Foreclosure Prevention – Private Lending Options are available if handled correctly, provided there is adequate equity in the property:
During financial hardship, there are generally 2 paths you can take to meet your mortgage commitments. First and foremost, if the property is in satisfactory condition and there is more than 25% equity, you will likely have options. This is assuming the property is in a city urban center or the direct surrounding area. If the property is rural, the equity generally needs to be more than 40%. If you have family or friends that are able and willing to step up and help, that is ideal and the most cost effective solution. Private Money is expensive. This article simply illustrates what to do and what not do do….
Let’s take a quick look at Thomas and Tommy. They both own homes valued at $500,000. They both owe just under $340,000 and live in the beautiful city of Calgary. They are both employed, married, have 2 kids. Unfortunately, financial hardship has hit them both. Thomas has been employed in the oil industry and has always had good income up until the last couple of years. Thomas saved a large down payment when he purchased his home. Tommy, on the other hand had the home gifted to him. During the economic down turn, there have been less job opportunities.
Foreclosure Prevention Requires Communication…
When Tommy misses a payment, he goes into panic mode. He avoids any contact with his Bank and instead looks to find a short-term high rate interest loan, and even considers using his paid off vehicle as collateral for a loan. Unfortunately, nothing works out. His Bank is unaware of his situation and make attempts to reach Tommy with no success. Tommy has his head in the sand hoping that the problem goes away.
As for Thomas, his first response is to contact his Bank before the payment is missed. His Bank is appreciative and wants to work with him to find a solution and a repayment strategy until things return to normal. The Bank is even willing to defer some payments so that he can manage finances.
Foreclosure Prevention Requires Taking Action…
Tommy remains in panic mode and is stressed beyond belief. He’s still hasn’t been in contact with his Bank, so the Bank decides to send a Demand Letter for full payment. Tommy procrastinates and does not open any Bank mail. When he finally does, he realizes that some Important Notice Deadlines that cannot be met due to his delayed response. Only Tommy knows of the issues. His wife has no idea because Tommy handles all the financial affairs.
For Thomas, things are still tough, and he has not found employment. His Bank is getting impatient, but because of Thomas’ constant contact, the Bank suggests a few broker options. Thomas begins his search and educates himself on the foreclosure process. He eventually finds a firm that is familiar and has experience in these type situations.
Foreclosure Previon Requires New Spending Habits…
A few more months have passed. Tommy has new employment, but his spending habits have remained the same. With new employment, Tommy is now confident and contacts his Bank. They inform him that he needs to speak with their lawyers. Tommy is surprised, but contacts the lawyer and is informed that he needs to hire his own lawyer. Tommy’s stress level increases once again and looks to obtain a lawyer but doesn’t have the funds needed for the Lawyer’s retainer. Alternatively, he searches and comes across a self-proclaimed “Foreclosure Expert”. Little does he know that this “Expert” is not licensed. Tommy spends much needed cash on “Up Front Fees” to start on his file. The “Expert” can’t help him. Tommy is at his wits end, and he is having difficulty trusting.
The same time has passed for Thomas, and he also has now found employment. Unfortunately, he’s too far behind on his mortgage to pay it current. Thomas decides to continue meeting his unsecured commitments, but also puts aside the remainder of money in the event he must move or requires money to cover any mortgage refinance costs. While speaking to various brokers, he recalls being told to be frugal during foreclosure and save as much as possible. The reason for this is that $5000 – $10,000 could be the difference between being able to find financing or being forced to sell. Many property owners forget the expensive legal bills associated with the foreclosure process.
The Outcome
Tommy does not obtain new financing. His house is sold by the Bank for below market value. Tommy now has horrible credit, a foreclosure on his credit report and it will be on a long road to financial recovery. It carries into his marriage, and they are now living outside of the school zone… which means a new start for his kids at a new school. All of this was preventable.
Thomas finds a company that provides him with options to create some stability. No moving is required, and the stress is kept to a minimum. Despite the hardship, Thomas and his wife get though this, and the kids are still attending the same school.
Lessons to Learn:
- Communicate
- Educate
- Act Responsibly
- Conquer the Situation
If you can relate to this article, Contact Amansad Financial Services today. We have helped many property owners in similar situations. If we can’t help, we’ll point you in the right direction.