Business Management

How to Overcome that Foreclosure: Do Not Despair If You Screwed Up!

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11 Articles Written
overcoming a foreclosure on your credit

If you have a foreclosure or bankruptcy because you screwed up, do not despair. If you bought at the wrong time, took on too much debt and fear you will never be able to buy another piece of real estate, don’t worry so much. Last time around, lenders forgave past transgressions.

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As it is now, most loan programs require that bankruptcies and foreclosures be 2-3 years old to qualify for the good rates. But more credit rehab is likely in order to get your next loan, even for borrowers that voluntarily defaulted.

Way too many people take the easy way out and declared foreclosure when their house is upside-down. It is called a strategic foreclosure; and many people, some young and inexperienced as well as others who aren’t, back out of their mortgage because the house is worth less that the note. They can still afford the mortgage but elect not to pay it, even blaming the bank for lending them the money in the first place.

I must be in the twilight zone because these are not the values that I grew up with. If you promise to pay-called a promissory note-you pay back your borrowed money, even if you have to eat beans for breakfast.

When they want to buy a house in the future, they will whine because it will be harder to get a loan….at first. Ultimately, in a normal loan market they can find a lender who will give them a loan. Lenders will forgive everybody; it happened before.

The last foreclosure wave in California where I was doing loans, was in the mid 1990's. Lenders started easing up in the early 2000's on credit histories that had a foreclosure or a bankruptcy on them. That's because most of my customers did not escape the hard times without having some bruised credit thanks to medical collections, mortgage late pays, judgments, and foreclosures or bankruptcies. There was nobody else left to lend to, so lenders gradually opened the gates. First the foreclosure had to be five years old to get the good rates, then three years and soon it was two. So, it gets easier to qualify for a loan as good times return.

Valid hardship cases can get a loan because lenders will take on more risk in better times, even to dilettantes who deserve no better.

I have eight tips for people whose credit got banged up during this last downturn:

  1. Establish new credit accounts as soon as the foreclosure is completed or your once bankruptcy is discharged. Start off with a gas card or a department store card because often they will take more risk.
  2.  Lenders typically want to see 3 new lines of credit established for at least 2 years.
  3. Be late no more. Every late you have during this credit rehab period will do double damage.
  4. If you are renting, try getting your landlord to report your successful payment history to a credit bureau.
  5. Pay down your credit cards and use them lightly. Keep them open with low balances; do not close them.
  6. Up those credit card limits. The higher your credit utilization potential, the better. In other words, have the capacity to charge a lot on your cards but don’t. This shows any future lender you have credit restraint
  7. If you did a bankruptcy, make sure those debts you included in your bankruptcy show as “discharged in bankruptcy” and not “still owed” or “open charge offs”
  8. To get your free credit report, go to AnnualCreditReport.com. To get your credit score you will have to pay extra.

 
So if you got in over your head, took on too much debt and now your credit looks like a warzone — my sympathies are with you. If you just walked away from a house payment you could afford simply because it was a “business decision,” you do not get my respect. In any case going into foreclosure is no fun. I know because it happened to me.

That’s right, my first real estate investment ended in foreclosure. It was gut wrenching, financially devastating and I never wanted to touch another piece of real estate again. But I did go on to prosper, and that is a story I will share with you guys next time.

    MH
    Replied almost 9 years ago
    great tips, and it’s wonderful that you’re writing from this perspective. curious to hear more about your personal experience, though.
    Ian
    Replied almost 9 years ago
    Steve, I can’t count how often I’ve seen people draining their savings to keep up with their mortgage so that they can keep up their good credit standing, fear of not being able to buy a house for 10 years! For some people this makes sense but for many I feel bad simply because they’re putting good money into bad (for most cases). Thanks for the tips you shared for this could be a starting ground for many new future homeowners. Thanks for the post.
    Steve Dexter
    Replied almost 9 years ago
    Mh —stay tuned for my personal horror story; it is already written and will be posted next Thurs.There is so much devastion these last ten years. Ian. ITs true that lenders will open their doors to accept the huge population of all who have marked up credit
    MH
    Replied almost 9 years ago
    will do. and yeah – devastation is precisely the word for it. I grew up in Scottsdale, AZ, and I remember what a plush, booming, high-priced world that used to be…. now I go home to visit and see “bank-owned” properties and decaying saguaros all over the place.
    glenn russell
    Replied almost 9 years ago
    Steve: You state the following: “I must be in the twilight zone because these are not the values that I grew up with. If you promise to pay-called a promissory note-you pay back your borrowed money, even if you have to eat beans for breakfast.” Respectfully, your use of the word(s) “screwed-up”in the title to this”piece” is misplaced, and in fact most likely not palatable for public discourse That said, maybe you can enlighten us as to whom (EXACTLY WHAT ENTITY) a borrower is to pay off their promissory note. Have you heard of the concept of mortgage securitizaqtion? OR STUDY DERIVATIVE INVSTMENTS? Did you know the originating “bank” now owns NOTHING? Did you know that s the originating lender quickly divested itself of all ownership of promissory note (I.E. they HAVE ALREADY BEEN FULLY PAID FOR THE OBLIGATION), but retained the servicing rights?creating the sppearance to the borrower (and the court) that it still is the owner. dID YOU KNOW THAT THE MORTGAGE SERVICERS ATTORNEY CREATES AND FILES ASSIGNMENTS OF MORTGAGE TO FRAUDULENTLY CREATE THE APPEARANCE OF A COMPLETE CHAIN OF TITLE TO THE SECURITY INTEREST FOR THE NOTE (MORTGAGE)? DID YOU KNOW THAT MOST MORTGAGE NOTES WERE INTENTIONALLY ELIMINATED? LEAVING THEM UNENFORCEABLE UNDER THE UNIFORM COMMERCIAL CODE?? no Steve, to use your terminology,the only “screw-up” was allowing the financial institution lobbyists to “persuade” lawmakers that the repeal of Glass Stegal was a great thing History will judge quite harshly those who cast a blind or jaundiced eye upon the viewpointsI express here, 2011 will be a YEAR OF MAJOR ENLIGHTENMENT FOR THE SEGMENT OF THE PUBLIC (YOU INCLUDED STEVE) WHO EITHER ARE COMPLETELY MISINFORMED, OR MORE INSIDIOUSLY SPOUT PROPAGANDA Steve those like you only focus on the fact that the borrower is not paying. without ever giving the slightest consideration about the fact that (a)the obligation has already been paid off,(pool insurance,or other form of credit enhancement),or (b) what entity is actually owed any money through proferring evidence they actually have the legal right to enforcethe terms of the note and I mean if you took a mortgage out from party A, YOU OWE MONEY TO SOMOONE AND JUST BECAUSE PARTY B IS FORECLOSING THATS PERFECTLY FINE BECAUSE YOU OWE MONEY TO “SOMEONE”. Because you owemoney tosomone,(in your view) its absurd forthe borrower to askthe pesky question///whereisyour proofyou have the righttotake the roof over my head and tossmeintothe street..isnt thagt right Steve? Maybe you can teach us all how thats perfectly fine Steve I await your response crickets RUSS
    Steve Dexter
    Replied almost 9 years ago
    Crickets to you too Russ. For me, it is simple and perhaps I am simple minded in this regard. I borrow money from a bank, lender or whatever corp entity to benefit me in the purchase of real estate. I enjoy the use of the residence if I live there, I get teh taax break the IRS code generuosly gives me, I get cash flow from the rents if it is investment property and I get profits when I sell it if I bought it at the right time of the market. Selling now is not the right time. I cannot blame the lender for avarice, greed, bad paperwork, non-compliance for lending me the money . That is not their fault that I chose the wrong time to buy property. End of story. I guarantee you if the market was going up and you were making money….you would not be complaining. The reason I wrote the article was to tell people to take their lumps of they screwed up. I did, it was healing and I didnot blame somebody for their sloppy paperwork or inept foreclosure procedures The quicker we are acconutable for our past actions, the sooner we can become successful property investors, own a bunch of properties and enjoy passive cash flow. And what is wrong w that? Im sure you know this, russ, you are a smart guy
    Steve Dexter
    Replied almost 9 years ago
    Crickets to you too Russ. For me, it is simple and perhaps I am simple minded in this regard. I borrow money from a bank, lender or whatever corp entity to benefit me in the purchase of real estate. I enjoy the use of the residence if I live there, I get teh taax break the IRS code generuosly gives me, I get cash flow from the rents if it is investment property and I get profits when I sell it if I bought it at the right time of the market. Selling now is not the right time. I cannot blame the lender for avarice, greed, bad paperwork, non-compliance for lending me the money . That is not their fault that I chose the wrong time to buy property. End of story. I guarantee you if the market was going up and you were making money….you would not be complaining. The reason I wrote the article was to tell people to take their lumps of they screwed up. I did, it was healing and I didnot blame somebody for their sloppy paperwork or inept foreclosure procedures The quicker we are acconutable for our past actions, the sooner we can become successful property investors, own a bunch of properties and enjoy passive cash flow. And what is wrong w that? Im sure you know this, russ, you are a smart guy
    Steve Dexter
    Replied almost 9 years ago
    Crickets to you too Russ. For me, it is simple and perhaps I am simple minded in this regard. I borrow money from a bank, lender or whatever corp entity to benefit me in the purchase of real estate. I enjoy the use of the residence if I live there, I get teh taax break the IRS code generuosly gives me, I get cash flow from the rents if it is investment property and I get profits when I sell it if I bought it at the right time of the market. Selling now is not the right time. I cannot blame the lender for avarice, greed, bad paperwork, non-compliance for lending me the money . That is not their fault that I chose the wrong time to buy property. End of story. I guarantee you if the market was going up and you were making money….you would not be complaining. The reason I wrote the article was to tell people to take their lumps of they screwed up. I did, it was healing and I didnot blame somebody for their sloppy paperwork or inept foreclosure procedures The quicker we are acconutable for our past actions, the sooner we can become successful property investors, own a bunch of properties and enjoy passive cash flow. And what is wrong w that? Im sure you know this, russ, you are a smart guy
    lisa
    Replied almost 9 years ago
    This is definitely a judgemental crowd! I strategically defaulted on one of my properties that was 50% underwater in Las Vegas. It was a business decision, the kind the banks make every day (So I guess Im one of those people you detest). I actually think that if more people strategically defaulted, versus holding on for an extra year then defaulting, it will help this crisis bottom out quicker. I was in the minority that I felt completely comfortable making the decision when I lost my job, to save up and take a chance on me and not hte banks. Many people default for many reasons. You can hold your nose up to the ceiling all you want to make yourself feel better about YOUR own decisions (not you in particular, but everyone who thinks defaulters are deadbeats—i want to see what happens when they lose their jobs and it takes them 12 months to get another one). With that said, I think you article is good for people who did not realize they did not have to wait as long. I actually called FHA offices to find out what the waiting period was (1-3yrs depending on foreclosure or shortsale) and MY business decisions was to let this bad investment go, wait 3 years and save up more capital. Let me tell you, by 2012, Im going to be a monster with A) The knowledge I now have B) Forced waiting period to build up savings. All in all, I think I ll come out better than most, because i would have been through the hard times and came out stronger. Lisa
    Ashley Collier
    Replied 8 months ago
    My husband and I got transferred in 2016 to a new town. Our posts are mostly in small rural towns of 700-2,000 people. Our house that we left was rented out while it was on the market. Everything was fine until we got in a position of paying two mortgages when between renters. I drove the 3 hours to our previous home to check on its condition and saw an envelope in the doorframe. It was from our lender about payments that were behind. Keep in mind that our new home was through this same lender, so they had our most recent address to send the letter to. Also, being a rural town, we don’t have mailboxes at the home, we have PO Boxes. Had they sent it to the PO Box as before, it would have been forwarded to our new address. I contacted my husband who in turn contacted the lender to clear things up. Second set of renters come through and we are OK with our lender. Then they transfer out and we are back to the same situation. Our lender sent out a certified letter to our new address and a friend of ours happened to be in the courthouse and saw a letter posted about our home. We again contacted our lender and they advised us to go the Short Sale route as it was already behind. So, we got all the way to the appraisal and BPO stage and then our third set of renters made a great offer that would have gotten us out of our bind and the lender’s from taking a financial hit. We called our lender and they were happy about it and gave us the number for the Real Estate Attorney who was handling the foreclosure. We tried in vain to get ahold of the attorney and left several messages, but never heard back. We still tried to modify the loan, got turned down. Tried to make payments online, they took away our option to do that as it is their policy. We were set to close at the end of this month and the title company called and said our house was sold on the courthouse steps a day earlier. We called the lender and they said that they couldn’t stop the foreclosure just because we had a buyer and a solid offer. They told us to call the attorney. FINALLY he answers and says he sent us the second certified letter, which we never received. Said he would email us a copy of them with the tracking numbers…that was yesterday and still haven’t received them. Turns out he mailed the letter to our renter’s PO Box. They signed thinking it was for them because it was addressed to “Current Occupants”. How is this even possible that the renter’s signature takes the place of ours? They are small town people and didn’t understand the verbiage and also didn’t think it related to us as it was in their box without our names on them? This will effect my husband’s job, any promotions and our credit for the foreseeable future. Any advise you can give would be greatly appreciated!