If that’s the probability then consider this…
COMING TO A PRACTICAL DECISION –
Over 32% of homeowners today are underwater, which means if you’ve been living in a cave (with equity) that their loan(s) exceed the value of their home.
If your home is slightly under water and you can afford the payment this isn’t something you need to read, but if you’re in trouble and way underwater read it.
Most have elected to continue making their payments, but many even though they would like to, simply can’t afford to make their payment.
But many have come to the conclusion that what is called “strategic default” makes more sense.
You tried for three months to get a loan modification and paid your credit cards on time to preserve your credit. You’ve depleted your savings and maybe your retirement funds. That causes tax problems next year.
Even if the loan modification came through the lower payment still isn’t enough to help you make it even comfortable to live normally.
THE EMOTIONAL DECISION
Okay so you know the reality of the situation is that the best thing to do is live in cheaper housing. Ironically the cheaper housing is YOUR SAME HOUSE either down the street or in a better neighborhood that is for rent that was foreclosed on.
But you have two things that keep stopping you; the a) the shame of it and B) the consequences of the unknown if you have to move. Well let’s address those two obstacles to a positive conclusion.
Q. You think what will people think if we let the house go? The shame of it all!
A. Well, the truth is they might be a month ahead or behind you with their own situation that resembles yours. Tell them that you were willing to pay on what the house was worth but the bank insisted you pay (ex: 6.5% interest on $150,000) on equity that disappeared and costs you about $800 a month plus insurance and taxes on that amount. Ask them why that makes sense when the projections are the values in housing could take 8 to 20 years to come back.
Q. What are the consequences?
A. You can live in the same or better house for half the cost. In reality houses are worth what they can rent for. Just ask any Realtor right now what investors are paying for houses and the answer will be “what they can rent for”.
So if your house can rent for $1,200 a month and your payment is $2,400 you’ll find a rental just like your house for $1,200 and you won’t have to pay taxes or insurance or major maintenance bills!!
THE REAL SHAME IS NOT PROVIDING SECURITY FOR YOUR FAMILY. THE HELL WITH WHAT THE NEIGHBORS THINK. Secretly they are probably thinking “gee that does kind of make sense”
You might ask the pertinent question; “but who would rent to someone that just went through foreclosure?” To answer that question just go to Craig’s list and look under rentals and you’ll see many say bad credit okay. Investors who own these houses understand and want them rented to responsible people who are on hard times. The owner is probably not planning on selling soon as they are either upside down themselves or bought it right and know it will take years to make a profit.
SO HOW’S THE BEST WAY TO DEAL WITH IT YOUR STRATEGIC DEFAULT?
STEP #1 – Try a Loan Modification if you haven’t already
Request a loan modification of your current payment if you haven’t already done so. Most lenders will not file foreclosure proceedings if you are in negotiations. But this has become a variable in the last year, but could buy you two to three months.
If they reduce the payment enough it will make sense to stay if you’re not making that $1,200 additional interest payment anymore.
STEP #2 – stop making your payments
At first month you will get calls. There are ways to deal with these to defray the annoying calls professionals can explain to you. After about two months they will probably send a warning letter then the following month start foreclosure proceedings. In foreclosure you are not legally bound to make payments so that cash can go many places and this is one.
So at this point you have saved about 3-4 house payments and hopefully socked it away or used for family expenses.
STEP #3 – Initiate foreclosure delay
The government has a law called the Fair Credit Reporting Act. Within this Act is another Act called the Federal Debt Control Practices Act, which allows legal disclosure of your loan documents and why the foreclosure has been initiated, among other things. You have a legal right to request these things.
There are several legitimate legal firms who know how to delay a foreclosure and even stop a foreclosure sale date through these legal remedies. In some cases loans have been forgiven due to grave errors in disclosures when the loan was taken out.
We would encourage you to talk to several attorneys, who can be found on the internet and ask to speak to people they have represented. They will want a portion of what your payment was and probably a small amount for each month they keep you in the house. The amounts will be much less than your mortgage payment or rent you would pay if you had to move. This keeps you in the house and gives you financial relief.
STEP #4 – Planning for the future – your in control now not the bank
So adding these delays plus the normal legal time frame you could be in your home for up to a year. During this time you need to start looking around for comparable housing even though it’s probably months away and determine rationally with your family where is the best place to move if you have. Schools could be an issue, commute, recreational activities. Ironically you might improve some of these facets of your lifestyle with the move.
Remember the house you really wanted five years ago but couldn’t afford? Well it’s gone down by 30% – 50% and been foreclosed on and now for rent at half your current house payment. Think that’s not true check out Craig’s list.
YOUR CREDIT
Yes it will be severely impaired. But remember two things, 1) there are companies that do repair credit or do it yourself credit repair software programs available that work. 2) your huge savings in payments will outweigh what a poor rating for a year or so might cause. And if you do need to buy something on credit in the foreseeable future; do it now while you still have good credit. If you know you’ll need a new car in a year now couldn’t be a better time to buy one with the shape the car industry is in.
Also this is a good time to negotiate short payoffs to your credit card companies. When they see you have a financial hardship and are in foreclosure they would be happy to talk about pennies on the dollar for a settlement. Remember you’ll have the cash from your house payments to possibly do so. Here again there are companies that can help you do this. Again use caution check them out and talk to people they have helped recently.
In closing the housing market will suffer more depreciation in value due to more foreclosures, which is being caused greatly by our unemployment and mortgage rates rising starting this year. Less qualified buyers, more houses equals less equity than ever and more quality rentals at cheaper prices.
You think you’re under water now just wait it’ll get worse long before it gets better.
If you can afford your payment and don’t mind waiting it out and don’t want to go through the above, which many are doing, stick it out. But if you’re stressed, broke, scared and worry about next month’s bills you might want to analyze this strategic foreclosure plan as an alternatives.
What’s smarter; paying the bank money on equity that’s gone or making sure your family is secure.
And guess what in two years after a foreclosure FHA will give you a home loan again. By this time prices will have dropped, your credit will be repaired and you’ll be debt free.
Loan Modifications are becoming easier now that the government and regulators are putting the pressure on the banks for results. With our do-it-yourself Loan Modification eBook you will have all the tools you need to do your own loan modification without paying anyone a dime.
For more information about mortgage loan modification, please visit us at: Help With Loan Modification