Should I Foreclose?

Wednesday, October 27, 2010

This is a question many households are facing in today’s tough economic times. It is a homeowner’s worst fear. As 1.9 million homes have foreclosed since January 1, 2010 it is becoming more and more widespread. Some areas have been hit harder than others. Some states are seeing unprecedented unemployment rates that 4 years ago were unheard of.

If you are behind on your mortgage payments, the first step is to talk to your mortgage lender.  A lot of lenders are willing to work with struggling owners, although it is very time consuming. They are requesting letters explaining your hardship, income verification, tax returns and bank statements.  It is possible to have your current mortgage payments reduced. It is also possible for the past due payments to be added on to the end of your loan. This is referred to as forbearance.   The other option is talking to your lender about a short sale. This is where you sell your house for less than you owe.  Statics show that short sells generally yield a higher sale price than a foreclosure, thus enticing lenders to allow the short sell. You can also remain in your home until the short sale is finalized.

The other question is how a foreclosure will affect your credit report.  It is dependent on a lot of factors, but many homeowners that have chosen foreclosure state their scores dropped by 75 to 100 points. It will vary by each person’s total report and situation.  It will not be the end of the world, nor will it be the end of your credit worthiness. You can build your credit score back up. It may take a few years, but it is very possible.

Our advice is talk to your lender. Find out your options. Look at each one carefully. The worst thing you can do is ignore the situation.  Keep in mind that you are not alone and in time things will turn around.