For the past several years, all the talk has been about avoiding foreclosure with loan modifications and short sales for underwater properties with distressed financial situations. One area that has been over looked or maybe just absent from the headlines has been delinquent homeowners with home equity.
Many of these homeowners are delinquent on their mortgages for the same reasons as underwater borrowers. They have lost their jobs or suffered some kind of financial set back that has forced them into delinquency. Unfortunately, for those with home equity, the lender has no skin in the game and the foreclosure process can be much swifter than for those with an underwater property.
With a property that is underwater, the lender will rely on cooperation from the homeowner in most cases to minimize their loss and maximize their recovery. Since the properties have declined in value, the lender already knows they face a potentially significant loss so it is in the lender’s best interest to also cooperate.
When we shift the focus to a delinquent borrower with an equity position that cushions the loan, the philosophy of the lender changes dramatically. Now the lender has no incentive to cooperate. It in most cases it is more beneficial for the lender to simply follow the statutory guidelines by state and foreclose on the property. The lender will auction the property off at the courthouse steps for what they are owed. Someone will buy it and make a nice profit. Unfortunately, the distressed homeowner will lose their home and all of their equity.
There is little that can be done to avoid foreclosure for a homeowner with equity the goes past ninety days delinquent. The current employment environment and the lack of sub prime loans to refinance make it hard for them to affect their circumstances. The loss of the home is almost inevitable.
This scenario is more prevalent than you might think in the current environment. An innovative way to solve delinquency for people in this situation with home equity is with a Reverse Mortgage. The borrower and the property must qualify for the Reverse Mortgage but if there is sufficient eligible equity, the delinquent loan can be paid off with the new Reverse and the homeowner will not lose their home. This can also be utilized in bankruptcy and even active bankruptcy situations.
This is just one innovative way to take an almost impossible situation of loss and add stability in today’s market.