What the Foreclosure Settlement & More Short Sales Mean for Homeowners Facing Foreclosure


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Foreclosure sales accounted for almost a quarter of home sales in the third quarter of last year. The Bloomberg article, Foreclosures Rise to 24% of U.S. Home Purchases as Short Sales Increase, states:

Deals for bank-owned and distressed properties rose to 24 percent of total home sales from 20 percent in the third quarter, according to RealtyTrac Inc. . . . Banks may “aggressively” resume unloading distressed property after an 18-month delay brought on by federal and state legal probes into flawed foreclosure paperwork and documentation . . .

So, what does this mean for homeowners facing foreclosure? The following:

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Lenders Will Probably Be Speeding Up the Foreclosure Process

Now that lenders have worked through the robosigning debacle and a foreclosure settlement is in place, lenders are free to resume foreclosing on properties. If you’ll remember, large lenders across the country halted foreclosure proceedings against homeowners last fall because of alleged illegal foreclosure practices (eg, robosigning).

Now that this issue has been resolved, they’ll probably be quicker about doing it because one of the terms of the foreclosure deal is that extra staff be hired (eg, foreclosure consultants / loss mitigation experts) to properly handle foreclosures. 

This brings us to the next point, ie . . .

Homeowners Facing Foreclosure Need to Make Some Decisions Now 

If you’re facing foreclosure, you need to figure out what it is you want; as in, do you want to fight to keep your home, or leave it (and ask for cash for keys). 

If you want to keep it, what’s your bottom line? Do you know – REALISTICALLY – how much you can REALLY afford to pay in mortgage, taxes and insurance, along with other homeowner costs? 

Don’t kid yourself on what these costs are. Financial experts advise that housing costs shouldn’t make up more than 25-33% of your AFTER TAX income.

Look at your income? What are your housing costs (mortgage, taxes, insurance, HOA fees, estimate of home repair bills, etc.)? If they’re more than roughly a third of your after-tax income, doing a voluntary foreclosure may be the best thing for you. That way, you can move on with your life and regroup with this new knowledge (and further budgeting lessons) in mind.

This brings us to the last point, which is . . .

There are Tax Consequences of Doing a Short Sale After the End of This Year 

Did you know that if you do a short sale after December 2012, you will be responsible for paying income tax on any “shortage?”

See the article, Foreclosed Properties Continue to Drag Down Construction of New Homes: What It Means for the Average Joe, for a full explanation (cursor down to section entitled, Home Foreclosure and Taxes: Important Tax Consequences of a Short Sale after December 31, 2012).

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Home Foreclosure News: Bankruptcy Attorney Explains Why Foreclosure Is Inevitable for the Vast Majority of Homeowners Going Through the Home Loan Modification Process

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Home Loan Help: Documents Needed to Apply for a Mortgage Modification with HSBC (and Other Lenders)

Home Loan Modifications: 30% of Those Made in 2009 Were Seriously Delinquent or in Foreclosure Process — Lessons Learned?  

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Stop Foreclosure: How to Ready Your Home for a Fast (Short) Sale

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Copyright © 2012 Yuwanda Black for Foreclosure Business News. Article may not be reprinted or reproduced in any manner without the express, written consent of the author.

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