Chances are if you are searching online for “Foreclosure Austin TX” you are feeling very overwhelmed and may be panicking right now. What you really need is some good sound advice on what to do/not to do.
First, and foremost, don’t just sit there and do nothing! I know this may be your first tendency when you are so overwhelmed, scared and depressed. But, lack of effort and indecision will result in the loss of your home and considerable damage to your credit! If you have not already done so, call your bank and talk to them honestly about your situation. Sometimes they will be willing to work out an adjusted payment schedule with you or may suggest re-financing your loan to make payments more affordable. Regardless, making contact with them could stop or delay them from filing foreclosure.
Take a serious look at your budget and spending habits. There are lots of helpful sites that give great suggestions to help you get back on track! However, if you have already received a Notice of Default, Letter of Demand, or Notice of Foreclosure Auction from your bank, you are in a countdown and need to know your options and take quick, decisive action:
Option 1- Loan Modification Program
Loan modification programs were set up primarily to aid homeowners who are unable to keep up with mortgage payments due to a financial crisis. However, depending upon your situation it may be difficult to qualify for this type of program. A bank will need to verify your ability to afford the modified/lowered monthly payment now and in the future. Often the rates on these loans are adjustable, meaning you can expect your monthly payment to go up in a few years (5 years is typical). The application process and required documentation is lengthy and time-consuming. For more information go to www.makinghomeaffordable.gov
Option 2- List Your Home With a Realtor
If your home is in great shape, you have a sizable equity and the real estate market is really HOT in your area, then this could be a good option for you. However, your home will have to sell really quickly to avoid that impending auction date! You should consider that even the nicest homes typically take much longer to sell in the winter as most homeowners just don’t want to move during the holidays or in the middle of the school year.
To sell your home through an agent via MLS (Multiple Listing Service) really fast, you should take steps right now to clear out clutter, clean up and paint inside and out, trim up all landscaping, store excess furniture and personal items such as framed photos and collectibles and consider hiring an interior designer/stager to give your home optimal appeal. Plus you will need to work with your realtor to schedule a few open house dates and plan to be away during those times.
Although this option will usually result in the highest sales price, it also typically takes a long time. Closings usually take 45-60 days or longer after the contract date, unless you have an all-cash buyer. Once your home is under contract, the bank MAY be willing to stop the foreclosure process if approached.
Option 3- File For Bankruptcy
Although filing for Chapter 7 personal bankruptcy will stall the foreclosure of your home, it is not a lengthy delay. Only obligations like credit cards and other unsecured debt are forgiven by Chapter 7. Chapter 7 bankruptcy does NOT wipe away debt like mortgage loans, child support, alimony or student loans! Your bank will promptly request the court to release the automatic stay on this debt, which puts you right back into the foreclosure process.
Chapter 13 bankruptcy, which is a restructuring of your debt, may be an option for you. Check with your attorney for counseling about your specific situation. If most of your financial problems are due to substantial credit card debt and you have other options to catch up your mortgage payments (like a small loan or gift from a friend or family), then bankruptcy may be a good option. However, consider the damage to your credit before proceeding.
Option 4- Deed in Lieu of Foreclosure
Basically, this means that you negotiate with the bank to forgive you the loan obligation in exchange for the deed and keys to your property and you walk away without facing foreclosure or having to sell your home. It is usually very hard to get a bank to agree to this option because they are in the business of making money, not owning and managing real estate. Often times your bank will request that you first list the home and try to sell it for about 3 months prior. Caution- This option is NOT available to you if you have multiple mortgage loans or any other liens (such as tax lien or mechanics lien) against your property.
If you are able to get your bank to agree to this option, be sure your written agreement includes a waiver of deficiency, which clearly stipulates that the bank is forgiving the entire debt owed in exchange for the deed. Without this waiver, you could be sued for a deficiency judgement, which means the bank is going after you for the balance of the money you owed on the mortgage loan.
Option 5- Short Sale
A short sale happens when you find a buyer who will purchase your home, but only for less than the amount you owe on the mortgage loan. Short sales typically take a very long time to negotiate with your bank, because they first want to know that all other options have been tried and failed- i.e. the home has been listed for several months with no viable offers. Your home must be listed with a real estate agent and a formal written offer submitted to your bank. A written offer MAY/MAY NOT stall the foreclosure process while being considered by your bank.
Banks are more likely to consider offers that include a packet of information compiled by your realtor and the buyer. Such a packet is intended to convince your bank to accept the lower price. A really great packet should include pictures to document the condition of your home, a detailed listing of needed repairs and estimated amounts for the work, comparable sales details on nearby properties and a market analysis. Real estate investors like us often work hand-in-hand with realtors to navigate the long and demanding process of short sales negotiations.
Again for this option, be sure your written agreement includes a waiver of deficiency, which clearly stipulates that the bank is forgiving the entire debt owed in exchange for the short sale. Without this waiver, you could be sued for a deficiency judgement, which means the bank is going after you for the balance of the money you owed on the mortgage loan.
Option 6- Do Nothing!
For those that make this unfortunate decision, you will eventually see the Sheriff at your door forcing you out of your home! This can be very traumatic and embarrassing, not to mention extremely inconvenient- where will you go and what will happen to all of your belongings. Please don’t let this happen!! Take action today to avoid being kicked out of your home. Also, foreclosure is often called the Mother of all credit problems and can be catastrophic on your credit for many years! You should avoid foreclosure if at all possible!
Additional Word of Caution
You Will Likely Incur Additional Income Taxes resulting for Option 4 or 5. According to https://www.irs.gov/uac/Home-Foreclosure-and-Debt-Cancellation the portion of the debt forgiven by your bank will be considered taxable income!! You should consult a CPA or attorney for further details, but need to be aware and informed of the tax implications before you decide what to do!
Disclaimer: This blog is intended for informational purposes only. Please consult with a lawyer and tax professional for advice.