The Sad Truth about Foreclosure

Neither homeowners nor their lenders benefit from foreclosure. However, it has become all too common in today’s difficult economic climate. Foreclosure is much more than just a business transaction; foreclosure has social consequences as well. It affects the financial lives of the homeowners for many years.

This limits their ability to get a home mortgage again for a long time, even if their financial status has improved. The borrowers credit score drops way down and this makes something that used to be as simple as getting a car loan or a credit card very difficult indeed.

Foreclosure is disruptive to the entire family. Often, it causes families to have to move to a different area, perhaps in the middle of the school year. Even if a long distance move is not required, there is the stigma attached to the foreclosure process. In many cases, the lender does not get the full amount due from the foreclosure sale and will attempt to take the borrowers other possessions too.

Some mortgage lenders have special departments to help financially troubled borrowers to work through their problems without having to face foreclose proceedings. This is good business practice because the lender nearly always looses money in a foreclosure and if there is a reasonable chance of averting it, they will be better off.

Unfortunately, many lending institutions do not have such a department, or they do but it is more window dressing for public relations purposes, than it is a genuine attempt to help the borrowers. Still others make a real effort to help the borrowers resolve their issues but they simply are too understaffed, given the huge increase in foreclosures lately, to be able to get to more than a small percentage of the people that need help.

Even worse than this is that only forty per cent of troubled homeowners actually go to their lender and seek help. Fully sixty per cent don’t even bother to see if the lender may have a better solution than foreclosure.

The worst of all is the lender that has a department that, on the surface, appears to want to help the troubled borrower, when actually they only want to cement the lender’s position. They may offer limited assistance to the borrower in exchange for signing an impossibly long and complex document that contains promises that are only designed to help the lender later seize other property from the borrower, such as cars, retirement plans or jewelry.

If you have a problem paying your mortgage you should by all means meet with your lender as early as possible. Never wait until the foreclosure process is already started, as it is unlikely that the lender will stop the process except where the borrower can fully catch up on all payments. However, be very careful about any documents that you are asked to sign. If you do not fully understand everything in the document, you should ask questions, or even consult with a lawyer before signing.

Original: The Sad Truth about Foreclosure