Foreclosure Blog

By Gina Gardner
NFNS Columnist

Gina Gardner writes for an online media company specializing in mortgage and business issues. Her career highlights include auditing and tax with Deloitte, systems consulting with Experian, and loan consulting with Centex. She earned her degree in Financial Management from the University of Nevada.

1 April 2008

Home Foreclosure: It Doesn't Pay to Walk Away

Popular media are making it seem like a tempting proposition. If you owe more on your home than it's worth, why keep throwing good money after bad? Just walk away! In fact, one article suggested that homeowners shouldn't wait until their credit takes a hit from late mortgage and other payments to dump their houses. Here's the deal: go buy a new home, similar to the one you have but for much less money -- due to lower property values you might be able to score a great deal. Then just let your old house go. Brilliant financial strategy, huh?

Not really. It's a misconception that every time an investment's value drops you lose money. When your home's value inceases, you might feel richer, but you don't have more money in your pocket unless you sell it. And when property value drops, you aren't any poorer unless you have to sell it at a loss. These kinds of gains and losses are referred to as "unrealized" or "paper" because they don't have a real impact. However, the surest way of turning a paper real estate loss into a real one is to allow your home to go into foreclosure.

The reason is what is referred to as a "deficiency" judgment. In almost every state, your lender can foreclose on your mortgage, sell your property, and come after you for the difference between what you owed them and what they got for the property -- plus attorney fees, interest and penalty charges, and any other costs they incurred. And if you walked away from a mortgage you could have paid it is extremely likely that your lender will be awarded all of that money. And if you hope to avoid the deficiancy via bankruptcy, think again. New bankruptcy laws mean that if you have an extra $100 a month after paying expenses deemed necessary by the law (referred to as a "means test"), you don't qualify to walk away from debt with a Chapter 7 bankruptcy.

In addition, once you have a foreclosure on your credit report you will be paying a lot more for credit of all types for a very long time. Most underwriters consider a foreclosure the absolute worst thing you can do to your credit, and few lenders will be anxious to put themselves in the role of "sucker" the next time you need a loan. So 'walking away' when you have other options not only hurts your neighbors, your lender, and your reputation (foreclosures are public records) -- it's a bad move financially.

1 April 2008

Home Foreclosure: It Doesn?t Pay to Walk Away � Avoiding Foreclosure

Home Foreclosure: It Doesn?t Pay to Walk Away � Avoiding Foreclosure

15 October 2007

How Much Help Will the Government Provide?

How much assistance can homeowners in foreclosure expect from federal agencies? According to Alan Zibel of International Business Times, not much. With consumer spending continuing, a vigorous stock market, and a jobless rate indicative of economic health, the fallout of the housing crash doesn't seem to be taking our country down, at least not as much as expected. The sky has not fallen yet.

�The remaining lenders in the business appear to be correcting for past excesses as the market forces lenders to change their products and how they are sold. And almost every state has pending legislation adding more regulation and oversight (some good, some bad) to the already highly-regulated industry.

But don't hold your breath waiting for federal bailouts. While some grandstanding candidates try to make themselves look good by calling for complete reforms and open wallets, cooler heads are prevailing. Federal Reserve Chairman Ben Bernanke stated that the Board has "an obligation to prevent fraud and abusive lending. At the same time, we must tread carefully so as not to suppress responsible lending or eliminate refinancing opportunities for subprime borrowers."

Thank you, Mr. Bernanke. While speculators who got to the real estate party too late and financed irresponsibly are hurting (and yelling), people have missed the fact that the overwhelming majority of subprime or alternative borrowers are effectively making their payments. The greedy (lenders and borrowers) and those who made poorly-considered decisions (seemingly adults who can read and legally sign contracts) are paying the price and taxpayers are not lining up to bail them out.

So, if you were a victim of circumstances, defrauded, or made a mistake with your mortgage, your best bet is to call HUD at 800-569-4287 and talk to a counselor (this government agency is there to advise you and help you work with your lender or perhaps get into an FHA loan to resolve your mortgage problems). And if you are a victim of lender fraud, your HUD counselor can most likely direct you to the proper agency to make a complaint. �Don't wait for a bailout--call HUD now and perhaps you can avoid foreclosure and loss of your home.

25 September 2007

Taking Responsibility

The media, mortgage professionals, financial market insiders, and consumer advocates have been playing one huge game of "keep away" with the blame for the mortgage mayhem in the subprime and Alt-A markets. Politicians are getting in their sound bites with "calls for sweeping reforms" and "more oversight" ad nauseum. And missing the point.

The bottom line is that the vast majority of these loans were made with full disclosure and the lenders followed all applicable state and federal laws. There is no reason that the borrowers, presumably competent adults with the legal capacity to sign binding contracts, should be claiming "victimization" now. Lenders do disclose what payments and rates are, and monthly statements on option ARMs do show the balance and what payment it would take to fully amortize the loan. Alt-A, subprime, and option ARMs can be great loans when taken for the right reason and with a plan in mind.

Because people got greedy and wanted to show off in a house they couldn't afford, or hoped to speculate in an insane housing market and got bitten on the butt is no reason to do away with loans that the majority of borrowers have handled successfully, and that have been in part responsible for a significant increase in home ownership according to the Federal Reserve. Because some lenders were foolish enough to make loans that obviously couldn't be repaid is no reason to penalize the more prudent ones in the industry. And the fact that some borrowers and lenders screwed up is certainly no reason for taxpayers to take a hit bailing them out. Let them go down as they deserve to. The industry will be stronger for it in the end.

12 September 2007

Foreclosures Affect Us All. Learn About Proposed Laws In Your State.

The spike in home foreclosures isn't just bad news for the poor sucker down the street who's losing his house--we're all poor suckers, but most of us don't know it yet. Foreclosures in the neighborhood can tank the value of your own home, and a rash of foreclosures can turn nice parts of town into graffiti-ridden eyesores as owners leave and renters or squatters move in. A study in Chicago, The Impact of Single-Family Mortgage Foreclosures (PDF), indicated that the social costs of rising foreclosure rates include increases in violent crime and family dysfunction.

And finally, Marketwatch claims that foreclosures in the US have caused instability in our stock markets and created a domino effect on financial markets throughout the entire world.

Every state in the US is either considering or has enacted legislation regulating the lending, real estate, and credit counseling industries more carefully, providing emergency bailout loans for homeowners who qualify, adding counseling services for homeowners, scrapping non-judicial foreclosure, and other solutions designed to protect homeowners from foreclosure.

So if you own a home, send kids to school, prefer to walk around your town without being mugged or worse, or do any investing, the foreclosure crisis affects you. And you should care. Check out the 2007 Foreclosure Legislation site, which lists pending or newly enacted legislation in your state, and if it makes sense to you let your representatives know that you support it.

19 July 2007

HOA Extortion

Foreclosure doesn't just happen to people who don't make their mortgage payments. Your homeowner's association (HOA) can take your house or condo if you're not careful. In one case, a disabled California man lost his home in a foreclosure sale because he was $123 behind on his homeowner's dues. The house was worth $280,000. Unfair? Abusive? You bet!

I feel his pain. I had a beef with my homeowner's association because I was paying $200 a month and the management company was supposed to take care of snow removal. Well, they didn't, and I ended up paying a towing guy to winch my car through the snow and into the street so I could get to work. I deducted the costs from my next HOA dues check, and the fun began. The threatening letters began showing up. I wrote back, telling them to pound sand (only not that nicely). I sent my checks in for subsequent months and they returned them, saying I had to send the full amount that I "owed" them. Eventually I got a notice that they were initiating foreclosure proceedings, saying I owed them all this money (the original dispute was less than $100), and they had added all these late charges and exorbitant lawyer's fees, etc. Basically they were holding my condo hostage and I ended up paying a huge "ransom" to get it back.

The process, called non-judicial foreclosure, is used and abused by homeowner's associations all over the country. There are even lawyers out there who advise the HOAs on how best to steal your property and force you into foreclosure! Here's an example: http://hunterlaw.net/assessment_collection.cfm. Finally, the media and public began pressuring politicians to curb the excesses of the HOAs and protective legislation has been proposed or enacted in several states. See this Realty Times article for more information about the abuse of homeowner associations and legislative efforts to stop it. http://realtytimes.com/rtcpages/20060104_newlaw.htm

Now, what can you do as a homeowner to prevent non-judicial foreclosure? First, pay your dues even if you have a problem with your association. Had I been smart, I would have paid my full dues and sued them in small claims court for my towing cost--and avoided foreclosure threats. Second, if you find yourself in a foreclosure proceeding with your HOA you may have a right to arbitration by a third party, or a right of redemption, which allows you to buy your home back--check with a lawyer in your state. Finally, if you find yourself unable to pay your dues, a timely cash-out refinance or home equity loan may get you the cash you need to pay your dues and avoid foreclosure. The worst thing you can do is get into a pissing contest with your HOA--it's like trying to fight city hall.