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Housing: Foreclosure

posted 19 July 2007

Protecting yourself against foreclosure

By Charles J. Kovaleski
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.

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.

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.
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
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