Foreclosure 411

Foreclosure 411

The current U.S. housing market and financial crisis have caused tremendous stress and heartache for families across America.

If you or someone you know is among the millions today affected by the prospect of foreclosure, understand that you are not alone.

Foreclosure is a legal process that happens when a homeowner, for a wide variety of reasons, stops paying their mortgage and the lender declares them in default. If this default is not remedied then the homeowner can potentially lose their home.

This default has been caused by a homeowner who has an event in their life that causes a “personal shift.” The primary causes of this shift, which lead to distressed situations, are:
1. Negative Equity from Market Shifts
2. Unemployment
3. Personal Crisis
In any of these events, foreclosure is a deeply personal event.
Let’s explore the causes one at a time…..
Negative Equity - A negative equity situation arises when a homeowner finds the market value of their property is less than the amount they owe on their mortgage. When a homeowner purchases with a very high percentage of debt, a relatively small downward shift in market value can wipe out their equity.
      However, when appreciating markets are increasing the overall value of a home, a homeowner with significant equity can borrow against that equity. But declining markets reverse the process. Unlike refinancing, a personal financial decision, downward market movement leaves the homeowner with a sense of helplessness. Eventually, this helpless feeling can turn to fear if the declining value situation becomes severe.
Unemployment – The increased unemployment rate has significantly triggered mortgage delinquencies. The U.S. Department of Labor reports that the length of time people are receiving unemployment benefits is escalating. Here is a picture from 1940 to 2010.
Personal Crisis – With all of the financial and economic shifting, personal crisis plays a huge role in the distress of a home owner. Some common crises include:
1. Unforeseen medical expenses
2. Job transfers
3. Death in the family
4. Divorce
5. Job loss
All of these events bring forth a financial hardship that can force a homeowner into foreclosure.
There are some alternate paths that can unfold when a home loan goes into default. Here are a few options to help homeowners avoid foreclosure:
Deed In Lieu - "Friendly Foreclosure"
Reinstatement - Bring The Loan Current
Loan Modification - Modify Original Loan Terms
Refinance - New Loan With Reduction In Payment
Forbearance Agreement - Temporary Repayment Plan
Sell Your Home - Use Equity To Pay Off Or Pay Difference In Loan Amount
Short Sale - Negotiate w/Bank To Accept Sale For Less Than What is Owed
Unfortunately, too many homeowners facing foreclosure are unaware of their options and proceed without the assistance or advice of real estate professionals. Now more than ever, you need to find an advocate for you and your family's interests, one who is prepared to handle your specific needs.
As a homeowner, you must be proactive about your current state of affairs. Do not ignore the letters from the bank! Avoiding foreclosure is easier the sooner that you begin the journey! Don’t let time run out… There is a huge difference between life AFTER foreclosure and life WITHOUT foreclosure!

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