Thursday, April 22, 2010

Foreclosure Myths

The traditional news media, as well as firms throughout the Internet, have created an environment in which foreclosure myths are rampant. Sometimes it seems like that's all you hear about whenever there is a discussion about real estate.
If you are a real estate professional, a foreclosure investor, or just a homeowner worried about the possibility of foreclosure, it's worth a few moments to review some of the more common misconceptions out there these days surrounding the foreclosure process.
First, if you miss a few payments the bank cannot simply make you move. Each state varies as to its procedures, of course, but in every case there is a legal and most often time-consuming process that the lender must go through before someone will be required to move out of their home.
Next, and this is a really important one, don't think that your obligations end with a foreclosure proceeding. Unless you had enough equity in the house to pay off all the mortgage holders, all the taxes and any contractor or other liens, you are likely still liable. In addition, the amount your home sold for, if less than what you owe, is considered taxable income to you (check with your accountant on this one). Any other possessions you still have are at risk.
Bankruptcy is, obviously, a serious matter. In some states, it doesn't even do that much to slow down the foreclosure process. In every case, your credit will be ruined for a long time, at least seven years.
Being in the process of foreclosure does not automatically mean that you cannot get other financing. It certainly won't be easy, but it is possible, especially if you have equity left in your house and can prove it with a good appraisal.
After foreclosure, don't necessarily give up on home ownership. You will need a solid down payment and be able to prove a stable source of income. Your rate may be higher. However, there are lenders that will look at your situation after as little as two years. Also, the large number of foreclosures has created many new real estate investors. Some may be willing to let you "rent-to-own" or to hold your mortgage privately.
After being sold at a foreclosure auction, you may still not have lost your last chance to keep your house. This varies by state, but in some cases there is a grace period a right of redemption -- for you to try to arrange new financing, even after the last gavel at the auction.
There are times when you are better off letting the house go. For example, so many homeowners today are "under water" on their mortgages, in some cases substantially. This means that falling home prices, together with lax down payment requirements, have created a situation where your home is worth less than what you owe on it.
While no one will try to tell you that foreclosure is just fine, the truth is that many foreclosures are the result of reasons that, while unfortunate, are completely explicable. Consider divorce, death and sudden medical bills, just to name a few examples.
Remember: Your bank does not want your house. These days, they almost always lose money, and valuable time, on foreclosures. They want to see you stay in it if possible.
There are many myths about home foreclosures. If you are an interested party, it is always advisable to look into the applicable laws of your area.
By: Julie Thompson

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