Yes, I can AFFORD my Mortgage but my home isn’t worth what I owe! Sound familiar? You’re not alone. According to Zillow’s 3rd quarter 2012 data, 50% of the homes in Wheeling, 37% of the homes in Schaumburg and 30% of the homes in Elk Grove Village had mortgages at the end of last year that were “underwater”, meaning that the outstanding amount owed is more than the fair market value of the house. Almost every day, I hear about Illinois homeowners who want to sell their house or at least stop paying so much for a mortgage on a home that is worth far less. While there are other options that might be available, many people want to know “Can I just let the house go into foreclosure and buy another one?” There is no across the board right or wrong answer as every situation is different, but as a general rule, I do not advise allowing a home to go into foreclosure for the sole reason that more is owed than what it is worth, especially if the homeowner can afford to make the payments. Many people think that they can get out of a foreclosure by doing a deed in lieu of foreclosure or trying to “short sale” the house. There is no automatic right to a deed in lieu of foreclosure nor are short sales guaranteed to go through, assuming that you can even get an offer on your house. Often times, as with many programs, you must show that you have undergone a real financial hardship such as a loss of income. Moreover, each avenue taken once you go down that road (the ‘I’ve stopped making my mortgage payments’ road) has its own complications and risks. If you have outgrown your home or want to buy a new one that reflects today’s housing market, remember that your unpaid mortgage payments are affecting your credit and your FICO score. Once a foreclosure has begun, it will be especially difficult to qualify for a new loan on a house (or a new car, etc.). Aside from wrecking your credit, what I see as the biggest risk of foreclosure is that of a deficiency judgment. This is a judgment entered against you in court for the amount of money that is still owed for the home that you do not even have anymore. This can follow you around and the bank can take steps to try to collect the money from you. The bottom line is this, if you can afford to pay your mortgage, you probably should look into all of your options before deciding to just “let it go”. If you do decide to allow your home to go into foreclosure, please do so with your eyes open make sure that you are prepared to deal with any negative consequences that come with it.
Some options to foreclosure, depending on circumstances, may include: renting out your home, a deed in lieu of foreclosure, consent foreclosure, reinstatement or redeeming of the mortgage, loan modifications, short sales, Chapter 7 bankruptcy, or Chapter 13 bankruptcy. To find out if a bankruptcy may be an option for you, call our office to schedule a confidential appointment at 630 250-8813.