Before 2008, a Dallas foreclosure was a rarity, to say the least. But after the financial crisis, they became all too common. We want to help keep your home, so we’re sharing out top tips avoid a Dallas foreclosure. Read on to learn:
- What to ask your lender when you’re under water
- How to short sell your home to avoid a Dallas foreclosure
- How to tighten your belt (and why you should)
- What a lease transfer or least option is
- The pros and cons of bankruptcy
Here we go!
1. Talk to your lender about your options
The very first thing you need to do is talk to your lender about your options. Oftentimes, when people start to get behind on their payments, it can be extremely hard to catch up, and they’re afraid to go to the bank because, frankly, it involves admitting that they messed up.
But in fact, there are few things to consider.
First, the bank or lender does NOT want to you foreclose on your home. Banks are in the lending business, not in the real estate business.
If you foreclose on your home, it means that:
- The bank will likely take a loss because they won’t be able to resell it for as much as your mortgage was worth
- They have to put in a boatload of work to sell the house when really they want to be lending gout money
- Their ability to lend money to others is inhibited, because they now have less capital
- They’ve lost a customer
So banks and lenders are incentivised to keep you in your home and paying your mortgage.
Which is why the absolute best thing you can do as soon as you start going under is going and talk to your lender about your options.
For example, if you’re financially stable but an unexpected cost put you behind on your mortgage for two-three months, you may find that the bank is willing to simply extend your mortgage term slightly and restart you at zero so you don’t have to try and come up with the cash for multiple payments all at once.
Alternatively, if you’ve lost your job or can no longer pay the rates the bank is asking, they may, in fact, give you a lower rate or help you sell your house, allowing you to preserve your credit and downsize in a controlled fashion.
These circumstances are BOTH preferable to you going through with a Dallas foreclosure, so it’s worth getting in touch with your bank or lender and asking for help.
2. Short sell your home
Of course, sometimes, especially if you’ve run into long-term economic hardship, are looking to move, or just want to be DONE with your home, the best option might seem like foreclosure.
But before you stop paying all your payments, it might be worth thinking about working to short sell your home.
Short selling is when you sell your home for less than you owe in order to facilitate a fast sale. This helps you preserve your credit and still rids you of the house and its financial burdens.
For the lender, as we mentioned, they have no desire to have to go through the effort of listing the property, showing it to people, updating real estate listing, and completing all the paperwork associated with selling a house.
Crazy as it may seem, it’s often more cost-effective for a lender or bank to simply allow you to short sell your property and take the loss of the principal and opportunity cost of the interest.
So while there are some drawbacks, for both parties a short sale is almost ALWAYS better than a foreclosure.
3. Avoid Dallas foreclosure with belt-tightening measures
The core problem with a foreclosure it that your mortgage payments got too high and you’re unable (and have been unable) to make them.
And while it might seem like trying to drain a lake with a teaspoon, other belt-tightening measures can actually help you avoid a Dallas foreclosure in a big way.
First, if your financial position stayed stable and you had a floating mortgage and that’s why you can no longer make your payments, you might only be missing by a little bit.
So doing things like selling your car, getting a cheaper phone plan, cutting your cable, and selling your assets like jewelry can actually help you significantly.
Second, if your position is stable but your mortgage payments are too high, you’re actually in an ok position.
Because banks do NOT want borrowers to foreclose. It’s in their best interest to keep you in the house because frankly, a Dallas foreclosure is a lot of extra work for them AND it means they might take a loss.
What this means is that if you can demonstrate to the bank that you can pay more on your mortgage than you were before you ended up under water due to restricting spending in other areas of your life, then you can often convince them to renegotiate your mortgage and let you keep the house.
Whether this extends the term of the mortgage and lowers your monthly repayments or simply folds your missed payments back into the mortgage, if you can demonstrate your commitment to keeping the house, they’re a lot more likely to say yes.
4. Lease transfer/option
You know how when you’re renting you can transfer your lease to another renter if you want to leave early? They take over your lease and you’re free to go, so long as the landlord approves it?
Well, a lease transfer (sometimes called a lease option) is essentially the same thing.
You transfer your mortgage (with the bank’s approval) to a designated third party, who takes over your mortgage per your already agreed terms. Your credit remains intact, and the liability of the house goes to the new lessee. Oftentimes, this sort of lease transfer can facilitate someone getting a house who maybe doesn’t have the best credit, doesn’t have enough for a down payment, or otherwise is unattractive on paper for a home loan.
However, the flipside is that banks are often unwilling to pursue this option due to the risk involved for little to no extra reward for them.
5. File for bankruptcy
Of course, the ultimate way to avoid a Dallas foreclosure is to file for bankruptcy. While there are multiple different chapters and degrees of bankruptcy out there, at the end of the day there is significant damage to your credit that will follow you around for years.
This is really the only option here that from the perspective of the lender, is worse than foreclosure. Because if you file for bankruptcy, they (as a creditor) are often unable to collect ANYTHING from you for the house AND may miss out on the eventual sale of that asset as well.
Therefore, most lenders and banks will go out of their way to help you NOT declare bankruptcy. However, if you have a string of other unpaid lines of credit, credit cards, and other small debt, declaring bankruptcy might just get you out of a jam.
In Dallas, foreclosure is hardly a foregone conclusion. There are lots of options out there for those who are being threatened with or have begun the process of foreclosure, and even more, if you’re only just starting to get behind.
Think you’re heading for foreclosure and are looking to sell FAST? Get in touch to see how we can help you!