House foreclosures - Equity problems and foreclosures

Equity Problems And Foreclosures

December 5th, 2007

With falling real estate prices it becomes difficult to sell off the property and pay off dues because the value of the house is now less than the loaned amount. Even in such a tight corner the borrower has certain options.

The borrower can continue with monthly payments and wait for the cloud to clear. With time the price of property is sure to rise again – may be after five years or fifteen years.

The situation is not so straight for those who cannot afford the present mortgage. On top of it the rates of interest are rising – almost doubling. Refinancing is the answer but with the slump in property market it may prove to be impossible.

So when one can neither continue to make monthly payments or refinance another option is to go for a short sale. This is known as deed in lieu. The borrower gives the deed of the house to the lender and thereby the foreclosure chapter closes. There is the possibility that the lender might continue to chase the borrower in court claiming financial loss. It means that the lender is within rights to say that only part of the loan has been repaid by handing over the deed but the main issue of pending due remain. Usually the matter is negotiated before the actual handing over the deed – a gentleman’s agreement in which the lender is glad to get back a good part of the amount by way of the property. Pressing foreclosure requires time, energy and money on the part of the lender. With so many hanging around and weighing down the lender this seems to be the best way out for the lender also. It is needless to say that lenders are far from happy with agreeing to deed in lieu of foreclosure. The lender is not a landlord. He wants the money and not bricks and mortar. A house means hassles. It has to be repaired, maintained, tax dues met and then marketed. To lenders houses pose problems.

Short sale is another option open to the borrower. The lender allows the borrower to sell the house and then accepts the proceeds as total clearance of the loan. The lender is spared the marketing and the lender comes clear without the stigma of foreclosure. However before stepping in to do anything an agreement with the lender is vital to avoid future complications.