Letter Re: Strategies for Saving a House in a Foreclosure Situation?

I just read your piece on foreclosures. People who are about to get behind on their payments should contact their lender. Banks do not want the properties, they want the cash.
Some lenders are willing to negotiate a modification of the loan terms rather than accept the expense of a foreclosure and resale (usually at a loss) of the property.

Selling the house before the foreclosure process begins is better than waiting because the cost of the foreclosure will be added to the amount they have to repay the bank.
If a person knows they’re going to get behind on their monthly payments, it may be better to fall behind on the credit cards and car payments instead of the house. Credit cards will yell and threaten, but usually little else. The car may be repossessed, but if the house payment is not made it will lead to foreclosure.

Also, in most places (Idaho for sure) bankruptcy will not prevent foreclosure of a residence if the borrower is delinquent on the payments. The borrower granted the lender the right to have the house sold at auction when they signed the deed of trust.

Walking away from the house does not absolve the borrower from the obligation of the debt. More lenders are going after borrowers for a deficiency judgment when the house sells for less than the debt owed.

Finally, those who take advantage of a “Short Sale”, or a transaction where the lender is persuaded to accept less than is owed so the borrower may sell the house may be in for a nasty surprise. The IRS has determined that that portion of the debt which is forgiven may be taxed as income. The lenders will often report that amount to the IRS on Form 1099, thus creating a tax liability which may pop up later when the IRS finds the borrower has assets/income again.

Just the opinion of someone who is involved in the foreclosure process and not as a representative of my employer. – TheOtherChris