Many people (including Michael Jackson) in the U.S. are now facing foreclosure. The booming real estate market has busted, leaving thousands of homeowners wishing they had never done their last purchase or refinance transaction.
Those distressed owners are now confused and are seeking solutions to their dilemma. One much-touted solution is to LET THE FORECLOSURE HAPPEN. Although letting the bank foreclose might seem to be a terrible thing, if done properly, the end result might be a more stable living situation for the foreclosed borrower.
The way to let it happen is as follows:
1) Quit paying the mortgage, save the money you would have paid in debt service. It can take 6 months or more for the lender to get the house back through foreclosure (the time it takes may be longer now due to the huge increase in numbers of foreclosures in the system). Consider filing bankruptcy just prior to the sale date...this will extend your ability to stay in your home.
2)Keep up with your homeowner's insurance, credit card and other financial payments.
3) Live in the house for as long as possible (move only when the sale date is imminent or past).
4)If your situation has arisen because of predatory lending practices by your lender....prepare to do battle...there are lawyers that specialize in predatory lending and they frequently work pro bono...similar to accident attorneys in that they only get paid if you win.
5) Don't be afraid to tell the bank that in order for you to move they will have to pay you to do so (ask for a pretty sizable cash payment $2,000 - 5,000). Tell them that if not, you will likely file for bankruptcy thus further delaying the foreclosure (by months). Bankruptcy can allow you to walk away from the second or third mortgage without any liability, get rid of your other consumer debt, as well as keep your car.
6) Use the money saved to pay your new LANDLORD (you are a renter now) upfront for your lease. By paying upfront you are VERY likely to get a nice place with little hassle.
7) There are benefits to being a renter now. Many of the new homes are the ones that are in trouble...you might find a landlord who has a brand-new house with all the upgrades that you can rent for less than you were paying to own. The real estate market will likely continue to decline until values are in balance with rent payments. This is because many of these homes were bought by speculators and will be acquired by investors who will rent them out. The difference between a speculator and an investor is that a speculator never considers keeping and renting (return ON investment) and investor buys in order to get an annual return that is higher than his annual cost of ownership.
Of course there are other options:
The Short Sale - all the Realtors are pushing this tactic...although the reality is that if you elect to do a short sale, there could be extensive personal liability for the amount of the mortgage NOT recovered in the sale. There could also be liability for other mortgages and liens behind the 1st mortgage. This solution is most helpful for those borrowers that owe close to what the house is worth, with no other liens or mortgages in a second or third position.
Deed in Lieu of Foreclosure - This tactic has you relinquish the house to the lender without foreclosure proceedings. If this is your choice, try to minimize or negotiate away your personal liability. If you have secondary mortgages or liens, this is likely not the route you would want to take.
Before making a final decision as to how to proceed, you should absolutely consult with legal counsel, and financial advisors. Also, contact a Realtor or Appraiser to try to get an understanding of your home's current market value. You can also check free home valuation websites such as Zillow.com (but do not rely only on automated valuation services).
By the way, if you are in need of a squatter let me know.
Hobo
P.S. Please take our poll. We want to know what you think Michael Jackson should do regarding his Neverland foreclosure.
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