Though there may be a purpose, justification, or a tale of unavoidable hardship accompanying your current foreclosure status, it is no doubt an unfortunate event. You didn’t buy the house with the idea it would come to this and your attempts to work with your lender resulted in either being denied or being provided options to which you were unable, or unwilling to agree. Regardless, you are here now and it helps to understand the moving on process. That way, you can get the best fresh start possible.
Weigh other non-retention options besides foreclosure
Though the bank may have decided not to offer an option that helps you stay in the home, they may be willing to look at options that would allow you to more constructively part with the home.
• A Deed in Lieu of Foreclosure allows you to hand the property back over to the bank, as long as it meets conditional requirements.
• Short Sales entail working with the bank and a local realtor to help find a buyer for the home.
These may or may not be options, depending on who your lender or investor is, the reason the default occurred, and how far into default you are. Further, participating may or may not be wise based on: A) whether or not your state is a recourse state (meaning that it allows banks to seek deficiency judgments on lost proceeds via foreclosure), B) what the value of “free rent” remaining in the home through the legal foreclosure process is worth, and C) whether or not participating will lead to some extent of taxation. Since you may get up to $3000.00 for participating in these non-retention options, it is worth exploring. However, make sure you have spoken with a tax advisor and a local HUD housing counselor before making a decision.
• Borrower Relocation Assistance Plans or Cash for Keys. Even if you are not offered or do not agree to a short sale or deed in lieu of foreclosure, you may still be able to work with the bank or attorney’s office on trading a peaceful exit for cash. Borrower Relocation Assistance exists on a case-by-case basis and is usually offered by a third party realtor or property management company who is assigned to facilitate the process of securing the property once the redemption period is over. The idea is that you would depart the property with it being in the same condition a typical homeowner would leave a house they sell in a normal real estate transaction. If all the items are there that are usually left behind (fixtures, appliances, garage door openers, etc.), the kitchen and bathrooms are fully operational, and there isn’t any personal stuff (i.e., trash) left behind – you may be able to get paid for doing the right thing.
Time is everything
Your local HUD Housing Counselor should be able to help you understand how much time you have in your property by understanding your state laws. Though the length it takes for a foreclosure to run its course is dictated by state law, the national average runs around 11 months after the notice of default or intent to foreclose is filed (which usually is filed after 3 to 6 missed payments). Some people (like healthy and active single individuals with a good network of friends or family) may have the ability to move in a very short period of time, while others (those with families, disabilities, depression, or hoarding issues) need a series of months to move successfully. You know who you are, so please do yourself a favor and act accordingly as your state’s legal process isn’t going to change to accommodate your needs.
If it is a big process to move, map it out and set goals that will require some amount of work to be done each day.
• Try to start with what may be rewarding or enjoyable such as selling items that you are not able to take with you so that you have a better emotional grasp and more financial resources to tackle less exciting chores.
• The better you are at organizing here, the less cluttered and more efficient your transition will be, not to mention less costly. Many going through foreclosure forget to compare the amount of stuff they have with their capacity for space and end up just giving away valuable items or else spending good money for storing items which may never really be used in their new setting.
Save money and get back into a routine
Obviously, those going through foreclosure don’t typically have an abundance of income. However, the reality is that unless you are moving into the basement of a friend or family member’s home rent-free, you will have a responsibility to prioritize housing back into your budget.
• Why not start early? If you have 6 months left in your home and you know replacement rent will be $800 per month with utilities remaining the same, it is a lot easier to gradually step up to the routine of putting aside the money – rather than expecting it to come naturally under pressure with endless moving expenses.
Avoid moving early if you can
For many going through foreclosure, once the writing is on the wall, they feel the need to move out quickly. However, there are numerous reasons why this might not be the best.
• First, the longer you stay in the house, the less money you will pay to rent something else and the more time you have to save money.
• Second, in most areas, you remain responsible for your home until the point where the bank legally takes it back. Although rare, I have seen cases where cities have legally pursued homeowners for demolition costs after abandoning properties that lenders were slow to foreclose on for some reason. Additionally, abandoned properties no doubt sell for less, which affects the amount of tax liability contained and significantly, the judgment balance in recourse states.
• Lastly, your neighbors are already losing out because the home’s resale will decrease the average “comp” value for the area. Is it fair to add blight and the safety concerns of an abandoned home to the mix?
“Squatting” may be a temporary option
Once your legal foreclosure process is completed by state law, the lender has every right to expect that you and your possessions are out of the house and they have the right to evict if you are not.
• With that said, in many cases the lender’s representative fails to show up the day the legal process concludes and in some cases can take months to arrive. If you have a temporary/transitional or permanent housing situation available to you on short notice, there may be value in packing up the home so that you can vacate in a 24-hour period if necessary – because that moving day is inevitable.
• If you don’t have permanent or temporary housing available, this option is not a good idea. Overstaying the end of the legal process, a.k.a. “squatting”, is not recommended since it may lead to eviction, acute homelessness, child endangerment, and/or at the very least added expenses. The result could mean lost items if they’re not removed in time or having to pay the lender’s professional movers and storage costs to have items returned.
You can take control of your situation and move on with a fresh start. Also, you can work with your local HUD housing counseling agency to learn a great deal more about constructive exit strategies and other tips to help you leave the situation constructively – while avoiding jumping from one chaotic situation to the next.
Need more help regarding foreclosure or budgeting for moving? Call us at 800.777.7419. Or if you want to get started on a budget and savings plan, START ONLINE COUNSELING NOW! It’s free, fast, and just as effective as in-person counseling.
Author Tim Fischer is a Certified Financial Counselor at LSS and specializes in Foreclosure Prevention Counseling.