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Housing: Foreclosure
posted 19 July 2007 |
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Protecting yourself against foreclosure
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By Charles J. Kovaleski
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Hurricanes aren’t the only threat to Florida this summer;
foreclosure is taking the state by storm, affecting one in every 336
households. In May 2007, there were 21,704 foreclosure filings in
Florida – the nation’s second-highest total by state, according to
RealtyTrac, which keeps tabs on foreclosure rates. This number is a
52 percent surge over April, and a staggering 144 percent leap over
May 2006.
The primary culprit for this deluge is the resetting of Adjustable
Rate Mortgages, or ARMs. These wildly popular loans give borrowers
low introductory rates for two or three years before switching to
variable interest rates. Many of the ARMs’ low introductory rates
expire this year and next, leaving borrowers with skyrocketing
mortgage payments and few refinancing options.
Nationwide, these ARMs are projected to cost 1.1 million Americans
their homes in the next six to seven years, according to a new study
from real estate analysts First American CoreLogic. As troubling as
this is, there are important steps that Florida residents can take
to protect themselves against foreclosure.
What to know before agreeing to a mortgage:
Be sure it is the right time for you to buy. Lower
interest rates lure many into buying homes before they are ready and
financially able.
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While it may sound like a no-brainer, always put you and
your family’s needs first and avoid the temptation to
jump at an enticing real estate opportunity before
you’re ready. Solid financial planning, savings and job
security are more important factors when deciding to buy
a home than market hype.
Review loan options carefully. The right advice can
prevent you from signing up for unmanageable debt. Loan
documents come with a great deal of fine print, and your
real estate attorney and accountant can help make sure
that there are no hidden surprises.
Make a down payment. It is always a safer bet to start
with a little equity. Some people who are facing
foreclosure today have the double whammy of higher
interest rates and declining home prices, putting them
underwater from day one. This is not to say that you
should not finance 100 percent of a home purchase if you
must; rather make sure you understand the implications
of a loan’s terms before signing.
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What to do if you face possible foreclosure:
Foreclosure isn’t a foregone conclusion. If you
have an ARM loan, don’t despair. There are many others in your
situation who have found answers. The most important thing to do is
get help. A real estate attorney can help you negotiate with your
lender and connect you to other resources, such as mortgage brokers
to seek refinancing or bankruptcy attorneys. If you can get
refinancing, make sure your attorney and your accountant or
financial advisor review your new loan to make sure it will be
manageable.
Prepare a budget. Before negotiating with your
lender, get a clear view of your total financial picture and free up
as much cash as possible. Determine what bills you can pay minimum
balances on or negotiate even lower payments. Some bills, such as
student loans, allow you to negotiate a period of forbearance where
payments can be placed on hold.
Early communication - with the right people - is vital.
When you hit a difficult time, communication with your lender is
crucial. While your loan officer is a good first resource, you will
need to speak with people in the lender’s risk management or loss
mitigation division to work out a different payment plan or to buy
time to sell your house. Often, this is better facilitated with a
professional negotiating on your behalf.
A short sale may give you a reason to stand tall.
What do you do if you can sell your house, but the purchase price
still doesn’t cover what you owe? Lenders may accept the lower
price, called a “short sale,” as full payment rather than go to the
time and expense of selling the house themselves. Do note, however,
that there is a catch on this: If not handled properly, a short sale
can damage your credit score or leave you with a tax bill. A skilled
negotiator, however, may help avoid some of these pitfalls.
If you must, consider a deed in lieu of foreclosure.
If you can’t sell your property or negotiate a successful repayment
plan, give a lender the deed to your home; this can avoid protracted
financial and emotional costs of foreclosure proceedings. If
properly negotiated, many lenders will absolve you from having to
pay any shortfall.
Give your future a lot of credit. If you have faced
foreclosure, don’t let the experience define who you are and what
your future looks like. There are great non-profit credit counseling
agencies out there who will take you through the steps you need to
rebuild. (The National Foundation for Credit Counseling is a good
place to start looking.) As painful as the experience can be, you
can decide to take what’s happened as an opportunity to summon
strength and the right advisors to help you become more empowered
with your money. |
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CHARLES J. KOVALESKI
 is president of Attorneys’ Title Insurance Fund, Inc. (The Fund), the leading title insurer in Florida and the sixth largest title insurance company in the country. Acknowledged as the Florida residential real estate expert, The Fund has been in business for more than 50 years and supports a network of more than 6,000 attorney agents statewide who practice real estate law. The Fund, based in Orlando, underwrites more than 300,000 title insurance policies for owners and lenders in Florida every year. For more information, visit www.fundhomeinfo.com. |
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