Foreclosure Rates Hit New Low As Refinancing, Bankruptcy Help Distressed Borrowers Hold onto Homes
The good news is that an anticipated flood of foreclosures is shaping up to be more of a trickle.
The bad news is that, rather than lose their homes to foreclosure, some borrowers are simply being pushed into short sales.
According to a recent housing report, the number of foreclosure filings dropped to the lowest level in 5 years last month.
This September saw just over 180,000 foreclosure filings, which include default notices, planned auctions, and bank repos. That's down from 7 percent a month earlier and 16 percent a year ago.
Housing experts had been bracing for a huge wave of foreclosures following April's $25 billion mortgage settlement, which cleared the path for lenders to begin processing foreclosures that had been on hold after the robo-signing scandal.
Now it seems that the flow of foreclosures is more streamlined than expected.
In part, the lower number of homes falling into foreclosure is due to the improving economy and today's low mortgage rates.
Homeowners with good credit standing and cooperative lenders may be able to refinance for a more affordable rate (though our bankruptcy attorneys warn that modifying a mortgage doesn't always mean a lower payment).
However, there's more to the story. Another explanation for the decline in foreclosure filings is the increase in short sales. Many banks today are eager to agree to short sales, in which the lender accepts a price lower than what the borrower owes on his or her mortgage.
Lenders prefer short sales over foreclosures because they're faster, require fewer legal expenses and typically generate more money for the bank.
Unfortunately for homeowners, short sales don't come with the same advantages. They do nearly as much credit damage as foreclosures. Since the IRS considers unforgiven debts to be taxable income, they'll leave you with a big bill. And as with foreclosure, borrowers ultimately lose their home.
Making matters worse, some ruthless lenders have later filed for deficiency judgments demanding that borrowers pay the difference between the short sale payment and the mortgage balance.
For those facing foreclosure or a short sale, filing for bankruptcy can be a better solution. Chapter 13 bankruptcy has the power to stop foreclosure, lower debt payments and protect against creditor harassment. You may be underwater, but you'll only take a loss if you lose your house.
As the economy picks up, fewer people are falling behind on their mortgages. But for the many homeowners still in distress, bankruptcy can be a breath of fresh air.
Learn what bankruptcy can do for your situation when you call DebtStoppers at 800-440-7235. Call DebtStoppers today to schedule your complimentary personal debt analysis with an experienced bankruptcy attorney in Atlanta, Chicago or Tennessee.
More Blog Entries:
Life After Bankruptcy Is Better Than Most Americans Think, Says New York Times: October 8, 2012
Foreclosures Fall to 5-Year Low, by Les Christie, CNN Money