Preventing Foreclosure

As a local real estate agent I have become very concerned about the rising number of foreclosed properties in our community. Banks own currently about 20% of the homes listed in the 20148 zip code. A foreclosure is terrible for all those involved. Of course the family whom is loosing their home is devastated and the bank is not very happy about it either. In a much broader sense it affects the local community because most of these homes sit vacant and are not maintained for extended periods of time. We have all noticed the uncut grass and burnt out lights to say the least. However what concerns me the most is that in many cases the whole mess could have been avoided. Let me explain how and I will start with a little back round information.

Some homeowners are in trouble because of recent price declines. Home prices peaked in the spring of 2005 when the number of available homes for sale dropped to its lowest levels in years. People who purchased a home with little money down or refinanced a home around that time are the most likely to have negative equity. That is they owe more to the bank than they could sell the home for. Negative equity is not a negative situation for most people as eventually home prices go back up and the situation goes away. The problem arises when the homeowner is no longer able to make their payments. This often occurs due to unforeseen circumstances related to their income such as illness, family emergency or divorce. When prices are going up people in trouble can usually sell their home, pay off the mortgage and leave the closing table with a nice size check to help them weather the storm. In a negative equity situation coupled with the current down market most people mistakenly think foreclosure is the only option when encounter hard times. For example Mr. and Mrs. Smith bought their dream home in the summer of 2005 for Five Hundred Thousand dollars. They both work full time and can make the payment with out putting any money down which they do for the next twenty-four months with no problem. But then Mrs. Smith has to leave her job to care for an ill parent. They use their savings to help pay the mortgage for a while and when that runs out the credit cards get maxed out. Now what? Their home is worth Four Hundred Thousand dollars and they owe Five Hundred Thousand. They have no money and loads of debt! They are soon two payments behind on their mortgage and the banks collection department is calling every day. They are embarrassed and don’t tell anyone. Mr. And Mrs. Smith make a very tough choice and move in with her parents and let the home go to foreclosure.

Now lets look at the same example from the banks perspective and what I refer to as a bank is probably a Mortgage Company. I will bet it is very different than you or the Smiths would imagine. The bank notices that there is a problem after thirty days goes by and no payment is received. They start calling the Smiths but no one answers. Finally after a dozen messages they get a call from the Smiths who explain the situation to the collection department representative whom is trained to collect money not help people. So he keeps informing them that he is very sorry for their troubles but unless they catch up the bank will be forced to, you got it foreclose. In reality it is the last thing the bank wants to do. Banks want to lend money not throw people out of there homes or own real estate. As a matter of fact most banks cannot stay in business if they have too many foreclosures. Most are public companies that must publish their foreclosure rates and if that rate is to high no one will invest in them anymore. Out of business they soon go. Over one hundred have done so in the last year all ready.

So what did the Smiths do wrong? They didn’t tell anyone! If they had sat down with a competent attorney, CPA or real estate professional they would have learned that banks in an effort to stay in business might have taken Four Hundred Thousand as payment in full, too prevent another blemish on that all so important foreclosure rate. Not to mention that if the home is worth Four Hundred Thousand as a pre-foreclosure sale it is worth far less on the courthouse steps. Most collection department employees will not bring up this option because they are not trained to do so. Hard to believe that a bank would just forget about One Hundred Thousand dollars that is owed to them? I participated in a recent pre-foreclosure sale in Broadlands, which was much more than that amount!

So if anyone finds them selves unable to make there mortgage payment please remember to seek assistance from a competent professional. Make sure the individual you are dealing with has had some success stories in avoiding foreclosures. It takes a lot more time and effort on their part and many are not familiar with all the options.

Steve Campot is a local real estate agent living the Broadlands community. If you have questions or comments please email him at steve@sgcrealestate.com

copyright 2008, all rights reserved.

 

Hi Steve,

That was certainly an interesting post about foreclosures. Could you recommend a competent attorney, CPA or real estate professional? My friend and I have townhomes that we purchased in 2005 - interest only 5/1 adjustable. We are current with our payments, but want to switch to fixed rate. My mortgage company won't work with me at all - they want an appraisal to come in at $500K when in reality my comps. are about $120K less than that. The mortgage company expects me to pay the difference.

We really need to talk to a professional on what to do before they re-adjust in2010.

Judi

 

Hi Judy,

I would be happy to help as I am a real estate broker. You do have some options, so please give me a call at 703-399-5109.

Steve