Homes in Foreclosure

The number of homes in foreclosure is estimated to reach nearly 11 million by the end of 2011. A recent article published at Bloomberg Business Week claimed nearly 3 million homes fell into foreclosure in 2008, with another 4 million notices of default served during 2009. Current estimates predict yet another 4 million homeowners will be affected by foreclosure this year.

There are far-reaching effects of homes in foreclosure. Borrowers lose their home. Lenders lose money. Property values decline in communities with multiple foreclosed properties sitting vacant and untended. Communities receive less funding because fewer people pay property taxes. Local governments are forced to make drastic budget cuts which often affect schools, public safety and infrastructure.

When real estate values decline, homeowners lose accrued home equity and can end up owing more on their home loan than the property is worth. Mortgagors owing more than the appraised value of their home cannot qualify for loan modifications or mortgage refinance. Those struggling to make ends meet could eventually be forced into bankruptcy or become another victim of the foreclosure epidemic.

Many mortgagors who are upside-down on their mortgage are electing to walk away from their property because they believe no other options exist. Walking away from real estate leads to additional financial hardship because mortgagees can obtain court-ordered deficiency judgments to collect outstanding loan balances.

Contrary to popular belief, foreclosure prevention options do exist. Mortgagors facing bank eviction must become proactive and communicate with their lender’s loss mitigation department to arrive at a workable solution. While borrowers might be unable to stop foreclosure, strategies exist which can lessen credit damage.

Borrowers who do not qualify for real estate forbearance, loan modification or mortgage refinance may be able to obtain authorization to short sell their property or obtain a deed in lieu of foreclosure.

When banks authorize real estate short sales they agree to accept less than the full amount owed on the loan. Short selling is complicated and takes four to six months to complete. Most people require assistance from a short sale specialist or real estate lawyer.

Real estate short sales are usually the last option available to mortgagors who are unable to pay future mortgage payments and have not yet entered into foreclosure. Borrowers are assigned to a loss mitigator who will act as a mediator between the lender, borrower, and legal counsel.

Mortgagors are required to undergo a financial audit to prove they are financially insolvent and do not own assets which could be sold to satisfy the mortgage note. Most banks require borrowers to have a preapproved buyer in place before entering into short sale agreements. Others grant borrowers’ time to list their property through a licensed realtor.

One word of caution regarding short sales is many lenders hold borrowers’ responsible for any deficiency between the sale price and loan balance. If mortgagors cannot pay the deficiency in full, banks obtain judgments which are reported to the major credit bureaus and can cause serious credit damage.

Some mortgage providers accept the sale price as payment in full toward the note. Borrowers are released for future financial liability and lose all monies vested into the property. Short sales are reported to credit bureaus as foreclosure and remain on credit reports for up to ten years.

Deed in lieu of foreclosure allows borrowers to give their house back to the lender and walk away. Mortgage lenders can either accept the property return as payment in full or issue deficiency judgment is the home later sells for less than the loan balance.

Author and investor, Simon Volkov specializes in providing informative real estate articles to help home buyers make informed choices. His article library covers a wide range of topics including homes in foreclosure, foreclosure prevention, short sale real estate, mortgage refinance, and much more. Discover available options by visiting www.SimonVolkov.com.