By Bill Young
Anyone can lose their home to foreclosure, even you!
The loss of a job; divorce, illness or some other “trigger event” could start the ball rolling. According to the American Banker’s Association, most people have less than 3 month’s worth of cash in reserve.
You may not realize that foreclosure can be the first step in the destruction of your family’s financial future.
The foreclosure of your house can lead to the bank seizing anything you own; property, cars, stocks, your kid’s college savings! Even the IRS can get involved, perhaps garnishing your salary. Could you imagine that?
Get ready. There is a foreclosure Tsunami coming!
If you purchased your house or refinanced in the last 4 years, you are vulnerable. The National Association of Mortgage Banker’s (NAMB) records show that more mortgages go into foreclosure 3-5 years after issue than at any other time.
A recent report by the Federal Reserve Board showed that historically, interest rate rises of 3% or more, started a housing market slump. Their increase last month brought the total rate increase since last year to 3 percent.
Also, you may have been among the 40% of mortgagors that took an adjustable mortgage recently. Those “teaser” rates of 5% or less are set to explode your mortgage payments by 25-33% or higher when they adjust. In 2006, over $300 Billion dollars worth of mortgages will adjust with $1 Trillion more in 2007, according to Freddie Mac, the secondary mortgage lender.
The last piece of this looming disaster is the tiny amount of equity the average homeowner has in his property, less than 25%, according to NAMB.
What if you were laid off and fell behind on your bills 2-3 months, including the $180,000 mortgage on the house you bought for zero down a couple of years ago, worth $200,000 today?
How hard would you fight to keep your home with prices falling and similar properties renting for less than your ballooning mortgage payment?
You might be very tempted to send the keys to the bank and walk away.
DON'T!
You must not let the bank take your house under any circumstances!
Banks generally send out Notices of Default or foreclosure notices when you miss 3 payments. This starts the countdown to the sale of your home on the courthouse steps.
In some states, this is a matter of weeks, in others it may take months. In the interim, you watch helplessly as the unpaid mortgage payments, bank’s fees, late fees, legal fees, inspection fees, etc. blow up your indebtedness like a hot air balloon.
By the time of the auction, the balance of your mortgage could have expanded by $20-$30,000 or more. The softening housing market and the flood of foreclosures means your home would probably sell at a discount at the auction.
If the proceeds of the sale do not cover the bloated total you owe the bank, you are in trouble.
In most states, the bank can get a “deficiency judgment” against you for the balance. They can seize anything you own, as we noted before.
If the bank cannot recoup their deficiency from you, or your state will not allow a deficiency judgment, they will write the deficiency off on their taxes.
The IRS now comes into the picture. They consider money you owed and did not pay, your mortgage deficiency; to be income to you!
They will add it to your annual income and expect you to pay taxes on the total amount, in cash with your next return.
If you cannot pay, the IRS can come after everything you own, including your paycheck.
Don’t let your family’s financial future be destroyed. If you are facing foreclosure, seek professional help as quickly as possible.
Copyright 2005 Bill Young. Bill is a former bank loan officer. He is currently a personal financial consultant and offers assistance to those facing foreclosure. For more information, visit his website at http://SaveMyHomeLLC.com
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