In this financially turbulent time, many Americans have found themselves facing foreclosure. It’s not an altogether strange story… Being able to make a mortgage payment is getting harder and harder as more people lose their jobs.
It only takes getting behind on one payment, and then before you know it, you can be paying huge amounts of interest. Creditors want to you owe them as much money as possible, which is why they entice you into vehicles, property, or other goods that would normally be beyond your means.
It may have seemed like a miracle that a credit company was willing to loan you the money to buy a great new house, but there was nothing miraculous about it. For them, it’s a win-win proposition. If you pay the money back, then it’s no problem for them. But if you fail to pay on time, they’ll just keep taking and taking until you have nothing left.
That’s why filing for bankruptcy is such an important part of your rights as an American. If you’ve bought a house beyond your means, or if you’ve suffered a bad turn of luck, you may be facing foreclosure. If your house is foreclosed, you may have nowhere else to go, but the credit companies don’t care. That’s not their problem.
If you file for bankruptcy any time before the foreclosure sale date, your property can be protected under bankruptcy law, and in most cases, you can even just keep the house!
Whether you're struggling to make mortgage payments or seriously behind, foreclosure is a scary proposition. Not only would this be devastating to your lifestyle, but you may be concerned about its impact on your credit. But isn't every major financial problem going to damage your credit? When it comes to your FICO score, is it much different to go through foreclosure or bankruptcy, complete a short-sale, or request a loan modification from your bank?
While it may seem to be a minor, there is actually a significant difference between these options. Before you decide what to do, find out which activity will have the greatest impact on your credit score.
Your credit score
Every person is assigned a number by a credit scoring company that predicts your likelihood of default on payment obligations. This number is called a FICO score. Each credit reporting agency uses a different set of factors and calculations to get to this score, but most of the information they use is contained within your credit report. For this reason, it is very important to look at your credit report often, just in case there are any errors in reporting.
A FICO is required in 90 percent of all mortgage applications, so it is a number that could impact both your buying power and interest rate.
What influences your FICO score?
Payment history accounts for 35% of this score, which means if you pay your bills late your number will be lower. The more recent the problem, the more it will affect your score.
Outstanding debt accounts for 30 percent. If the amount you owe to a creditor is close to the credit limit, this will negatively impact your credit score. Also, carrying a balance on several accounts will reduce your score because it will seem like you are overextended.
Length of credit history accounts for 15 percent, which means the longer you've had an account open, the better it is for your score. However, new credit (10 percent) shows you've been applying for many new credit limits, which could negatively impact your score.
Finally, the type of credit you have will account for 10 percent. FICO looks for a healthy mix, including both revolving and installment loans, but this will only be important when there is little information available to determine your score.
What happens when you file for bankruptcy?
A bankruptcy filing will show up on your credit report for 10 years, which is three years longer than most other negative information, such as short-sales, foreclosures and loan modifications.
The impact of foreclosure on your credit score
If your credit score is high to begin with, any kind of financial distress will cause a deeper dive than if your score was already low. In fact, borrowers with higher FICO scores could see a drop of 100 or more points. Additionally, it will take longer to get back to an original score if that score is high, but the number of years it takes to rebuild will largely depend on your future payment history and debt load.
If you have excellent payment behavior and your available credit increases, your score will improve more quickly than if you continue to make some late payments and are remain overextended.
Foreclosure, bankruptcy and short-sale often impact borrowers' scores so dramatically because borrowers only resort to these measures when they are seriously delinquent.
What about loan modifications and forbearances?
If your lender reports that you are "paying under a partial agreement," this could have a negative impact on your FICO score, but a lot depends on how your loan modification is reported. Either way, if you are no longer paying your mortgage as originally agreed, it will have some impact on your score.
Bankruptcy is worse for your credit score
Statistics from FICO indicate that bankruptcy is slightly worse for your credit score than foreclosure, forbearance, short-sale, or a loan modification. When comparing foreclosure to short-sale, borrowers who faced foreclosure took longer to rebuild credit than those who completed a short-sale. This can be attributed to the fact that foreclosure is normally triggered by such life events as a job loss, divorce or medical problem, conditions which will likely continue long after the foreclosure.
Keep in mind, however, that these statistics reflect the average situation, and everyone's financial situation is different. ¬¬
Photo Courtesy of Stuart Miles / FreeDigitalPhotos.net
Misconceptions about bankruptcy abound in America, which is a great shame because it prevents many people from getting the debt-relief help that they so desperately need.
One of the many misconceptions about bankruptcy is that your property will be seized to help pay off your debts, and that you won’t be able to keep your house, your car, or other important properties.
This misconception is actually the opposite of the truth! In reality, without the protections offered by bankruptcy law, creditors can put liens against your property, repossess your car, or any number of other debt-payment options.
Bankruptcy isn’t about helping the creditors, it’s about helping you, the consumer. Bankruptcy law offers the average person protection from predatory lending schemes and out-of-control debt, and as such, it allows you opportunities that you wouldn’t normally have.
For example, under current Colorado law, you’re allowed to keep a vehicle with up to five thousand dollars’ worth of equity, which is most cars. For example, if your car is currently worth ten thousand dollars, and you owe more than five thousand dollars for it, then you can keep it. Further, a leased vehicle can be kept regardless of the cost.
Likewise, you can keep up to sixty thousand dollars in home equity.
Those figures may not sound like much money, but when you consider that most people actually owe more than their car or home are worth, it begins to sound much more reasonable!
Don’t let your fear of losing things keep you from consulting with a bankruptcy attorney, because they could save the things you care about most!
Colorado Springs foreclosure lawyers know that many people fell victim to the housing market implosion, whereby home values were grossly inflated, as were the homebuyers' suitability for the loans to obtain them.
However, it appears the negligence might not have ended there, as evidenced by a class action lawsuit filed on behalf of homeowners throughout the country alleging major banks were complicit in the Libor manipulation rate.
You may be familiar with Libor rate after countless entities including local governments and community banks all filed suit against some of the major banks following the scandal. Libor is short for the "London Interbank Offered Rate," and it is a collection of rates that is set for 10 currencies across 15 different time zones for a range of time periods. It could be for a particular day or it could be set for a year. Essentially, it's intended to measure the cost of borrowing among the world's largest financial institutions, which trade tens of billions of dollars in loans and hundreds of trillions in derivatives.
This past summer, Barclay's, one of Britain's largest banks, was accused of manipulating that rate. The bank reached a settlement of more than $450 million, and other settlements involving large U.S. banks are in the works.
So how does this affect homeowners? The Libor rate is the basis for which many of these banks set their interest rates for various loans. The lawsuit contends that nearly 1 million American homeowners were affected by inflated interest rates that were spiked due to the Libor rate manipulation. Banks reportedly earned hundreds of millions of dollars, if not billions, from the fraud, according to plaintiff attorneys.
On average, this resulted in about $300 extra a year in interest.
This doesn't sound like much, but it's certainly not helping. Plus, the bigger issue is that it shows the kind of tactics you are up against when you're trying to fight a Colorado Springs foreclosure.
Our Colorado Springs foreclosure attorneys are experienced in battling with big banks to have interest rates and principal payments reduced so that you can stay in your home. If you are trying to fight off foreclosure in Colorado, call us today.
Colorado Springs foreclosure lawyers understand that while rising home prices have helped to pull some homeowners from the debts of this housing crisis, younger homeowners are still facing an uphill battle.
According to real estate database Zillow, the percentage of homeowners who were underwater, or owed more on their homes than they were worth, dropped to about less than 1 percent (to about 31 percent)in the second quarter of 2012. This is somewhat encouraging, but of the 15 million borrowers who remain underwater, a huge portion of those are below the age of 40.
In fact, about half of all borrowers in this age bracket are underwater. This is double what the underwater rate is for older borrowers.
What we're likely to see as a result is a stagnation in the economy. That's because when these borrowers can't move out of their starter homes into bigger homes, those younger couples seeking starter homes have a harder time doing so. That means they are more likely to rent or continue living at home for longer stretches of time.
These under-40 underwater borrowers, in order to sell their home, either have to come up with a lot of cash upfront or go through a short sale.
What they don't necessarily have to do is simply walk away. Our Colorado Springs foreclosure lawyers know that the entire process seems daunting and frustrating, but you do not have to endure it alone.
Our attorneys are experienced at finding foreclosure alternatives, such as loan modifications and principal loan reductions. These are available with increasing frequency as the government works to settle with major banks over foreclosure abuses and other housing wrongs. So even if you were previously unsuccessful in working out an agreement or modification on your own, there's a strong likelihood that we can help you negotiate better terms with your mortgage lender.
This may help you avoid both foreclosure and/or bankruptcy, depending on how deep in debt you are.
Unfortunately, many homeowners simply struggle to pay the current price in the hopes that the market will rebound and they will be able to make their money back. The fact is, you may never fully recoup the losses on the investment you made in your home. However, you shouldn't have to go broke just trying to pay your mortgage.
We can help.
A report released recently by the federal Government Accountability Office indicates that more than 300 members of the military had their homes illegally foreclosed upon in the last few years.
Our Colorado Springs foreclosure lawyers know that there are special protections in place specifically for members of the armed forces. Unfortunately, sometimes those rules are not properly applied by banks and mortgage lenders - which is why these soldiers will need someone who will fight for them.
Here's what is happening:
The Servicemembers Civil Relief Act, or SCRA, sets forth a number of provisions to protect those in the armed services from being unfairly closed upon, particularly while they are serving active duty assignments overseas.
Those protections include:
However, despite these protections, the mortgage companies are not following through. Mortgage lenders either aren't noting when a homeowner is on active duty, or even when they are, the terms are ignored anyway.
Soldiers face unique challenges with a foreclosure because when they are assigned to a different base, they can't sell their old home. As in a lot of cases these days, they may owe more than the home is worth.
Soldiers who are moved to a new base are supposed to automatically receive approval for a short sale if the home was bought prior to the end of June and the loan was owned by either Freddie Mac or Fannie Mae.
Also, earlier this year, the U.S. Justice Department reached a deal with four major lenders - Citigroup, Wells Fargo, Ally Financial and JPMorgan Chase - regarding wrongful foreclosures against servicemembers. Any soldier who was wrongfully foreclosed upon is entitled to a minimum payment of about $117,000. Compare this to non-military borrowers, who under the recent $25 billion settlement agreement reached with 49 states' attorneys general, receive about $2,000.
For the last five years, Congressional intervention has meant that underwater homeowners wouldn't face tax penalties when a portion of their debt was forgiven upon foreclosure.
However, Colorado Springs foreclosure defense lawyers know that protection is set to expire at the end of the year.
This means if you're on the verge of foreclosure, the time to seek help is now. If it ends up not being worthwhile to stay and fight for your investment, you could end up paying tens of thousands of dollars in income taxes if you wait until after Dec. 31, 2012.
In most cases, if you have a good attorney, you can save your home by negotiating a significant reduction on your principal payment through a loan modification. This is going to lower your monthly obligations, making it easier for you to keep up with every month. This is particularly helpful to homeowners who were caught up in the housing crisis, where they purchased their home for far more than what it was actually worth. Reducing the principal balance can bring your payments back in line with what would be considered a fair market value.
However, there are a few situations when it may make sense to initiate what is called a strategic default, which is where you simply walk away from the home and allow the bank to foreclose without a fight. This is rarely advisable because it is so harmful to your credit. However, sometimes it can be worth it when there is no way you'd be to keep up the payments and the bank absolutely won't work with you.
Prior to 2007, the statute was such that if your home was foreclosed upon, the bank had the option of "forgiving" the difference between what you owed and what was paid for the property. However, this "forgiven" amount was deemed income by the federal government - income upon which you had to pay taxes. When the housing crisis hit, Congress stepped in and allowed an exemption, meaning homeowners wouldn't have to consider this income.
What was originally intended to be a three-year relief was extended another two years. But now, it's going to expire. That means if you are forgiven $20,000 worth of the mortgage, you will have to pay taxes on that $20,000 as if it were in your pocket. If you're facing foreclosure, chances are this is money you don't have.
The bottom line is that if you are facing foreclosure, you need to act now so that you can get the matter settled before the expiration of these tax benefits, should you need them.
Statistics can be deceiving.
While recently-released figures seem to indicate that home prices are actually up, the reality is that we may soon see a glut of foreclosures in Denver, Colorado Springs and across the country.
Our Colorado Springs foreclosure lawyers know that it has a lot to do with people who are underwater on their homes, and yet are hanging on by their fingertips, hoping the market will do an about-face so they won't lose as much money. this means there are fewer homes actually on the market, which is driving down the supply, and therefore increasing the demand. There have even been bidding wars in a few cases.
When we look at the figures across the country, we see an increase of little more than 1 percent on home prices, when compared to a year ago. While this may seem minimal, you have to remember that the value of homes plummeted after the market tanked in 2008. The fact that it's inching up at all is seen as an improvement - until you really analyze what's going on.
Of course, it is good for those homeowners who are looking to sell right now. They're probably still going to take a loss, but it will be blunted by this short-term spike.
However, this is not going to last long-term because we still have a large number of people who are on the brink of foreclosure. They may be making the minimum monthly payments, but just barely.
This is where our Denver foreclosure lawyers come in. First of all, if you're trying to remain in your home, we can look into helping you secure a loan modification, meaning we could fight for your loan amount to be lowered to what would be considered a fair market value.
However, there may be some situations in which it actually makes fiscal sense to default and allow the loan to go into foreclosure. Of course, that's not a decision you should make without the assistance of a skilled attorney, and we can help guide you through the process.
The other thing that is going to eventually work against these homeowners is that you have banks that are scrutinizing their loans more closely than ever, combined with a populace that has a higher track record of poor credit scores. This is ultimately going to drive down that demand.
Colorado Springs foreclosures still account for a large part of the market sales, according to a recent report by the Denver Business Journal.
For those battling a foreclosure, it's more than dollars and cents. It's about an emotional attachment to the place you call home, and choosing to let it go can be extremely difficult. It also may not be necessary.
Our Colorado Springs foreclosure lawyers can help you sort through the pieces to determine what your best option is.
The most recent statistics, culled from a Realty Trac quarterly sales report, indicates that although sales of foreclosures are actually down nearly 14 percent compared to this time last year, foreclosures still accounted for nearly a third of all home sales in the state.
Throughout Colorado, that equaled nearly 7,000 foreclosures sold, with an average price of approximately $180,000.
What is somewhat encouraging is that when you look at foreclosure sales across the rest of the country, Colorado is actually in better shape than most places. The average price for bank-owned foreclosure sales in the U.S. was about $20,000 less than in Colorado.
Rebounding home prices mean that the housing market overall is in better shape - which could mean you might actually be less underwater on your payments than you once were. That doesn't mean foreclosure might not make sense for you - but it may give you a little more leverage than you might have had otherwise.
The state with the highest number of foreclosure sales was Nevada, which reported nearly 60 percent of home sales were attributable to foreclosures. That was actually a drop of 5 percent from last year, though the average price per foreclosed home there was slightly less than $117,000.
California reported high foreclosure rates as well, with about 47 percent of total home sales. There, average prices were about $235,000 (though California has always had a more expensive cost of living than most states).
In some cases, Realty Trac analysts have said that an increasing number of distressed homeowners are looking to short sales to avoid foreclosures. This is one option to avoid the stain of a foreclosure on your credit score, but still get you out from underneath an underwater home.
A recent story on MSNBC detailed how foreclosures in Colorado and throughout the country are churned out using less-than-upstanding tactics by some of the country's largest banks.
Colorado foreclosure attorneys read with interest this exclusive piece. It allowed an inside look at so-called "foreclosure factories" which provides a greater understanding of the process and underscores why it's so important to have a skilled Colorado foreclosure attorney on your side in these matters.
A recent settlement by five of the largest banks and attorneys general from 49 states - including Colorado - granted $25 billion to alleviate the hardships caused by the real estate implosion resulting from unsavory tactics by financial institutions. A portion of that money is slated to go to individuals who were improperly foreclosed upon due to robosigning techniques and the banks not having the proper paperwork to ensure they even owned the property in question.
Part of that agreement was that they would alter their methods.
But this piece shows little has changed. At Wells-Fargo, which services nearly 18 percent of the nation's residential mortgages, entry-level staffers are given the title of "vice president" and told they need to keep a quota of how many foreclosures they need to process in a given day. The average number they are expected to produce in an 8-hour shift is 10.
This is concerning because if you are currently in the midst of fighting a Colorado foreclosure, you know that the process involves an inordinate amount of paperwork. These "vice presidents" are made to sign off on statements swearing to have personal knowledge of certain facts of the case - facts that they are unlikely to know given the volume they churn out each day.
What's more, employees of the bank, speaking on the condition of anonymity, have said borrowers who were seeking help in the form of loan modifications had sent reams of personal financial documents to the bank. Problem was, they were sent to fax machines that went weeks without being checked.
In some cases, the foreclosure process was kick-started when borrowers fell behind on miniscule payment amounts - sometimes as little as $2 on the interest.
Having an experienced Colorado foreclosure attorney walk you through the process is critical, given the type of practices that are continuing at these large banks.