Short Sale and Foreclosure Options … Part 2…
Additional options exist for homeowners who are facing financial difficulties and are, or believe, they will be unable to meet mortgage payment(s). Gone are the days when the person who defaults on a mortgage is considered a “deadbeat”. Most people today know a hard working person who has defaulted because the challenge of one situation causing financial hardship, was one too many.
The hardship can be as simple as a relocation to keep a job. When a person owns a home and is relocated and then must carry two properties; a home in the old location, and a rental property in the new destination, the additional cost can be enough cause financial hardship. Yet the person had to move to keep his/her job. Properties may not be selling in the old location for the price of the loan amount. A short sale may be the only option. Prior to the move, the anticipated hardship may be sufficient grounds for the lender to permit a short sale.
Members of our Military face hardship when they are redeployed for longer periods of time than originally anticipated. The Service Members Civil Relief Act (SMCRA) provides protections and caps all interest for active duty military personnel, incurred prior to their active status, at six per cent. This includes credit card debt, automobile debt, and mortgage interest debt. Proof of active duty must be provided. All active duty military personnel should review all of their debt obligations and invoke SMCRA for any debt carrying more than a six per cent interest rate.
If the value of the property is greater than the loan amount, the property can be sold at a realistic price. In areas which continue to face depressed pricing, this is a viable option. The price offered on a property a year ago (often which sellers turned down), seem ridiculously high in today’s market in many areas. Pricing must be ahead of the curve.
A controversial solution, and one not advocated by Realtors is “Strategic Default”. Homeowners begin thinking about strategic default when their property has decreased in value 20 to 25% . Homeowners are able and continue to make mortgage payments, but feel they are paying for something which garners no value. In many areas of the country, property values have decreased 30% or more. Residents do not see values coming back for ten years or more. Homeowners “Walking away” is a deliberate personal business oriented move.
Moral and ethical considerations of strategic default are debated, against the dilemma faced by people who can afford their mortgages, but see people who have been irresponsible in their money management, get cash for keys (a program where the lender pays up to $1500 to the homeowner to vacate after foreclosure).
Regardless of the path chosen by the homeowner, credit will be impacted. Foreclosure will cause the most damage. It is imperative that people who believe they will face a financial hardship contact a Realtor to discuss options, or seek the advice of a credit counselor who will not charge any upfront fees.
I am happy to provide additional information: e mail me at firstname.lastname@example.org and put BLOG in the subject area. If you need to find a qualified Realtor to help you, I can help.
Service Members Civil Relief Act: http://www.military.com/benefits/legal-matters/scra/overview
Strategic Default: http://en.wikipedia.org/wiki/Strategic_default
Department of Housing and Urban Development: http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure
Note: Hud.com is a commercial site and is not the Department of Housing and Urban Development…make sure you go to HUD.GOV