The toughest situations I see are when homeowners are looking for alternatives to foreclosures. My heart goes out to anyone who is afraid they might lose their home.
When the bank starts sending letters for missed loan payments, don’t panic!
Instead, let me help you to understand the alternatives to foreclosures and bankruptcies that you have.
What Is The Foreclosure Process In Texas?
Our great state, like most states, has its own rules for how a foreclosure should go. It’s really important to know what to expect when foreclosure is coming.
In Texas, the foreclosure process can start quickly; with just one missed payment, your bank can start calling and sending letters.
Every homeowner should have an idea of how foreclosure works.
6 Step Process To The Texas Foreclosure Progress
- Pre-foreclosure. This can begin at a minimum of one month of missed mortgage payments. A bank will begin by calling and sending letters regarding payment.
- Notice of foreclosure. In Texas, a bank must wait 120 days before sending a notice of foreclosure. That’s four months of missed payments, which is called a minimum delinquency period. Not all lenders are created equal. Independent lenders may have different requirements, so make sure to check.
- Notice of default and acceleration. After the minimum delinquency period, the bank is legally required to wait up to 30 days for you to pay what you owe. The bank may accelerate and demand all of the required payment if they choose.
- Notice of sale. If you haven’t yet paid, the bank will send you a notice of sale. Texas law requires you to have at least 21 days of notice in writing of the foreclosure, which begins on the day the notice is mailed. The notice must also be posted at the door of your county’s courthouse and filed with the country clerk.
- Foreclosure sale. After the notice expires the home is foreclosed and sold at the county courthouse during a foreclosure sale time. The bank can bid on the property.
- Deficiency Judgement. Your bank can secure a judgment that allows them to come after you for any difference between the sale of the home and the remaining mortgage balance. This means that if you owe $100,000 on your home and the home sold during the foreclosure sale for $75,000, the bank can file a lawsuit against you for the remaining $25,000.
Is It True That Foreclosure Is Always A Bad Idea?
I believe that foreclosure is a painful, nasty process. It ruins lives, emotionally and financially. There are three big problems that foreclosure causes.
- Negative tax consequences
- Potential for bank lawsuits
- Credit score damage
Negative tax consequences
The ‘attractive’ part of the foreclosure for the distressed homeowner is that they can rid themselves of the burden of the house without having to come out of pocket for anything.
Not so fast my friend!
If the difference between the amount of the loan you took out is greater than the amount repaid at foreclosure, then that difference is considered by the IRS to be Imputed Income.
For example, let’s say a homeowner with a mortgage of $150,000 goes thru the foreclosure process. The house was sold at auction for about $100k, leaving $50k left over. The IRS considers any forgiven debt over $600 bucks as imputed income and it is taxable as an income tax.
Not only does the distressed homeowner lose their house, but now they have a tax bill on their hands.
Potential for bank lawsuits
Now, in the above situation, if the bank doesn’t forgive the loan, the homeowner still has to pay back the $50k difference. This is where good people face a lot of pain. No house, a tax bill, and the bank is filing a lawsuit to come after the missing money.
Credit score damage
This is the really painful part of a foreclosure, the part that sticks with you long after the house is gone.
Many lenders consider a foreclosure to be the worst thing that can happen to a credit score — even worse than bankruptcy. Just one foreclosure can drop a credit score by up to 150 points.
This drop in credit score means your interest rates on future loans and credit cards will skyrocket. You won’t be eligible for some loans. A low credit score might even keep you from getting certain jobs.
Upper scale apartments may not consider renting to you. Car insurance premiums may increase.
It can even take 7 years or more to remove a foreclosure from your score. That, and it will take a lot of hard work to repair your score.
If you are on your first or fourth missed payment, you need to call me right away. I always say, “waiting till the last minute negatively affects your options.”
Is Bankruptcy One of The Good Alternatives To Foreclosures?
Let me be crystal clear on this topic: don’t use bankruptcy to avoid a foreclosure. This strategy backfires more times than not.
Bankruptcy can bring foreclosure proceedings to a halt, end harassment from debt collectors, and give borrowers time to make up missed payments and reorganize their finances. However, if your biggest problem is not enough money, then bankruptcy is not going to solve that.
Then, after the bankruptcy process is completed, the banks begin the foreclosure process again and you have no recourse for that.
2 Real Alternatives To Foreclosures
Here at Clean Slate Homes, we help people provide alternatives to foreclosures and bankruptcies every day. If you are facing a foreclosure or bankruptcy, we can help!
You have two alternatives to a foreclosure or bankruptcy:
Option 1: Sell your home as-is for cash.
You don’t have to let the bank take your home. You can sell your home for cash and you can sell in under one week.
This is a great option to get out from under the threat of a foreclosure or bankruptcy. If you give me a call, I will come out, take a look at the house. After that, you get a no-obligation quote on your home for as it is. No matter what problems the house has, we will give you a cash offer right there for the house. This is a great alternative to foreclosure, as you can take the money, pay the bank, and get on with your life — you can wipe the slate clean.
Option 2: Short sale
Realistically, if you had equity in your house, you wouldn’t be in the foreclosure process. Most people facing foreclosure don’t have equity, can’t afford to make required repairs to get up to market value, and are behind on payments.
A short sale works if you are behind on payments and owe more than the home is worth. This is a complicated sale, so if you are considering a short sale, call me right away.
For a short sale, I would negotiate directly with your bank to take a discount on the mortgage interest. The bank wants a cash payment to guarantee they can still make a profit on the original loan. You, as the seller, aren’t able to benefit financially from the sale. A successful short sale can be a win for everyone. The bank gets to write off the debt and the homeowner gets out from under a mortgage they can’t afford.
More importantly, a short sale has other benefits that are much better than a foreclosure or bankruptcy. Your credit history will still be affected, but you can improve your score a lot quicker. According to the Federal Housing Administration, homeowners can be eligible for a loan in as little as 2 years after a short sale.
We Can Help You Avoid Foreclosure
I know selling your home is difficult, but you don’t have to do it alone. There are alternatives to foreclosures and bankruptcy.
Let us help you avoid foreclosure.
Here’s a brief video from a client I helped avoid foreclosure with recently:
Just remember. If you are thinking about foreclosure — if you are behind on even one payment — call me. Don’t procrastinate – late payments are not like wine: they don’t get better with age!
The sooner we meet, the more options you’ll have.