In some rare cases, foreclosure is the best option for a struggling homeowner. However, the choice to simply walk away should be carefully considered. If you plan to let the bank foreclose on your home, here is what to expect.
Walking Away May Not Be the Best Option
Having excessive liens on a title is the most common reason to walk away and let a home foreclose. If you don’t have excessive liens on a title, walking away isn’t necessarily the best option. Taking control of the situation and avoiding foreclosure is recommended to 95% of all struggling homeowners currently facing foreclosure. No matter what you decide, the following information is important and should be carefully understood.
DO NOT Vacate the Property!
Many uninformed homeowners will vacate the home prior to the foreclosure sale date to avoid the stress. This is never advised for various reasons. From the lender’s perspective, a home that is occupied is less likely to be vandalized or damaged. Remaining in the property will keep the home maintained and allow a homeowner time to save money for relocation costs. In all cases, the lender wants the homeowner’s transition to be smooth and painless. To help facilitate this, a lender commonly offers relocation assistance to homeowners who vacate the property and leave it in good condition. Saving up reserves while occupying the property is discussed in this video:
Relocation Assistance AKA Cash for Keys
Most banks are willing to help struggling homeowners by offering relocation assistance. Instead of paying an attorney to evict those occupying a foreclosed property, relocation assistance is a more amicable option. After a home forecloses, a lender will choose a local real estate agent to market and sell the home. The agent communicates with the former homeowner and typically offers relocation assistance and delivers a Cash for Keys (CFK) Agreement.
The CFK agreement outlines the terms and conditions of the assistance and the dollar amount offered if the home is left in good condition. A move-out date is also agreed upon in the agreement. The home must be left in broom swept condition and empty of personal property before the scheduled move-out date. The CFK amount offered by the lender is dictated by the move-out date.
A 15-day move-out will generate more relocation assistance than a 30- or 45-day move-out. In many cases, the appliances and other fixtures must remain in the property before a CFK check will be delivered.
Common Homeowner Misconceptions When Facing Foreclosure
The following are common Homeowner misconceptions when facing foreclosure. Please consult with The Hightower Team before letting your home go to foreclosure.
“After the foreclosure sale, the bank can move all my belongings to the curb.”
No, a homeowner has some rights to a property after the home has been repossessed. The lender must work with a homeowner and agree on a move-out date or hire an attorney to evict the former homeowner.
“If I let my home foreclose, the bank can’t come after me for their losses.”
No, lenders have the right to pursue borrowers for the deficiency amount when a foreclosure takes place. In Colorado, the statute of limitations is six years. However, most of the larger financial institutions are issuing borrowers a 1099-C to write off their loss. Once a 1099-C is issued, the borrower is free of future liability on the deficiency balance. For more information about deficiency judgments visit the Short Sale section.
“My modification was declined, so I am just going to let it foreclose.”
Under the Making Home Affordable Program, homeowners can have their deficiency waived and receive up to $3000 for relocation assistance. If this program isn’t available, many lenders prefer to negotiate a short sale instead of foreclose. In most cases, a lender will lose more money when selling a vacant foreclosure as compared to an owner occupied and maintained short sale.
