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Save Your Home NOW From Foreclosure!

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If you can't afford your house anymore, financial expert Danielle Hoston gives you your options.

house with foreclosure sign

Financial expert Danielle Hoston: If you don't already know the difference between a foreclosure and short sale and the consequences of each, you need to read this.

I have been selling investment real estate for nearly eight years. During my tenure, there have been at least seven glorious years of happy sellers, happy buyers, and rising values. Markets adjust, however, and a new day has arrived. There are both consequences and opportunities. Being educated about your options is the key to making the best decisions possible with your money and coming out ahead in the long run.

What is a foreclosure? A foreclosure occurs when a lender pursues ownership of a property after a borrower defaults on their mortgage payments. The processes are different in every state but lenders generally notify the borrowers of their intent to foreclose and give the borrower the opportunity to catch up on missed payments and fees. Once that opportunity expires, the lender takes possession of the property.

How it affects the homeowner:
If you are in the process of a foreclosure, you need to seek professional legal and tax advice immediately in order to make sure you are allowed all of the rights available to you and minimize future expenses. You may still owe capital gains depending on how long you've owned your home. Foreclosures are generally reported on your credit report for up to seven years.

BEWARE!!! Once your payments go in default, you will be contacted by a variety of companies and/or individuals looking to collect large sums of cash from you to "extend your foreclosure" or buy your property in exchange for a small sum of cash. Please contact a real estate professional to get an idea of your current market value and the options available to you prior to accepting any deal.

What is a "short sale?" A short sale occurs when the lender of a property accepts a discounted payoff on the existing mortgage. The seller of the property may or may not be in default on their payments but the total mortgage owed is generally higher than the current market value. Short sales require the patience of both the seller and the potential buyer as they can take up 4-6 months to complete.

How it affects the homeowner: Arranging a short sale with your lender can delay the foreclosure process or avoid it altogether. Short sales are commonly reported on your credit report as "settled" (which is still negative) and the remainder is written off as a loss by the creditor. In prior years, any remaining balance was considered income and the homeowner was taxed accordingly. More recently, the tax code was temporarily amended to waive this tax. As always, consult a tax advisor to ensure that this amendment applies to you.

What are "REOs?" "Real Estate Owned" (REO) properties are already owned by the lender and were not previously sold at auction, if held. Lenders are oftentimes the best sellers because they generally respond quickly and wish to sell the property as soon as possible. REOs provide well-qualified buyers with at least 20% down terrific opportunities to buy properties at a great price.

My advice to any homeowner in default is to actively work with your lender and find a way to pay back your mortgage. In today's economy, lenders are negotiating very favorable loan modifications in order to avoid the heavy expense of foreclosing. If a loan modification is unavailable and you still cannot afford your mortgage, pursue a short sale immediately. On the other hand, if you are fortunate to be in a position to buy, there are plenty of REO opportunities available that will position you for great increases in value when the market rebounds. Contact a real estate professional immediately to help you find what you're looking for.

When do you think the real estate market will rebound? Is it still going down?

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6 comments so far | Post a comment now
Jackie Charles February 9, 2009, 12:24 PM

A week from Thursday.

Robin Willis February 9, 2009, 4:21 PM

Hi Danielle,

I read through your post with hesitation because I have seen so much mis-information about short sales and foreclosures out here on the Internet. As a Realtor who works with short sale sellers in Tucson, I was impressed with your knowledge and how easy you made it to understand.

I found your comment about possibly owing capital gains taxes even in a short sale situation to be especially insightful. This is something that most sellers would never consider and is a reason that it is imperative that they consult with an accountant before determining what option is best for them.

Danielle February 9, 2009, 5:29 PM

Thanks Robin!

Much appreciated… from broker to broker!


Cristina Mathers February 9, 2009, 8:23 PM

I would highly recommend contacting the lender if you are in trouble with your mortgage. I know that many companies now have loan modification depts that will modify your loans terms and often interest rate in order to keep you in your home. My husband and I did this in July when we could not refinance because our loan to value did not add up. Our rate went adjustable. Thru the modification we were able to get our interest rate reduced to original terms and lock it in for 5 years. It never hurts to try and with most modifications, a financial hardship is not frowned upon.

Suzanne February 10, 2009, 4:43 PM

The BEWARE section is very helpful, but does not go far enough. There are an enormous number of foreclosure scams right now. Never accept a deal from them - your best bet is to find a nonprofit HUD-approved housing counseling agency to help you with your options. Anyone charging money upfront or promising that they can save your home is scamming you.

Bqpzquxn June 22, 2009, 10:05 PM

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