Foreclosure 101

In the midst of the 2007 sub prime mortgage problems, many are now faced with the reality that it is next to or is impossible to pay the whole mortgage. What happened and how did we get here. There are several different ways on how we arrived at this point.

As the homes in the area appreciated dramatically and interest rates remained low it was common for people to refinance several times in only a few years. This increased the amount they now owe as compared to the amount the house was worth also known as loan to value ratio. When the property values adjusted to the market conditions the value of the home was all of a sudden less or equal to the value of the loan itself. People facing hourly cutbacks, increased oil and gasoline prices found themselves faced with major problems keeping up with their mortgage payments since their loan to value was now over 100%. In other words they owed more money than the house was worth.

Another way we found ourselves in the painful predicament is because of the sub prime mortgages. These mortgages gave great teaser/introductory rates that helped people, that probably should not have been buying a house in the first place, obtain a mortgage. The problem is that most of these were adjustable rate mortgages (ARM) where the interest rate would change at a pre-determined time to a much higher level, typically any where from 1-5 years out from the beginning of the mortgage. These increases were very large and increased the monthly mortgage drastically, ultimately strapping their owners until there was seeming nothing else to do but loose the house to FORECLOSURE.

Foreclosure is the means by which the bank can take your property through the courts so they can sell it in what is called a Sheriff Sale. The process can be long and lengthy for the bank and can cost many thousands of dollars, most of which will be paid by you in some form or other. Once the bank starts a foreclosure it is often difficult to stop, since they have now have given the power to foreclose to the lawyers which may only get paid if the property ends in a successful Sheriff Sale. The bank also has invested time and monies to protect their interest and their investors interest thus decreasing your chances of stopping the process once it starts.

Foreclosures can ruin you life for many years to come. They crush your credit rating and demolish your ability to accomplish some of the simpler things in life like having a car loan, credit cards, finding another place to live and alike. This can go on for some seven to ten years after you have been foreclosed upon. Thanks to President Bush signing into effect a bill in 2007 many people that are foreclosed upon now may not have to pay tax on the difference from what your mortgage was and how much it was sold for. Example: If your mortgage was $500,000 and the bank sold it at a Sheriff Sale for $400,000 you use to owe tax on the $100,000. Finally realizing that the chances of collecting is very small the government along with the President enacted this new bill. Now you may fall under this new law relieving you from being taxed on the difference.

Banks also have another problem with you after the Sheriff Sale. You still owe them money. In the example above, you still owe $100,000 and they will be knocking to find out how you would like to pay. This bill may haunt you for years to come or until you pay it off or the bank writes it off.

In short never stop paying your mortgage and if you are having problems keeping up consult experts as soon as you find it difficult to keep up. Those experts may be accounts, lawyers, mortgage experts, your mortgage company and REALTORS that are experienced in Short Sales like myself.


Jeffrey Helton is a real estate agent in Ridgewood, NJ area and has the knowledge and know how to help with a Short Sale and helping prevent Foreclosure.

About the author: Jeffrey Helton is a Real Estate Sales Associate / REALTOR in Ridgewood, NJ areea and specializes in Ridgewood, Glen Rock, Wyckoff, Westwood, Hillsdale, Ho Ho Kus and Twp. of Washington areas.

If you are interested in buying or selling real estate in these areas contact Jeff at 201-566-8272. Jeffrey Helton is the proud owner of GettingMyHome.com and creator of RidgewoodBuzz.com