Top 5 Answers for Homeowners about Strategic Mortgage Default

walk away, strategic mortgage default

1. Should I intentionally default on my home mortgage?

Today, many people are ‘intentionally’ or ‘strategically’ defaulting because cash is more valuable than credit. Because many of the banks were unethical, some borrowers don’t feel the ‘moral obligation’ to pay, especially when the banks are being less than cooperative as buyers try to work things out. Rather than defaulting, the best thing to do is use the Section 702 program of the Obama act, which allows a qualified third-party buyer to take possession and make a ‘bona fide’ offer to the bank. This helps show the debt ‘settled’ on your credit and can eliminate the second mortgages completely. Walking away and allowing the bank to foreclose still allows the second lender to render a judgment—and possibly garnish your wages. You may also have to file for bankruptcy to recover from the credit nightmare.

In addition, it is always best to gain the most knowledge to make the best decision for yourself and your family.  There are great workshops and seminars that reveal the different programs the are available to homeowners and discuss the pitfalls people may encounter.  For specialized assistance in saving your home, consult a specialist and discover real options that fit your scenario.

2. As a borrower, what are some ways I can gain leverage with my mortgage holder?

One way to gain leverage with a lender is to establish a ‘substitute mortgage’—a security pledge that is offered to the seller’s lender, with a third party (lawyer or Escrow company) for a lesser amount of the current payment. Over time, this will result in a significant amount of collected funds that can be used as negotiating leverage to release the borrower from the debt, or dictate terms for a loan modification in the borrower’s advantage.

3. Why have loan modifications and foreclosures become the predominant answer for so many in distressed property situations, and why can this be problematic?

The reason why loan modifications and foreclosures have become the answer for so many is because many real estate professionals erroneously consider the short sale process to be too complex. Not knowing how to orchestrate the transaction and not having the correct forms and contact information with all the different parties is overwhelming for many Realtors, so they forego an option that would otherwise be in the owner’s best interest. The result is unnecessary spending of tax payer’s funds that are being used for the alternative solutions, when capital contributions from the ‘street level’ can be used to offset the losses and payoff the delinquencies without requiring such taxpayer contribution.

For specialized assistance in the short sale process, consider discussing your options and the entire process with a specialized short sale consultant.

4. Why is a short sale strategy more advantageous than a loan modification or foreclosure approach?

The reduced payoff in a short sale can release you from the debt obligation. This allows you to re-establish your credit faster and re-enter the market much wiser. A loan modification actually builds a debt trap around the borrower who is emotionally attached to a property, milking the borrower for every last nickel. A foreclosure ruins a homeowner’s credit and takes a much longer time period to recover from.

If you find out you need more work to fix your credit, consult with a credit repair specialist to discuss your options and find out what is right for you.

5. I’ve heard borrowers in default need a ‘General Public Disclosure?’ Why

Many people are not aware of the ‘alternatives’ when facing foreclosure. The state and the federal agencies do not provide any literature to default borrowers as a ‘preventative’ measure. Knowing your options, as detailed on a General Public Disclosure document, can make all the difference in establishing a deal that’s in the homeowners’ best interest.

Source:   Marian Anthony (RISMedia): Real estate finance expert, author and speaker, Marian Anthony is the President of Anthony Realty Group (ARG)–a San Diego-based consumer advocacy agency that helps educate real estate professionals throughout Southern California to better assist home buyers and investors. Anthony is also founder of the California Default Mortgage Hotline—a non-profit public interest group availing financially-stressed homeowners in mortgage default with validated information and industry resources.



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