Foreclosures doubled in May compared to a year ago, according to the Warren Group, a Boston firm that tracks real estate data. The number of foreclosure petitions, which refers to the first step in the foreclosure process, increased in May to 1,724 compared to 699 in May 2011.
Banks Will Be More Aggressive in Pursuing Foreclosures
Homeowners behind on their mortgage who think their bank forgot about them can expect to hear from them soon. Banks will resume the process for foreclosures that were put on hold last year because they want these properties off their books and sold.
Foreclosures Will Increase for the Rest of 2012
Banks had slowed down pursuing foreclosures in 2011 due to uncertainty with regard to legal issues from the $25 billion foreclosure settlement, and the so-called “robo-signing” scandal in 2010 which involved the practice of bank employees signing thousands of documents and affidavits without verifying the information contained in them. Now that definitive guidelines are in place, banks are resuming the foreclosure process on hundreds of homes.
What This Means for Homeowners Behind on Their Mortgage Payments
If you are behind on your mortgage you may have already received a phone call from your lender. Earlier this year, the FHFA introduced a new Servicing Initiative requiring mortgage loan servicers to contact borrowers within 3 days of payment delinquency.
Ignoring calls from lenders will not prevent more attempts to contact you. If the phone calls are not answered, servicers will be more persistent in their attempts to contact you than in the past. Calls will continue every 3 days until you’re contacted and the servicer can determine the cause of the problem and next steps. Under these new rules all servicers must also send a Borrower Solicitation Package between 31 and 35 days of delinquency. A second one goes out between 61 and 65 days of delinquency if there’s no response from their first attempt at contact.
If you’re a homeowner at the risk of foreclosure, the best option is to sell your home through a short sale to get all remaining debt forgiven and avoid the devastating emotional, financial, and credit effects of foreclosure.
What Happens in Foreclosure
Many homeowners choose the foreclosure option because they are unaware of the risks and ramifications of it. So really what is so bad about getting foreclosed on? Here are the top 3 risks of going into foreclosure:
1. You Owe the Bank Now and Will Owe Them Later
As challenging as the home has become, most home owners “walk away” expecting the situation to be over. In a foreclosure this is not the case at all. The bank can actually pursue you for the money you owe them for up to 20 years, which is outlined in this Boston Herald article, “Nightmare Returns.”
2. Negative Credit Impact
Keep in mind, the biggest impact on your credit is missed mortgage payments. Since a foreclosure allows for the most missed payments it creates the most negative credit impact. A short sale allows you to buy a home again sooner than with foreclosure. The time to buy again is reduced to 2 to 3 years if they opt for a short sale. And for Fannie Mae and Freddie Mac loans, the waiting period to buy home after short sale just got shorter.
3. Increased Financial Hardship
It is not coincidental that a foreclosure is many times the precursor to a bankruptcy since lenders can place a lien on assets and even garnish wages in an attempt to collect on the mortgage balance. With a short sale we can usually get the deficiency balance forgiven, which isn’t possible in foreclosure. This allows you to move to more affordable housing and have a fresh start.
Banks Prefer Short Sales
Banks would rather have homeowners do short sales since they take in more revenue from a short sale and don’t have to pay the legal fees associated with a foreclosure.
In many cases banks offer cash incentives for homeowners behind on their payments to do a short sale. Banks do this as a way of discouraging people from squatting in homes they are no longer paying for. The bank can then put the homes up for sale. Short sale homes are in better condition than foreclosed homes and banks can sell them for a higher price.
29 percent of the short sales we have closed received some kind of cash incentive so far this year. The average cash incentive for our short sale clients is $2,932.05. We also work with the bank to get the deficiency balance on the mortgage forgiven. Having the debt forgiven and having cash at closing to relocate to more affordable housing is a much better option for struggling homeowners than letting the home go into foreclosure.
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