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Posted in Community, Credit Repair, Foreclosure Tagged with: coldwell banker, credit building, credit repair, credit restoration, filing chapter 13, fix my credit, fixing foreclosure, grand rapids, home loan, how to buy a home, i want to sell my house, real estate, west michigan
More than 43 percent of Americans have a credit score under 599? Even a credit score between 600-699 isn’t stellar and can cost you hundreds of thousands of dollars — money that should be going into your retirement or towards your current quality of life. Instead you’re paying towards interest, leaving you less money each month to live, and putting you even more behind on your bills.
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Posted in Buying, Credit Repair, Foreclosure Tagged with: credit building, credit repair, credit restoration, filing chapter 13, fix my credit, fixing foreclosure, grand rapids, stopping foreclosure, west michigan
If foreclosure is imminent or you’ve recently gone through a foreclosure, the next step is to pick up the pieces and figure out what to do next.
The first stop is easy. Just breath. Take a big sigh of relief. Then, inhale the positive energy and exhale the negative. You more than likely have been dealing with a lot of stress over the last few months, and everything you’ve been dreading and fighting agains is upon you. But, it’s not the end.
Yes, there is life after foreclosure. I don’t mean you get to just walk away and forget it. Instead, this is a time of reflection, evaluation, rebuilding.
It might not be easy. In fact — if you’re lucky — this might be the worse thing you’ll ever have to go through. Yes, there are worse things than foreclosures. Still, the next few months will require “pull up your bootstraps” kind of effort to get yourself to the next step. I’ve compiled a list below of what you’ll need to think about now, beginning with where to live…
If you know you’re facing foreclosure, but a sheriff sale hasn’t taken place on your home yet, you still might have options instead of foreclosure. Read my recent post “Facing Property Foreclosure & How to Fix It.”
Live in the Home – If your state provides a redemption period after the sale, you often have the right to live in the home payment-free during this time period. For example, in Michigan, most homeowners get a six-month redemption period (up to a year in some cases) during which time they can live in the home.
Redeem the Home – Some states permit a foreclosed homeowner to buy back the home within a certain period of time after the sale. This is called a redemption period. To redeem the home, you would have to pay the total purchase price, plus interest, and any allowable costs, to the purchaser who bought it at the foreclosure sale. (Learn more general information about the right of redemption.) In order to redeem, the former homeowner has to come up with another source of financing. However, getting a bank to lend you money after a foreclosure can be very difficult, even if you have a steady income, since your credit score will have taken a bit hit.
Move Out or Get Evicted – If you don’t move out after the purchaser gets title to the home (typically either after the sale or after the redemption period), the new owner (often the foreclosing party, i.e. the bank) will start eviction proceedings to remove you from the property.
Rent – Most people become renters after experiencing a foreclosure – purchasing another house right away is usually not feasible. However, since a foreclosure appears on your credit report and most landlords check credit reports, finding a rental is not always a piece of cake either. The best thing to do is be honest and up-front with potential landlords. Explain why you were unable to keep up with your mortgage payments, and why paying your rent won’t be a problem (e.g., your mortgage payment increased and the rent is much lower, you were out of work for six months but have a job now). If you have a positive payment history for other bills, such as a car loan or utilities, mention it. Offering a higher security deposit, if you have the cash, or a co-signer with a positive credit history can also help. (They don’t have to live with you – just sign the lease, which makes them on the hook for rent payments if you don’t pay. Of course, you’ll need to find someone who is willing to be a co-signer.) Individual landlords are often more flexible and willing to overlook a foreclosure than a management company running a large apartment complex.
Understand the Deficiency Balance – The deficiency balance is the difference between the balance remaining on your mortgage and what the lender is able to get for the property. So if you owed $325,000 on your mortgage and the house sold for $200,000, you would have a deficiency balance of $125,000. In Michigan, the lender may obtain a deficiency judgment following a nonjudicial foreclosure, but the borrower can contest the amount of the deficiency if: the lender was the purchaser at the foreclosure sale, and the foreclosure sale price was substantially less than the fair market value of the property.
It is possible that you will be sued and your wages garnished. You can apply for a hardship exemption to stop garnishment, although this can be difficult to get. Filing for bankruptcy is another way to stop garnishment, but it will further damage your credit report. It is also possible that the lender may be willing to set up a payment plan or forgive the deficiency balance. In general, the IRS considers forgiven debt income, and requires you to pay taxes on it. However, under the Mortgage Forgiveness Debt Relief Act, you do not have to pay taxes on a forgiven deficiency balance if the home was your primary residence and the mortgage was used to build, purchase, or improve the home. (Refinanced mortgages are covered to the extent of the balance on the original mortgage at the time of the refinance.) Resource: Filing Bankruptcy Before or After Foreclosure
Consider Your Next Tax Bill – Uncle Sam always wants a cut, and it’s no different when you go through a foreclosure. It comes as a shock to many people, but the federal government considers a forgiven debt as a form of income, which means you might have to pay income tax on a foreclosure.
Repair Your Credit – The first step on the road to recovery is to start repairing your credit. The best way to repair your credit is to continue using credit, but make sure you keep up to date with your payments. People often make the mistake of closing credit lines or cutting up credit cards when their scores take a major hit. But shunning credit altogether only leaves a large gap in your credit history, which is nearly as troubling to lenders as a bad credit history.
Learn to Budget and Save – Regardless of whether you are a millionaire or making minimum wage, the foundation of financial success is the same – budgeting. Budgeting means analyzing what you have coming in, then developing a reasonable and goal-oriented plan for what goes out. Essentially, a budget is a tool that can help you make the most of your money. One of the best things you can do to prepare for the unexpected is to save. With savings, you don’t have to put car repairs or medical bills on your credit card or worry about how you will pay your rent or electric bill if you lose your job. Set yourself up for success by making saving an automatic process via direct deposit through work and periodic automatic transfer of funds from your checking account to your savings account.
Think About the Next Home You’ll Own – Repairing your credit is only one part of the waiting game. You’ll still need to find a lender willing to offer you a mortgage. Unfortunately, after a foreclosure, many lenders will give you the cold shoulder. However, there are some government-backed loans that can help speed up the process. For many people, an FHA loan will be the quickest path back to homeownership. After a foreclosure, the government body requires a three-year waiting period before you can qualify for another FHA-backed loan.
Posted in FHA Loans, Foreclosure, Selling Tagged with: affordable housing, after foreclosure, FHA loan, filing chapter 13, fixing foreclosure, grand rapids, home loan, michigan, real estate, selling your home in foreclosure, stopping foreclosure, west michigan
My name is Sylvia Dana and I’m a realtor. In 2006, I was a homeowner who found herself behind in house payments and facing foreclosure.
Once a homeowner gets behind on house payment, the effects can easily compound into a snowball, turning into a seemingly unstoppable avalanche in the lives of a family. Dealing with an impending foreclosure feels embarrassing, shameful and paralyzing. It can negatively affect your job, your relationships and even your health. I know it well.
I was a young teacher and a single mom of a 11-year-old boy. I was paid a fixed salary once per month and I didn’t have the money to save my home. I stopped picking up the phone. I didn’t open the mail. I thought I had time. I was wrong.
It was only two days before my house was to be auctioned at a sheriff’s sale when a realtor came to my door, alerting me to the reality of my situation. He didn’t tell me what to do next and he didn’t tell me what he wanted from me, or if he could help. But the day I realized I would lose my house in two days’ time, is the day I finally took massive action.
The problem is: being out of time makes one that much more desperate. Remember, my experience took place early 2006. It was immediately before the economic downturn and people knew a lot less about foreclosure issues than they might know now. I certainly didn’t know anything about foreclosure or how to fix it, so I got online to find some answers and fell into a trap of scam artists — “lawyers” charging hundreds of dollars to simply take a call and give advice.
Like I said, there wasn’t a lot of information available at the time, so I wired almost $900 to a company claiming they could help me by letting me talk to a lawyer over the phone. During the phone call, the “lawyer,” if he was a lawyer, told me to file Chapter 13 to stop foreclosure. Then he told me I needed to give $179 more to get the correct paperwork faxed to me. I didn’t know what else to do. It seemed I had no choice. I did exactly what I payed a stranger over the phone to tell me what to do — I went to the US Bankruptcy Court and filed Chapter 13, effectively stopping the foreclosure on my home.
Immediately after filing Chapter 13, I felt a huge relief from the stress of facing foreclosure. I could finally breathe. I was smiling again. I bought myself time and peace of mind, for a little while anyway. Once I stood in front of a judge and trustee, I discovered it was going to be a long road ahead. Getting squared away on my house payments and other debt wasn’t going to be easy, but the court granted me Chapter 13 bankruptcy because I had proved I could make enough income to catch up.
For some, filing Chapter 7 bankruptcy or making the decision to walk away from a mortgage could be the only option. But for me, filing Chapter 13 was the right thing to do. I wanted to stay in my home and prevent a foreclosure on my credit report. With Chapter 13, there were a few hoops to jump through, but it was worth it. I went into the Chapter 13 with the purpose of catching up on my mortgage payments so that my son and I could stay in our home. But then something happened.
My neighbor Krista, who lived across the street from me, listed her home with a realtor. She put a sign in the front yard and her house sold two days later, and for more money than she was asking. When I learned of her success, I asked Krista for the realtor’s contact information. I wondered if her realtor could work some of the same magic for me. Later that day, Lisa — my realtor — came to my home. She told me how much money I might be able to sell my home for and how soon it might sell. She told me she was fairly confident I could get a lot more than what I bought the home for three years prior. The profit from my the sale of my home would help me, not only pay off my home loan, liens and closing costs, but also pay off other debt. So, I decided to list my house with Lisa. I was completely open and honest with my realtor about what I was going through, so she could give me the best guidance.
Once I listed my home, I filed a motion with the bankruptcy court to dismiss the Chapter 13 case. (I’ve learned since that I could have simply asked for permission from the judge and trustee overseeing my case to sell my home while in Chapter 13, but I didn’t know any better. And since Lisa was my realtor, not my lawyer, she couldn’t tell me what exactly to do. And after paying $900 to talk to talk to a lawyer for three minutes, I was capped on lawyer funds. So, I winged it on my own.)
As blind luck would have it, I accepted an offer on my house one week after listing it. Lisa held my hand through the process and made it as easy as possible. Still, there was some stress to work through and obstacles to overcome while the contract on my home sale was pending. For example, there was a point the buyer of my home thought about pulling out of the deal, but then had a change of heart and stuck with the terms of the contract. Then, since I dismissed my Chapter 13 case all together, instead of just getting permission to sell my home while in Chapter 13, the credit union holding my car loan came to repossess my car while I was packing! My home sale transaction hadn’t closed yet, so I didn’t have the money from the sale to get my car. My realtor Lisa helped me by renting me a car for a couple of days, until I got the check from the sale.
After all was said and done, Lisa handed me a check for $15K, which was enough for me to go to the credit union to get my car and pay it off in full for $8K. I had another $7K left to re-start my life.
For me, filing Chapter 13 to stop foreclosure, and then listing my home for sale was the best thing I could have done. Is the same strategy right for you? That’s something you’re going to have to decide for yourself. The realtor that came to my door two days before my home was to be auctioned helped me take action. But he wasn’t my Lisa.
I want to be different. I want to be your Lisa. I want to help those who might be facing foreclosure. I’m not a lawyer, I’m a realtor — and fairly new to the real estate industry. I plan to continue learning more about this issue to be of even better service, but for now I hope sharing a bit from my own experience stopping foreclosure is helpful.
The following are some links to foreclosure and bankruptcy information to help you decide which path might be the right one for you: