5 Reasons why you should not walk away from...Posted On: September 2010
5 Reasons Why You Should Not Walk Away From Your Home In Foreclosure
1. You still own your home, the bank does not. Illinois’ foreclosure process is that of Judicial Foreclosure, and it is one of the lengthiest in the U.S., typically extending out until 7-9 months from the time the first judgment is filed. Before your home has been purchased at foreclosure auction, your home has not yet “foreclosed”. This gives you, the homeowner, full power to repay the debt, work out a plan with the lender for repaying the debt, explore other options, or to sell the house on your own for repayment of the debt.
2. You miss out on many possible assistant measures that could have helped save your home from foreclosure auction.
Loan modifications, workout plans, and other government plans are already in place to assist you in saving your home – you just have to know where to look. The first step is talking to your lender, and asking for someone in their mitigation department who may be aware of possible workout options. Chapter 13 Bankruptcy is also an option that can delay the foreclosure process. It is important that you consult with a real estate attorney as soon as possible to discuss all legal options for stopping your foreclosure auction.
3. If you owe more than what your home is worth, you can still find a buyer for your home. Two words: Short Sale. If a judgment obtained against you is higher than the market value of your home, your bank may be willing to short sell your home. A short sale involves listing your home for the current market value, not what the bank says you owe. Doing a short sale should not cost the homeowner anything, and the impacts are far less worse on your credit (anywhere from 50-200 points versus 200-300 points with a foreclosure). The wait for a Fannie Mae insured loan is also easier with a short sale on your credit report (typically 2-3 years versus 7 with a foreclosure). Steer clear of working with fly-by-night real estate investors who are not licensed. Listing your home with an experienced Real Estate Brokerage who works with attorneys who specialize in short sales is your best option for getting a short sale done prior to foreclosure auction.
4. You miss out on the “Cash for Keys” Program. Many lenders and mortgage companies offer a “Cash for Keys” program in which they will give a cash settlement to the homeowner in return for the keys, a quick vacate, and a promise that the home will be left in good condition. The advantage of this program for the lender is that they get their collateral back quickly so they may resell the home to recoup their funds, and do not have to go through the costly, and lengthy, foreclosure and eviction process. This also gives the lender some assurance that the property will not be left vacant, and will be left in better condition. The advantage for the homeowner is that they get a little extra cash for moving. “Cash for Keys” should only be considered as a last resort, because after the paperwork is signed, there is no going back.
5. Your credit score will plunge. A foreclosure auction is typically considered the biggest red flag that can appear on your credit report, and can typically drop your credit score 200-300 points. It is usually not the foreclosure mark itself, but the 30, 60, 90, 120, 150, 180+…days of missed payments that make the biggest impact. If you currently have a ‘good’ score of 700, a foreclosure ding on your credit report could drop it as low as 400, which is much lower than current lender requirements to mortgage a new home, or even obtain a new car or credit card (at interest rates that aren’t sky high). Your credit score not only limits your purchasing power but also is viewed by potential employers or those who you want to do business with. A foreclosure can remain on your credit score for up to 7 years.
Foreclosure can be stressful and confusing, but homeowners should realize they can still be in control and have options to prevent an auction from taking place.
Editor: Tiffany Brewington
Illinois Licensed Realtor
Posted On: September 2010
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