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Homes in Foreclosure

The number of homes in foreclosure is expected to reach 4 million by the end of 2010. According to Bloomberg Business Week, more than 7 million homeowners have already fallen victim to America's real estate epidemic which has led to declining property values and lack of new home sales across the nation.

Homes in foreclosure affect more than those who lose their house. Entire communities pay the price. Real estate prices drop dramatically in areas hit hard by foreclosure. Homeowner's association fees rise to compensate for evicted property owners. Communities lose funds normally acquired through property taxes. Local governments are forced to make budget cuts to public services and education.

When property values drop, homeowners lose accrued home equity which can cause them to owe more on their mortgage loan than their home is worth. Borrowers engaged in upside-down mortgages do not qualify for mortgage refinance or loan modifications.

Borrowers who cannot obtain foreclosure prevention options often walk away from their home. This action can cause further financial hardship because lenders can legally persue mortgagors for the balance owed on their home loan.

When mortgagors are unable to stop foreclosure, strategies still exist which can reduce financial impact. If borrowers do not qualify for loan modification or mortgage refinance, they may qualify for real estate short sales or deed in lieu of foreclosure.

When banks enter into real estate short sale they agree to accept less than the full balance owed on the home loan. Short selling is a complex process that can take several months to complete. This foreclosure option is generally offered after all other options have failed.

Two types of short sale options exist: payment in full and deficiency judgment. Payment in full means banks accepts the short sale as payment in full toward the loan and borrowers walk away without owing additional funds. Deficiency judgments mean lenders hold borrowers responsible for the difference between the real estate sale price and loan balance.

Mortgage deficiency judgments often amount to thousands of dollars and can take years to repay. Once a judgment is obtained, borrowers' credit scores are negatively impacted. FICO scores can decline by 100 points or more and judgments remain on credit reports for up to seven years after the debt is paid.

Deed in lieu of foreclosure allows borrowers the opportunity to give back their home to the lender and walk away. Mortgagors lose all home equity and are prohibited from receiving proceeds from the sale of the property. Banks can accept the return of property as payment in full or obtain a court-ordered deficiency judgment. Deed in lieu is generally the last available option for homeowners facing foreclosure.

Borrowers in need of foreclosure prevention help must be vigilant about contacting their lender and working out a plan. Those unable to receive foreclosure assistance should consider obtaining housing counseling through the Department of Housing and Urban Development website at

Homes in foreclosure have reached epidemic proportions. If you need help working with your lender to stop foreclosure or enter into a new mortgage agreement, visit our homes in foreclosure article library. We offer information and resources to help distressed homeowners make informed choices.

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Published on July 12, 2010 at 02:36 AM

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