approval of loans and mortgages. Many banks and lending companies lowered the requirements and criteria needed to approve an applicant who needs to borrow money. This has been done in order to increase the earnings of the bank. By accepting more borrowers the monthly payments received by the bank would double. But the banks were not able to predict that people belonging in the middle and lower class would lack the payment required in the long term. Once the debt has accumulated, the banks and lending companies were compromised. Due to the rising prices and disrupted money flow, many companies were not able to sustain the financial requirements needed to sustain their operations. This resulted to job loss of millions of people.
In order to prevent home repossessions, the consumers should follow several pointers. Instead of investing all of the money acquired in the stock market, people should have tangible and accessible wealth and assets. This can be in the form of gold, properties and houses. Millionaires who put all their money and resources in stocks and currencies lost all of it which resulted to repossession of homes, cars and other properties. Tangible properties would not be greatly affected and depreciated. It can be used as bargaining tools in order to cancel the repossession of homes. Many banks have collateral programs which can be used to cancel the home loans if substantial properties can be surrendered. The properties are fairly prices in order to provide good deals to people.
The consumers should plan ahead carefully in order to avoid home repossession. This is necessary in order to avoid financial losses, deficits and bankruptcy. This is necessary in order to have a secure living condition.
(ArticlesBase SC #3621256)
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