If you are to believe Wall Street, the economy is on the upswing.
In reality, the downturn continues vigorously. More homeowners are facing foreclosure (in Georgia, one in every 196 homes is currently under foreclosure) than ever before. Most homes have lost on average 60 percent of their value.
Banks are selling homes for pennies on the dollar and this, in turn, is causing an alarming number of homes to be underwater. That means the amount owed on the mortgage is more than the value of the home.
I speak daily with homeowners who seek to sell their homes due to a loss in income, illness or other issues. I’ve witnessed their anxiety, fear and utter sense of hopelessness as they come to realize they cannot sell their home and, in all reality, they will soon face foreclosure.
The government has initiated revisions in the Home Affordable Refinancing Program — known as HARP. But unless your loan is federally insured, you are left swinging in the wind. All conventional mortgages are at the whim of the lenders.
There are many options available to a homeowner, such as refinancing, loan modification, a short sale (when the bank allows you to sell your home for less than the amount due) and even bankruptcy. If you explore all options available and there are no options but foreclosure, then homeowners should seriously look at what is required to initiate a strategic default.
Put plainly, a strategic default is where you give the house back to the bank, either through deed in lieu of foreclosure or a regular foreclosure on your terms.
It’s my opinion that homeowners have a right to know every option available to them. In the past, there was a stigma attached to giving your home back to the bank. Some people even tried to play the morality card to make individuals feel ashamed of having to start over. But the reality of how bad the recession has become, coupled with a weak housing market, has given many a reality check.
There is nothing wrong with taking your personal finances into your own hands and dictating how and when you will walk away. Strategically defaulting means understanding the law to make sure that the lender follows it during the foreclosure process. In return, it returns power to the homeowners and gives them time to make the transition to a rental from the home they will leave.
Remember, even if the lender forecloses, you still are in the home. They have to file for an eviction, which may take several months, which allows more transition time.
There are current tax laws that allow you to walk away from your home and not have to pay taxes, but these will sunset within the year. Although a lender in Georgia may attempt to obtain a deficiency judgment, you probably will file bankruptcy, which will wipe that out.
Finally, most people are not aware that once you walk away, file bankruptcy and keep your credit clean for three years after discharge, you are eligible for an FHA mortgage again.
Isn’t it time for lenders and their attorneys to get out of individual homeowners’ personal finances and allow them to determine what’s the right step for them? Most want to stay in their homes. When all else fails, know that you have every right to take control of how you will give your home back to the bank.
Don’t allow anyone else to tell you it’s wrong for you to be strategic about how you will manage your personal finances. Seek professional advice when making these decisions.
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