Why did this home foreclose????
As our politicians decide how to spend $730B they don't have, please understand that this will not help your economy.
The National Assc of Realtors say "Home Ownership is an investment in your future."
However, the reality for homeowners who have purchased a home between 2004 and 2007 have not experienced this kind of investment.
If a home sold for $500,000 and its market value is $300k the following year, a rationale person with normal means cannot spend one third of a family's disposable income to pay down an unexpected $200k debt at 5% interest. This condition is called "being upside-down in the loan." On the normal payment schedule, it would take 17 years just to pay the loan down to $300k and have zero equity! This does not factor in any anticipated appreciation over the next 20 years, but what are we learning about anticipating appreciation????
The U.S. Census reports that the American family moves on average every 4.5 years. When homeowners with "upside-down loans" have to relocate, they will need to pay hundred's of thousands of dollars to the closing.
Should an investor accept the 'risk' and pay the burden or should they be excused from the debt with an insurance or government relief? Undoubtedly, you would the investor accountable for the investment that went sour.
But what about a family? One colleague tells me that he felt victim to a nationwide scandal. All of the financial advice told him to buy his retirement property. When he set the plan to motion, there was a system of appraisers, realtors, and banks all seeming to conspire to obligate him to an overpriced million-dollar property. Two years later, that property was worth half and it feels like a scam. Each of the services (appraiser, realtor, closer, title company, loan broker) made their risk-free commisions and are no where to be found and he's left holding the bag. Is this his poor investment or is he the victim of a complex ponzi-like scam where the market went wild and the institutions threw caution to the wind and played along. Right now, he wants justice!
While many people earned a living off of these transactions, the only entity that got 'rich' off of the transaction was the lucky seller who traded her property at the height of the market.
Give it back! There are three options for those families who are still hanging on in a large "upside-down mortgage." Consider bankruptcy, foreclosure, or a short sale and ditch the non-investment immediately while the housing market is still at a low.
A Chapter 7 bankruptcy can cost less than $3000 and forgive the mortgage debt for middle-class wage earners. A lawyer will help distribute the title to your assets and ensure that you meet the new 2005 regulations of median income and passing the 'means test.'
A foreclosure will naturally result if you abandon the home and apply your mortgage payments to a new property or rental. The bank may try to collect the difference between the mortgage and the sale of the property. A lawyer's assistance may be required to force the bank to write the mortgage off as a bad debt.
A 'short sale' is challenging way to negotiate the mortgage down to the market price. Banks are very skittish about these transactions and neither party can count on a timely sale, or even be sure that the sale will go through until the day of closing!
In any case, it is wise to make a move immediately and reposition your family in the real estate market to take advantage of all these low, low prices that won't last forever!
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