Impact 5: Foreclosure, short sale, loan modification - which is for you?

As massive housing upheaval plagues South Florida, former President of the Realtors Association of the Palm Beaches, Bill Richardson, has had a front row seat.

"Numbers are very close to fifty percent of the properties in South Florida, residential properties, that have a mortgage, are under water.  Meaning the folks owe more on it than what it's worth in today's market," he said.


For example, if a home was valued at $200,000, and the owner's loan from the bank was $180,000.  Yet, after the market has suffered recent changes, the home is now valued at $100,000.  When a homeowner faces financial trouble, they cannot make payments, but they still owe the bank.  This could potentially be the beginning of a foreclosure.

"Foreclosure is not a noun, it's a verb, it's a process," Richardson said. 

That process can take years.  If you do nothing to pay the bank, eventually, the lender will foreclose.

"If you're going to be evicted out of your property, your credit is really going to be damaged severely, it's not really the best option."


Short Sale

Under a similar situation, the homeowner owes the bank more than their home is worth and they are having trouble making payments.  Yet, in a short sale, the owner finds a buyer for the house at the current market value, and the bank agrees on the sale. 

"Usually on a first mortgage, you get pretty much a full release, you get what's called on your credit report, 'paid in full for less than the amount owed.'  At that point, your delinquent payments stop and your credit repair is much faster," explained Richardson.

A short sale is more beneficial to the bank and the homeowner in many ways than a foreclosure, because the homeowner does not take as big of a credit hit and the bank isn't left to pay other outstanding fees like HOA and delinquent taxes.

"Basically you get a do-over, you live to fight another day," explained Richardson.


Loan Modification

If you wish to stay in your house, there is another option.  Reducing an interest rate, extending the length of your mortgage, making payments more affordable or possible changing the principle balance would be considered a loan modification. 

"Almost anything can change, it's what the lender is willing to change," explained Richardson.

Changing expectations from a lender can be easier said than done.


Richardson suggests that each homeowner consult with a real estate agent before deciding what will work best.  Each situation is different, and the key is understanding what you are doing and how it will change your future.


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