Long Islanders and New York City residents are still feeling the effects of the housing crisis when real estate prices fell drastically. In 2016, one out of every 137 homes in New York State was in foreclosure, the 13th highest rate in the nation. To make matters worse, the 5-year increase in home values was just 5.2%. This low rate made it difficult for homeowners struggling with mortgage payments to sell at the price they needed to pay off their mortgage. Facing foreclosure can be a devastating experience. You be evicted from your home and your lender may garnish your wages and levy your bank account to recover a “deficiency balance.”
Fortunately, there are effective strategies you can use as an alternative to foreclosure on your home.
Strategies for Alternatives to a Foreclosure
If you are facing foreclosure you may be able to halt the process with a loan modification, a deed in lieu of foreclosure or a short sale. Every situation is different, and real estate laws vary from state to state. For New Yorkers struggling to keep up with mortgage payments, it makes sense to get advice from a specialist who knows current federal, state and local laws.
A loan modification changes the terms of your mortgage contract with the lender. Loan modifications can reduce your interest rate, stretch out the term of your loan and/or add back payments to the end of the loan to lower your monthly payments. Keep in mind that banks are notoriously difficult to work with when it comes to a loan modification.
Deed in Lieu
Homeowners who have defaulted on their mortgage payments and decide not to fight for their home may be able to use a deed in lieu of foreclosure alternative. With a deed in lieu of foreclosure transaction, sometimes called “cash for keys,” homeowners voluntarily transfer the title of the home to the mortgage lender in exchange for release from their mortgage obligation.
The deed in lieu sidesteps the lengthy legal foreclosure process and it can limit harm to your credit rating. However, in some states you may still be on the hook for the difference between what you owe the lender on the mortgage and what your lender recovers. Look at your agreement carefully to determine if deed in lieu is an option under the terms of the mortgage contract.
For many homeowners, a short sale may be the best alternative to the threat of foreclosure. Homeowners who are “underwater” on their mortgage loans owe more to the bank than the property is worth. Falling home prices and some “creative” mortgage instruments like interest only loans put many owners at a financial risk. With a short sale, you ask the bank to take less than what you owe on your mortgage with the sale of your home. Convincing the bank to take less than you owe may seem like an impossible dream, but there are some advantages of a short sale for the bank, and there are certainly advantages for you, the homeowner.
Short Sale Advantage to the Bank
You may be surprised to find that your bank might be willing to work with you and accept a short sale. Rather than end up with your house in a lengthy foreclosure proceeding and suffer a total loss, in a short sale the bank will recover part of the amount you owe. The bank will ask for information about you and your property, and then make a decision about whether or not to accept the short sale offer.
Short Sale Advantage to the Homeowner
A short sale can be the best option for a homeowner facing foreclosure. The short sale is similar to a traditional real estate transaction, while a foreclosure is a contentious legal process. You deal with your real estate agent and your bank, instead of answering to the bank’s attorneys. The buyer in a short sale may be able to absorb some of the money owed to the bank, making it less likely that the bank will seek a deficiency judgment against you.
The long and difficult foreclosure process will result in a severely negative credit rating, making it difficult for you to move on with your life. Poor credit can prevent you from buying a more affordable home or borrow money for large purchases like a car to get to work. Unfortunately, many homeowners are forced into bankruptcy due to a foreclosure. While a short sale also has a negative impact on your credit, the effect is generally not as drastic as a foreclosure.
Proceeding with a Short Sale
Time is not on your side when you are faced with foreclosure, so you have to make a quick decision about the strategy you will use avoid the process. A foreclosure can move in as little as 35 days from the date you receive notice from the bank, so you have to act fast. To convince the bank to accept the short sale offer from your buyer, you will need to put together a short sale package.
The short sale package contains a hardship letter, a Comparative Market Analysis and a balance sheet with supporting documents. Your hardship letter explains why you are having difficulty meeting your mortgage payments, and your Comparative Market Analysis shows the current home values in your area. Include a balance sheet that details why you are having difficulty meeting your payments and include supporting documents like evidence of monthly bills.
How Realty Warehouse can Help
If you live on Long Island or in the five boroughs and you are facing foreclosure, Realty Warehouse can help.
We have an A+ accreditation rating from the respected Better Business Bureau and we specialize in helping homeowners find alternatives to foreclosure and achieve the best outcome. Count on us to offer the advice you need and provide effective solutions in this extremely stressful situation. We offer you short sale negotiation services, and many of our customers close the sale their home in their preferred time period.
Call, click or chat with Realty Warehouse for a 10-minute consultation that can change your life.
This blog is for informational purposes only, subject to change.