Taking a Step Back Before Taking a Step Forward
Before we begin talking about the practical steps to resolve a foreclosure, we feel it's important (as well as interrelated) to understand how and why a foreclosure occurs in the first place. There are multiple reasons for this, but we feel that the two most important are de-stigmatizing the term and experience, and creating clarity that will contribute to a better understanding of which resolution option will work best, given the conditions that caused the foreclosure to occur in the first place. Naturally, the more accurate the grasp of the problem, the more effectively a solution can be identified.
So, what causes foreclosures?
There's a common and terrible stereotype that assumes that if you're losing your home, you are or have been either financially irresponsible, incompetent, neglectful of your duties to yourself and/or your loved ones, reckless, or undeserving of owning or affording the home in the first place. There are many variations to this theme. but let's dispense with it swiftly with just one of a dozen different real life examples that we encounter on a daily basis working in the actual foreclosure prevention and resolution field:
Jodi and her husband Dave are happily married with two young children. They have a nice home with a standard mortgage and completely affordable monthly house payment. They've always made their payments on time, have always lived smartly and within their means,, and Dave has a great well-paying job that he's worked at and excelled in for years. On his day off one weekend, Dave takes his motorcycle out for a spin and is hit by a car and killed. Instantly, Jodi has lost the love of her life, her children have lost their father, Jodi has no job, and now no source of income. Her life has been turned inside out, she cannot make her mortgage payments, and the lender forecloses on her home. In addition to the enormous grief she is bearing, she is now forced to worry about losing her home, and whether her children are going to have a roof over their head.
This is a real story. August 2017. Only the names have been changed. Variations on this scenario happen to thousands of people every day. Whether Jodi has a close or extended network of family and friends to support her during this time, whether Dave had life insurance or not, and whether or not the community where she lives has sufficient support systems in place to assist her through this transition, will all play crucial roles in determining whether Jodi's home is foreclosed on and auctioned off in 120 days.
Challenging and Changing a Mindset
If you just read the notice of default filing at the county recorder's office. If it's just an unknown stranger's name and another number next to the 98 other foreclosures filed that day, you can easily overlook the reality and humanity of the situation, or you can equally easily (and incorrectly) take this one example as an anomaly, whereas in our experience, it is the stereotyped scenario initially described that represents the rare anomalous outlier.
The majority of foreclosures happen to normal people who have extraordinary events coalesce in their lives through little to no fault of their own. That bears repeating.
It is sobering, humbling, and enlightening. And it is the reason we not only work in this field, but that we have also taken the time to write about it here, before ever getting into the how to of resolving foreclosures. Because the simple truth is, that more important than the work, more important than the actual acts of doing just about anything, is understanding and connecting with the person on the other end that all of the work is all about, the individual who deserves empathy, to be treated with dignity, and the best qualities of humanity. When that is the primary approach, the rest will fall into place.
Now that some of the illusions and situational apathies have been dispelled, now that attention is tuned to the right direction, we can begin discussing the actually rather straightforward steps to go about bringing about a fix.
The 8-Fold Path to Foreclosure Resolution
A loan modification appropriately negotiated for and fitted to the current and foreseeable future monthly financial income of the homeowner
One-time focused financial assistance from a credible non-profit organization like Keep Your Home California (or HAMP if the original loan is FHA), to bring back payments current, or reduce the mortgage principal to lower the monthly mortgage payments
An intelligently considered and executed Bankruptcy application and debt-reorganization process.
A short-term hard money loan (if there is sufficient equity in the property and if it will not be detrimental to the long-term viability of keeping the property, i.e., in 1 year will the homeowner have been able to pay the short-term loan off )
A traditional real estate sale (if there is equity in the property), to prevent equity loss and move into a different home with loan terms more appropriate to the homeowner's current financial situation
A short sale (if there is no equity in the property) to prevent an auction, minimize long-term negative credit score impact, and allow the homeowner time to think strategically about relocation
In our experience, if a loan modification cannot be made with new terms that work within the homeowner’s current or anticipated monthly income situation, and if they do not qualify for Keep Your Home California assistance (see qualifying questions here), and if Bankruptcy has been tried or is not an option, a traditional real estate sale or short sale of the home can be a successful approach.
The benefits of a traditional sale of the home include saving the equity within the property. The longer the foreclosure process takes or is postponed, the more equity is used up in lender late payments, penalties, interest, and attached foreclosure and auction service fees.
When there is no equity in the property, the benefits of a short sale include minimizing the impact on the homeowner’s credit score in the long run, and allowing the homeowner to stay in the home during the short sale negotiation process (which can take anywhere from 6 months to 2 years in some cases).
The homeowner is able to save the money they would otherwise be ‘throwing away’ in making payments on a property that has no equity, putting them in a superior financial position once the short sale concludes, and allowing them to re-enter the home-owning or renting field with a decent amount saved for a down-payment.
With more than 150 traditional real estate home sales in Southern California, and more than 250 short sales successfully negotiated and brought to closure, we’re one of the few specialized organizations out there that not only helps homeowners utilize every no-cost option available to keep their home, but that also helps resolve the foreclosure and home sale in their financial favor if all other options have been exhausted.
Whatever the case, we will steer you in the right direction. If your goal is to keep your home, we will do everything possible to bring that goal to fruition. We use proceeds from traditional real estate and short sales to help fund the department that provides no-cost services to homeowners for foreclosure prevention and resolution. Our ultimate goal is to reduce the amount of foreclosures that occur, prevent homeowners from being taken advantage of by unscrupulous individuals and fake homeowner assistance organizations, and to educate homeowners about the legitimate options they do have.
If you have any questions, or want to discuss the unique situation you are facing, give us a call, or send us a message. We’re here to help.