How to Keep Your Home Above the Water

The horrifying effects of the housing bust that happened in the fall of 2008 are still being felt today. In the years leading up to the collapse, predatory lenders were offering subprime loans to unsuspecting consumers looking to purchase homes that they simply could not afford in most circumstances. But because of the systematic stripping of governmental regulations, the lending industry was allowed to offer these loans, leading to a decade’s long worth of skyrocketing housing prices and a particularly lucrative era for lenders like Countrywide. Due to these unprecedented practices, and with a little help from haphazard trading of securities on Wall Street, the housing market has not been the same since, and the outlook remains gloomy. As of March 2012, 22.8% of homes were underwater. That means the mortgages on these homes are worth more than the current market value of the home, leaving behind only negative equity. Even though years have passed since the collapse, that number is actually an increase. Homeowners, just as they were at the beginning of the crisis, are panicking. According to studies, three out of ten mortgage defaults are accomplished by homeowners who simply walk away from their underwater homes, thereby leaving a sizeable negative impact on their credit for years to come. Even more unfortunately, the stories of men and women committing suicide to escape these trying economic times seem to come in abundance. What many homeowners don’t realize is that there are some legal fixes that will help to rescue their home and their financial status while their home is underwater. One of the more popular options for homeowners in this dilemma is to execute what is known as the short sale option. This is when the homeowner agrees to sell the home for less than the balance of the mortgage, prior to foreclosure. If the mortgage company agrees to a short sale, a homeowner can sell the home and use the proceeds to pay off at least a portion of the mortgage. Not only can this erase your negative equity and evade that damning foreclosure stamp on your credit report, but many homeowners who have gone through the motions of a short sale have been able to purchase a new, more affordable home within the next two years. Another option available to homeowners is to file for Chapter 13 bankruptcy. Most homeowners are understandably frightened of the stigma that comes attached with filing for bankruptcy, but when a home is underwater, this is actually one of the more practical options in order to stay in the home. Filing for Chapter 13 bankruptcy allows homeowners to pay off the arrearage, a fancy term for late unpaid payments, over a length of time comfortable for the homeowner. If payments are made according to the schedule made upon the bankruptcy declaration, there is no reason a homeowner can’t stay in his or her home. Yes, filing for bankruptcy does have a negative impact on credit scores, but it is actually easier to rebuild a credit score after a bankruptcy filing as opposed to a foreclosure. Homeowners with underwater homes also can apply for a loan modification. If successful in receiving a loan modification, homeowners can not only make their defaulting mortgage current, but they can lower the monthly payment. This option is best for people who can afford the home, just under the current payment plan. All a homeowner needs to do is prepare a detailed hardship letter, a letter which explains why the mortgage has been troublesome to pay off. Loan officers will ask for access to credit reports, pay stubs and additional debt information, but if a homeowner is able to demonstrate both hardship and a reasonable ability to pay off the mortgage under a different plan, most lenders will approve a loan modification. There are many Americans right now who are avoiding their foreclosures through ill-advised, and sometimes very tragic means. If only they knew there were so many better, financially prudent options made available to them. For more information about mortgage lawyers or loan modification lawyers, check these out.