foreclosure hitting home…

[cashflow]

Hi All,

Unfortunately, we personally know someone that is behind on their payments with foreclosure looming.

My question to the board of ‘intelligent peoples’ is, what affects does foreclosure have on a person’s record? I believe it stays on 7-10 years. What if the couple also needs to file bankruptcy? I know bankruptcy rules have changed and I am clueless (thank god) on what this means to a person.

If someone is able to short sale their place, do they still owe the bank??

Imagine, I alone know 2 couples, 1 couple already foreclosed upon, another about to be….and this is just getting started…I am now starting to believe the economy will be hurting quicker than we realize!

[temeculaguy]

There are about five questions here, as the duly elected representative of the intelligent people I’ll answer with a broad brush. Depending on the lender and the loan, the amount the bank loses in a forclosure can result in a judgement that will haunt the borrower but that is not usually the case and usually the bank eats it and it wrecks the borrowers credit for years. In a short, you negotiate with the bank to sell for less than what you owe and the bank forgives the loss, your credit takes a smaller hit but right now you pay income tax on the amount of the forgiveness (this tax may change with legislation now in the works). Think of it in terms of a divorce, in a forclosure she comes home and finds you with the maid in bed, throws your clothes out the window and never talks to you again. In a short, you sit at the table and divide up your stuff, she doesn’t like you all that much but tolerates you and doesn’t say too many bad things about you to friends and neighbors.

For the most part in either a foreclosure or a short sale, you don’t owe the bank, hence it’s popularity. When the tax rule changes, the short sale will gain popularity over forclosure. Will it hurt the economy, a little, but what you have to look at is most of the country isn’t in a bubble market, just a handful of states, the impact will not be felt equally all over the nation. Did hurricane Katrina hurt the economy? A little, but it probably didn’t hurt you too much. Does Iraq hurt the economy? A little, but it probably didn’t hurt you too much. Will the bursting R/E bubble hurt some guy in Montana or Texas? A little, but it’s gonna hurt like hell in Southern California, this is our hurricane, except mother nature didn’t deal us a bad car, greed brought it on so don’t expect any benefit concert or 5th graders having a bake sale.

[temeculaguy]

There are about five questions here, as the duly elected representative of the intelligent people I’ll answer with a broad brush. Depending on the lender and the loan, the amount the bank loses in a forclosure can result in a judgement that will haunt the borrower but that is not usually the case and usually the bank eats it and it wrecks the borrowers credit for years. In a short, you negotiate with the bank to sell for less than what you owe and the bank forgives the loss, your credit takes a smaller hit but right now you pay income tax on the amount of the forgiveness (this tax may change with legislation now in the works). Think of it in terms of a divorce, in a forclosure she comes home and finds you with the maid in bed, throws your clothes out the window and never talks to you again. In a short, you sit at the table and divide up your stuff, she doesn’t like you all that much but tolerates you and doesn’t say too many bad things about you to friends and neighbors.

For the most part in either a foreclosure or a short sale, you don’t owe the bank, hence it’s popularity. When the tax rule changes, the short sale will gain popularity over forclosure. Will it hurt the economy, a little, but what you have to look at is most of the country isn’t in a bubble market, just a handful of states, the impact will not be felt equally all over the nation. Did hurricane Katrina hurt the economy? A little, but it probably didn’t hurt you too much. Does Iraq hurt the economy? A little, but it probably didn’t hurt you too much. Will the bursting R/E bubble hurt some guy in Montana or Texas? A little, but it’s gonna hurt like hell in Southern California, this is our hurricane, except mother nature didn’t deal us a bad car, greed brought it on so don’t expect any benefit concert or 5th graders having a bake sale.

[HLS]

Foreclosure will be on credit report for 7 years.
BK will be 10 years.
You can stall a foreclosure sale with a BK.

IF they are being foreclosed on their original purchase money loans, 1st and 2nd, it is usually NON-recourse debt.
The loan is secured by the property, and nothing more.
They will have no tax consequences.

If they have refi’d, whether they took cash out or not, it is recourse debt, and they could well be haunted for the loss OR income tax on the loss via a 1099-C (Cancellation of Debt)

See http://www.irs.gov for details

The tax consequences are not a reason to not be foreclosed on. You can only afford what you can afford.

The alternative to foreclosure is not being homeless,they will find a place to live, and probably for much less than their mortgage. It is not a terminal disease. It’s a financial business situation that people can recover from.

Most people aren’t used to having consequences of their financial decisions be negative. People don’t actually OWN homes until they are paid off. Until then you only have equity. If there is no equity today, and you put no money dow, what exactly are you walking away from other than emotion ??.

I think that many people who are getting foreclosed on will be better off once they get past the trauma. For some foreclosure is a blessing in disguise.

For those that are hanging on, they may easily owe 50% more than the home is worth, while those who walk can rebuild their lives and buy a similar home back in the future for less money, and less debt if they choose.

Although recent foreclosure on your credit is a problem to someone who wants to buy in 2007, I don’t think that will be an issue in a year or two.

With otherwise good credit and full doc, the market will be so desperate for home buyers to prop up prices, I think that a foreclosure will be overlooked with otherwise good credit.

[HLS]

Foreclosure will be on credit report for 7 years.
BK will be 10 years.
You can stall a foreclosure sale with a BK.

IF they are being foreclosed on their original purchase money loans, 1st and 2nd, it is usually NON-recourse debt.
The loan is secured by the property, and nothing more.
They will have no tax consequences.

If they have refi’d, whether they took cash out or not, it is recourse debt, and they could well be haunted for the loss OR income tax on the loss via a 1099-C (Cancellation of Debt)

See http://www.irs.gov for details

The tax consequences are not a reason to not be foreclosed on. You can only afford what you can afford.

The alternative to foreclosure is not being homeless,they will find a place to live, and probably for much less than their mortgage. It is not a terminal disease. It’s a financial business situation that people can recover from.

Most people aren’t used to having consequences of their financial decisions be negative. People don’t actually OWN homes until they are paid off. Until then you only have equity. If there is no equity today, and you put no money dow, what exactly are you walking away from other than emotion ??.

I think that many people who are getting foreclosed on will be better off once they get past the trauma. For some foreclosure is a blessing in disguise.

For those that are hanging on, they may easily owe 50% more than the home is worth, while those who walk can rebuild their lives and buy a similar home back in the future for less money, and less debt if they choose.

Although recent foreclosure on your credit is a problem to someone who wants to buy in 2007, I don’t think that will be an issue in a year or two.

With otherwise good credit and full doc, the market will be so desperate for home buyers to prop up prices, I think that a foreclosure will be overlooked with otherwise good credit.

[seattle-relo]

I agree that it can be a blessing in disguise for some people who got over their heads and aren’t taking care of their longterm needs (401K, savings, racking up credit debt to buy groceries) just to pay their outrageous mortgage payment. But how realistic is it for people to qualify to buy a place in the future with foreclosure on their credit? And also how challenging is it for someone to rent a decent place for their family to live? A friend and her husband of mine has a bankruptcy on their credit from 6 years ago and still get turned down by some landlords even though they don’t have any late payments now and make enough money to afford the rent.

[seattle-relo]

I agree that it can be a blessing in disguise for some people who got over their heads and aren’t taking care of their longterm needs (401K, savings, racking up credit debt to buy groceries) just to pay their outrageous mortgage payment. But how realistic is it for people to qualify to buy a place in the future with foreclosure on their credit? And also how challenging is it for someone to rent a decent place for their family to live? A friend and her husband of mine has a bankruptcy on their credit from 6 years ago and still get turned down by some landlords even though they don’t have any late payments now and make enough money to afford the rent.

[HLS]

This is an unknown. 100 different landlords will have wildly different criteria. I think that foreclosures will be more accepted out of necessity.

If someone has otherwise decent credit, the “system” is going to want them to buy a house again, and will adjust criteria accordingly.

A simple change for FNMA backed loans that a FC is ok will pump life into the market. I expect it to happen eventually.

Things that are shunned today will become acceptable.
Sometimes that’s called progress. In an effort to sell more houses to people that wouldn’t otherwise qualify, it will be a “necessity”

The FHA secure program is willing to overlook late payments made AFTER your ARM adjusted. This was unacceptable for a refi in August and before.

Time will tell….

[HLS]

This is an unknown. 100 different landlords will have wildly different criteria. I think that foreclosures will be more accepted out of necessity.

If someone has otherwise decent credit, the “system” is going to want them to buy a house again, and will adjust criteria accordingly.

A simple change for FNMA backed loans that a FC is ok will pump life into the market. I expect it to happen eventually.

Things that are shunned today will become acceptable.
Sometimes that’s called progress. In an effort to sell more houses to people that wouldn’t otherwise qualify, it will be a “necessity”

The FHA secure program is willing to overlook late payments made AFTER your ARM adjusted. This was unacceptable for a refi in August and before.

Time will tell….

[cashflow]

Thanks for all the comments. Thanks HLS I knew you might have some knowledge on this…I think in the longrun you’re right, better to get out of a bad situation and move on.

[cashflow]

Thanks for all the comments. Thanks HLS I knew you might have some knowledge on this…I think in the longrun you’re right, better to get out of a bad situation and move on.

[HLS]

It’s not an easy emotional situation.
From a business standpoint without emotion it is.

If carrying costs are $4000 a month to own, and you could rent for $2000 a month, you start with $2000 upside down,
Thats $24,000 a year + lost interest. (perhaps the numbers are larger)

To people that say you will be happy in 5 or 10 years, you will need an increase of $125,000 to $250,000 just to be even, and that’s over what you owe, not what the house is worth today. IT MAY or MAY NOT HAPPEN.

You will also need $50,000 a year++ to maintain, which is currently not affordable.

Is it better to be a happy or content renter living an affordable lifestyle
OR
a miserable, stressed out homeowner with no extra money to enjoy their lives because they are a slave to their mortgage ??

Many people got caught in the myth, this mess is far, far from being over.

I truly believe that foreclosures will have a good chance of being overlooked in the future. The system will NEED home buyers. Even if that doesn’t happen, there will be ways to get back in to homes.

[HLS]

It’s not an easy emotional situation.
From a business standpoint without emotion it is.

If carrying costs are $4000 a month to own, and you could rent for $2000 a month, you start with $2000 upside down,
Thats $24,000 a year + lost interest. (perhaps the numbers are larger)

To people that say you will be happy in 5 or 10 years, you will need an increase of $125,000 to $250,000 just to be even, and that’s over what you owe, not what the house is worth today. IT MAY or MAY NOT HAPPEN.

You will also need $50,000 a year++ to maintain, which is currently not affordable.

Is it better to be a happy or content renter living an affordable lifestyle
OR
a miserable, stressed out homeowner with no extra money to enjoy their lives because they are a slave to their mortgage ??

Many people got caught in the myth, this mess is far, far from being over.

I truly believe that foreclosures will have a good chance of being overlooked in the future. The system will NEED home buyers. Even if that doesn’t happen, there will be ways to get back in to homes.

[patientlywaiting]

” I truly believe that foreclosures will have a good chance of being overlooked in the future. The system will NEED home buyers. Even if that doesn’t happen, there will be ways to get back in to homes.”

I agree with you 100%.

Also, excellent advice on the cost of holding on vs. the advantages of letting go. Generally, it’s better to let go and start anew.

I expect to see good houses go to back to $120/sf. Even at $500,000, relatively few can afford the holding costs of such a mortgage. Houses in Las Vegas and Florida are now $350,000 and foreclosures are colapsing the market.

[patientlywaiting]

” I truly believe that foreclosures will have a good chance of being overlooked in the future. The system will NEED home buyers. Even if that doesn’t happen, there will be ways to get back in to homes.”

I agree with you 100%.

Also, excellent advice on the cost of holding on vs. the advantages of letting go. Generally, it’s better to let go and start anew.

I expect to see good houses go to back to $120/sf. Even at $500,000, relatively few can afford the holding costs of such a mortgage. Houses in Las Vegas and Florida are now $350,000 and foreclosures are colapsing the market.

[Author]

Posts