In a recent interview, foreclosure was defined as the most fiscally irresponsible and destructive thing you can do by a highly respected real estate attorney. Mark Stern (the attorney) walks through many misconceptions about why handing over the keys to your bank and walking away from your commitment to pay is irresponsible and simply doesn't yield the results that most people expect. Why? Here are a few reasons... and be sure to click on the video below for the detailed interview:
1. YOUR CREDIT REPORT SUFFERS: The moment you decide to walk away from your mortgage obligation and stop paying the bank, they begin to report your delinquencies every month to the credit bureaus. After 90 days in Connecticut, a bank can start a foreclosure which can take several years to complete and during that entire time, your credit is being tarnished every month with damaging updates. Here's how a bad credit report can hurt you... If you're looking for a job, companies are now requesting a credit report prior to making an employment decision. Isn't it reasonable to conclude that your past decisions may repeat themselves in future situations? If you were fiscally irresponsible in the past, will you tend to be fiscally irresponsible in the future? Also consider if you're looking to finance anything such as a car, house or other investments, banks or investors will ask for your credit report and make lending decisions based on your history. This can mean lost opportunity for you and your family long term.
2. AFTER A FORECLOSURE IS WHERE YOUR PROBLEMS BEGIN, NOT END. The bank sells the home for a price that THEY accept and then reserves the right in Connecticut to pass along a deficiency judgement against you to cover the shortage. You didn't pick the sales price...the bank did. Worse yet, YOU are still responsible for making up any deficiency... Ouch! Keep in mind that up to now, you handed over your keys to the bank and since your first late payment, they have been issuing damaging monthly updates to your credit report. You don't have a house any longer and your credit is dragging you down.
3. ATTACH YOUR ASSETS AND GARNISH WAGES: Once the bank sells your house, they reserve the right to attach assets and / or garnish wages in order to collect the deficiency owed on the mortgage note you signed. The bank came up short in the sale and will attempt to collect the debt from you however legally possible. This could be 3-4 years after you stopped making payments. You can't borrow money any longer because your credit report is so damaged and you're likely to be renting while banks and collectors are calling you to settle up on the debt that you still owe. That's a long time to be on the run. Not so easy anymore ...is it?
4. YOUR FINANCIAL LIFE IS IN TURMOIL until you either settle the debt with the bank or you file bankruptcy. At this point in the process, your credit is tarnished, you have a foreclosure recorded on your credit report, a bankruptcy lurking on the horizon and you've been dealing with threats from your creditors for payment. You're bouncing between appointments with your attorney and the court house to defend yourself against garnished wages and having your assets attached by the creditors. This is a painful process and in many cases, you're no longer dealing with the bank, you're dealing with money hungry investors who purchased the bad debt from the bank who are relentless in their pursuit to collect from you.
5. BANKRUPTCY CAN BE YOUR ONLY OUT to defend yourself against the deficiency you owe the bank. If you choose bankruptcy, be ready to fork over thousands of dollars to hire an attorney and spend hours documenting your financial history and justifying your financial hardship. Just because you file for bankruptcy doesn't mean you'll be approved. Be ready for Trustees of the court to uncover hidden money and give back to the bank what is rightfully theirs. Seems like the long way around....why not just sell short and save yourself alot of time, money and agrevation?
In MOST cases, dealing with a short sale and a knowledgeable real estate agent is a much better choice. Once your home is sold short, the derogitory credit updates from the bank stop and you can immediately begin rebuilding a strong credit history. In most cases, by the time it takes to finish a foreclosure, you could have sold your house short and fully repaired your credit history to take advantage of buying a new house. Doesn't that sound like a better way to go?
In my opinion, when we focus on our true goals...to improve our life and not on passing off our responsibilities to someone else, it's an easy conclusion to choose a short sale as a much better option compared to a foreclosure. As Attorney Stern puts it, a foreclosure can be the most fiscally irresponsible and destructive thing you can do. Click FISCALLY IRRESPONSIBLE to see the 8 minute interview with all the details. To see if a short sale is an option for you, click SHORT SALE TEST and I will get back to you with the results. For more information about short sales and a great Q&A list, click on SHORT SALE Q&A. Let me know if I am able to help you or anyone you know through a difficult time. I truly believe that when you're armed with the right information up front, only then can we make GREAT decisions!