You can be a responsible homeowner and still find yourself at risk of foreclosure. Like many others who live on Long Island and in the five boroughs of New York City, you may be struggling to make your mortgage payments. To make matters worse, you might be “underwater” and owe more to the bank than you can get from the sale of your house. If this sounds like your predicament, take heart. There are steps you can take to prevent foreclosure and a devastating negative effect on your credit.
Problems Leading to Foreclosure
If you are finding it hard to meet your monthly mortgage payment, chances are you encountered a problem beyond your control. You may have lost your job due to an economic downturn, or you might be faced with medical bills that put you in financial distress. A divorce or unanticipated major expenses may have led to mounting pressure and suffocating debt. Homeowners with adjustable rate mortgages can run into trouble when the interest rate on their loan goes sky high and their payments increase. Whatever the cause of your present difficulty, it is important to act quickly to avoid the worst possible scenario – foreclosure.
Alternatives to Foreclosure
For many homeowners, a short sale is the best option to avoid foreclosure. Getting the bank to agree to a loan modification and change the terms of your mortgage can be an uphill battle. In the end, you may find yourself agreeing to bad deal with high monthly payment and costly 40-year terms based on a value that is more than your house is worth. It is also entirely possible that the bank will reject your request for a loan modification outright.
For many, walking away from the home in a deed in lieu transaction is not a good option. With a deed in lieu you walk away from the house and hand over the keys to the bank in return for release from your mortgage obligation. However, you may be responsible for taxes on the “deficiency balance” if the bank reports the forgiven loan balance as income.
Homeowners at risk of foreclosure often choose a short sale. In a short sale, you sell your home at a loss and the bank accepts the deal, even though the sale does not produce enough to pay off the balance of the mortgage. If you find yourself in a difficult financial situation through no fault of your own and you do not have many attachable assets, you may find that the bank is willing to forgive the balance.
Benefits of a Short Sale vs. Foreclosure
Compared to going through a foreclosure, a short sale is often the better option. Keep in mind that you need the approval of your lender to do a short sale because the bank must agree to accept less than the amount you owe. A short sale is handled like most common real estate transactions through a real estate agent. You maintain control of the timeline and you deal with the buyer, not an army of attorneys who represent the bank. Your bank may find you eligible for a short sale even if you are current on your mortgage payments. With a short sale, your credit will take less of a hit than with a foreclosure – sometimes as little as 50 points if you do not have any late payments. You may be able to buy another, more affordable home sooner with a short sale than with a foreclosure.
In a foreclosure, the bank ends up with your home. If you are 30 days late on your mortgage payment, you will typically receive a notice of default from the bank and you will receive a late charge. If you continue to miss paying your mortgage payments, the lender will inform you that they are starting foreclosure action. Your credit score can drop up to 400 points during a foreclosure due to late mortgage payments, you will be evicted from your home, and it can be up to seven years before you are eligible to apply for another home loan. In New York, the foreclosure process typically takes around 15 months to complete.
Convince the Bank to Accept a Short Sale
All things considered, convincing the bank to accept a short sale offer is generally a better way out for both you and the lender. Although a home that is sold in a short sale generates proceeds that are less than the amount you still owe on the property, your bank may be willing to accept the offer. The last thing the bank wants is to have a house on their hands that they have to turn around and sell. By accepting a short sale, the bank can avoid substantial costs that are associated with a lengthy foreclosure.
To convince the bank to accept a short sale offer on your property, inform the bank about the local real estate market and current home values. A Comparative Market Analysis (CMA) will demonstrate a reasonable market value for your home. If prices are falling, the bank may see the advantage to accepting the offer. Show your lender that the buyer is committed to buying your house. Have the buyer obtain a preapproval letter from their lender, show evidence of the deposit and supply a bank statement as proof of funds to purchase your home.
Foreclosure: Time is of the Essence
While there is a way out of foreclosure, time is of the essence and you have to act fast. In New York State, you have 90 days from the time of your pre-foreclosure notice until the lender starts legal action to bring about foreclosure. If you decide to try for a short sale, it makes sense to partner with an experienced short sale specialist. A knowledgeable short sale agent can negotiate the short sale with the bank on your behalf, instruct you on composing a hardship letter and guide you through the entire process.
Realty Warehouse No-Charge Short Sale Services
Realty Warehouse helps homeowners who live on Long Island or in the five boroughs of New York City and are faced with foreclosure. We enjoy a coveted A+ accreditation rating from the prestigious Better Business Bureau for our work with hundreds of homeowners to help them when they are in financial distress.
Call, click or chat with Realty Warehouse for a free 10 minute consultation that can change your life.
This blog is for informational purposes only, subject to change.