It sticks a loss to the bank, of course, but banks aren’t taking this lying down.  Faced with over half a million borrowers (an estimate by Experian) banks are playing tougher:

• They recognize the likely patterns and encourage the at-risk-of-defaulting homeowners to tough it out.  This keeps the payments coming in.
• They go after defaulted borrowers with other legal avenues such as deficiency judgments to collect the difference between the sale price (after the foreclosure) and the amount owed.

Just because the foreclosure process is becoming more socially acceptable doesn’t mean that (a) there aren’t consequences, and (b) it’s not ethically wrong.  A house is a place to live first and foremost — not an investment first and foremost.  Cutting bait on paper losses is shortsighted, because the house still provides shelter.  It just hasn’t produced the double-digit gains investors were expecting.  Oh well.

Folks are buying St. Joseph (husband of Mary) figurines and burying them, upside-down, near the For Sale sign in hopes of bringing a quicker sale.

Prayer sure doesn’t hurt but this is a bit off the deep end.  I had heard about this practice several months ago as a woman in our home group knew someone who did this.  Heck, kits are available for sale just for this purpose!

About the only thing that will help sell a house in this kind of a down market is lowering the price and taking a loss, if needed, or holding out for a recovery.

What may make the foreclosure situation worse is that some communities and homeowners’ associations are clamping down on owners’ rights to rent their properties.  Without the option to rent out, owners are forced to carry the full weight of their mortgage payments until they can sell — or until they’re foreclosed on.  It’s simply HOAs looking after their interests, but it’s at the expense of strapped homeowners.

The 700,000 REO properties is huge.  That will take a while to burn off, and home prices will go down when they hit market.

No one’s immune.  If you’re not being foreclosed on, someone near you probably is, and that affects the value of your house and your neighborhood.

Over the past few years I’ve seen people occasionally posting a place for rent or sale.  Usually not too often.  For the past couple of weeks, I’m greeted each day with four advertisements for property.  Three of them are looking for renters.

It might be just that lots of people have vacancies now, or it could be that the owners are in a pinch, have moved, and need to stop the bleeding because they can’t sell.  One way to stop the bleeding is to rent the house out.

I think there will be more need for rentals as people lose their homes to foreclosure.  They’ll need to live somewhere.  But renters can move.  They can find good deals.  They don’t have to settle for above-market rent just because the owner needs to charge them that to stay afloat themselves.

Workplace MLS is a cheap way to sell real estate.  Maybe it’s all people can afford to do?

• Offer a deed in lieu of foreclosure. This is an option if the shortfall between your house’s value and what’s owed on it isn’t too much.  The lender can say, “Yeah, I’ll take the deed back, and you won’t owe anything.”  It’s similar to solving a disagreement through arbitration instead of going to court: It’s less costly for both parties.
• Negotiate a short sale. If the lender stands to lose a lot of money through a foreclosure, then a short sale may be possible.  The lender agrees to release the mortgage for less than what’s owed, and the deed is transferred to a third party.
• Allow the foreclosure to proceed. There may be no other option, and your credit rating will be absolutely trashed for a while, but sometimes it’s not possible to avoid.  Foreclosure is never the end of the world, though.

Be realistic.  A house is just a house.  It may have a lot of sentimental value but when all is said and done it’s just a structure and a place to hang your hat and store your stuff.  If this structure is costing too much, then getting out while it’s still possible to get out is wise.  I certainly wouldn’t want to pull myself away from my house, but when facing foreclosure being able to walk away with the credit rating intact is certainly a better option.  This might mean forfeiting some equity to sell the house, but in today’s market, selling and living to tell the tale is a win.

Get organized. Especially if you’re approaching your lender for a modification to your loan.  Weston writes:  “The lender will specify what it wants, but typically you’ll need to supply the details of your financial situation, a budget, documentation of your hardship (a letter from your doctor explaining an income-reducing illness, for example, or your layoff notice from your employer) and a ‘hardship letter’ that outlines, in heart-rending detail, the circumstances that led you to fall behind and the improved prospects that will allow you to get your financial life back on track.”  Even if this isn’t the case, organization helps, because maintaining the paperwork from the lender is useful for whatever negotiations you want to attempt. 

Sell the house. If you have enough equity in your home to pay off your mortgage and pay the real estate agent’s commission, this is the best outcome if you’ve reached the conclusion that you can’t afford the house anyway.  The bad marks on your record stop and the problem (your house) is gone.  If you’re actually in a position of positive equity, your lender will be less likely to make a deal with you anyway since their loss is probably covered.

• Make a budget.  If there are places that can be cut in your budget that will make the difference between losing the house and not losing it, this is the time to do it!  See if there are ways that you can do the little money-saving things again to make up the shortfall.  Depending on how short-term the shortfall appears to be, it may make sense to keep the mortgage current at the (temporary) expense of other bills.  If it doesn’t make sense to do this, then don’t.
• Consider getting help from credit counseling services associated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.  (Members of these organizations abide to standards and agree to oversight by the organizations.)  Additionally, HUD and VA loans have their own assistance and counseling programs.
• See if you can refinance.  This may be harder to do than it was last year but if you have enough equity it may be possible to refinance and to lower your monthly payment.  This works ideally before the first missed payment but it’s best to look into this before a notice of default has been filed.

The next post will talk about the next three steps in her list.

People don’t advertise that they’re facing foreclosure, at least not outwardly.  Even if money is getting really tight, people can compartmentalize the worry when they’re interacting with others.  One family I know had a fairly substantial problem with debt — work for the main breadwinner was too slow — but if it hadn’t been explicitly told to me elsewhere, I probably wouldn’t have known.

Some things to watch for (perhaps):

• Breadwinner loses work and hasn’t mentioned another job.  They may mention the job loss, but it would make sense to me that they would come back to share the good news if they had found work again.  I’d be concerned if they didn’t.
• Spouse goes back to school or work.  Especially if there are school-aged children.  Why would the stay-at-home spouse leave the kids to work?  There are other reasons besides money, but money is a really big one.
• Strange stories.  At best it may come across as wishful thinking in retrospect, but there’s something in the story that isn’t quite right.  FMF’s acquaintances left their home to move into an apartment, as the new one wasn’t quite ready yet … but they hadn’t sold the house they were in?  “Why move?” was his question.
• Kids who know the truth.  Kids talk more candidly than adults, and may spill the beans on an impending foreclosure.

It’s sad when someone you know is facing foreclosure, especially when it’s too late.