While we are currently looking at something moderately resembling a rebound in the housing market, foreclosures are by no means a thing of the past. Every day, victims of the recession are forced to drop out of the homeowner race. For a season, banks were willing to work with anyone who showed interest in fighting for their homes. With the recent upswing, however, banks are starting back down the road of increasing options and it’s only a matter of time before the severity of asset management returns to pre-crash levels.
Foreclosures are a lose-lose scenario. The banks lose money. The owners lose their home. The only potential benefactors are the individuals who end up buying your foreclosed home from the bank. Fortunately, there are alternatives to foreclosure. Homeowners can pursue these options in an effort to either save their home or make the loss of their home a cleaner process with less baggage attached.
Mortgage Restructuring
If the goal is to save the home at all costs, mortgage restructuring is an option. Pursuing this option has tended to produce a mixed bag of results for homeowners, however, as it’s success depends entirely on the bank involved. For smaller, local banks, the resources to restructure mortgages into longer terms and lower interest rates are not always available. While they tend to excel at timeliness, communication, and goodwill, they will be more limited financially. On the other side of the equation, national banks are guaranteed to have the necessary resources to fix any given homeowner’s specific problem, but communication and follow-through can be an absolute nightmare. These banks tend to be hit or miss on customer service, with misses being, by far, the most common. Overall, it’s best to pursue mortgage restructuring before you desperately need it, as you never know how long the process is going to take.
Short Sale
Another less enthusiastic option is the short sale. A short sale is ideally the cleanest version of a foreclosure, where the bank loses less money, and the homeowner walks away debt-free and with good credit. In a foreclosure, the bank takes back a mortgaged home as the collateral on a forfeited loan. The homeowner loses his or her home, and all money invested in it, and his or her credit is effectively destroyed. The bank loses significant amounts of money to legal fees in the foreclosure process. Additionally, since banks can’t afford to continuously accumulate properties, the foreclosed homes will be sold for pennies on the dollar, meaning the banks don’t even come close to recouping the money they lent the original buyer. It’s truly a lose-lose situation. If the homeowner attempts to sell his or her home, particularly in this economy, the sale amount would typically be significantly less than what is required to pay off the loan. A short sale “fixes” all of these problems. The process involves the bank allowing the owner to find a buyer and sell the house at a predetermined rate well below the market value. The homeowner benefits by walking away debt-free and with credit intact. And the bank benefits, despite losing some money, by losing a lot less money, avoiding foreclosure, holding, and selling costs. And of course, the buyer benefits by acquiring a home below market value.
Foreclosures in Redding are never going to be a pretty thing. Ideally, everyone would own a home. For those in financial trouble, however, it’s important to keep as many options open as possible, until a decision must be made.
Josh Domke is a real estate professional serving the North State area. He enjoys researching and keeping up to date with current real estate trends including foreclosures in Redding.
