Foreclosure is a Lose-Lose
TURNING A LOSE-LOSE INTO A WIN-WIN
No one wins in a foreclosure. The mortgage company loses revenue. The mortgage insurer loses premiums and pays a claim. The investor does not collect principal or interest. The mortgage servicer does not collect fees. The property is left damaged, driving the value down, and the negative stigma of foreclosure drives it down even further. The lower property value has a negative effect on the surrounding real estate market and forces more homeowners into foreclosure.
But the homeowner suffers the most. Foreclosures get reported to the credit bureaus and cannot be removed for 7 years. In addition to the foreclosure, late payments are extremely damaging to a credit score and will continue to be reported for the entire 9-12 months (or more) that it takes to complete foreclosure and deed title to the bank. Credit scores will take a hit of 300 points or more and it can take years to qualify for a home loan, car loan, or credit card. A previous foreclosure will always have to be disclosed on any mortgage or property rental application and on many job applications. Utility companies determine what deposit must be paid for services based on your credit file. Insurance companies base premium amounts on credit files. Even employers check credit reports as part of their screening process and will not put people with negative credit histories in a position that requires handling money. Security clearances and government positions, including but not limited to, military and law enforcement can be jeopardized by foreclosure. And the worst part is that FORECLOSURE STILL MAY NOT RELIEVE THE HOMEOWNER OF HIS FINANCIAL RESPONSIBILITY TO REPAY THE LOAN!! He may be responsible for paying deficiency judgements or taxes on the “forgiven debt”!
Believe or not, the last thing an investor wants is to foreclose on a home. It can cost as much as $30,000-50,000 in legal fees, maintenance, and holding costs and take as long as 3 years to work a property through the foreclosure pipeline! Investors show their REOs (Real Estate Owned) as liabilities, not assets! They would much rather negotiate a small loss today than take a huge hit on the resale of an REO later.
AVOIDING FORECLOSURE IS A WIN-WIN FOR ALL!
There are many options available to a homeowner in foreclosure including reinstatement, forbearance, selling the property, renting the property, refinancing, mortgage modification, short-refi, deed-in-lieu of foreclosure, bankruptcy, Servicemembers Civil Relief Act (SCRA), and short sale. For a detailed explanantion of each, refer to the article Options for Homeowners in Foreclosure.