Posted by: Bill Cady | December 30, 2009

Facing Foreclosure in Idaho

Boise, Idaho – Should I stay or should I go? That is the question more Americans facing foreclosure are asking as the housing market continues to slug along. In the best of times, it would have been unthinkable to even consider not paying the mortgage. But for some it now seems like the best option…Many homeowners feel trapped in a home thee bought just a few years ago — and for which they may still owe a considerable balance as home value have dropped lower and lower. In this difficult real estate market you don’t have to face foreclosure alone! I can help you avoid foreclosure in Idaho, or help lessen the impact of this process on you, I can even suggest alternatives to foreclosure and explain the real estate terms that may have you puzzled.

A growing number of people in Arizona, California, Florida and Nevada, where home prices have plunged, are considering what is known as a “strategic default” — just walking away from their mortgages not out of necessity but because they believe it is in their best financial interests.

Professors of business ethics say borrowers who can pay — and weren’t deceived by the lender about the nature of the loan — have a moral responsibility to keep paying. It would be disastrous for the economy if Americans concluded they were free to simply walk away from such commitments without penalty.

So…Is Walking Away FromYour Mortgage Immoral?

Walking away certainly isn’t risk-free. A foreclosure stays on your record for seven years and can send a credit score plummeting by as much as 160 points! A lower credit score means any loans are likely to come with much higher interest rates, and credit card issuers will likely charge more interest or refuse to issue a card at all.Also, many states give lenders varying degrees of scope to seize bank deposits, cars or other assets of people who runaway from their mortgages.

It’s going to be hard to prevent a cascade effect in many high foreclosure neighborhoods as one homeowner sneaking away may embolden others to follow suit. A study by researchers at Northwestern and the University of Chicago found that as many as one in four defaults may be strategic – not born of true necessity.

Driving this phenomenon is the rising number of households that are deeply “under water,” owing much

more than the current value of their homes. First American CoreLogic, a real-estate information company, estimates that 5.3 million U.S. households have mortgage balances at least 20% higher than their homes’ value, and 2.2 million of those households are at least 50% under water. The problem is concentrated in Arizona, California, Florida, Michigan and Nevada.

Josh Cotner, who owns an insurance agency, says his mortgage balance is about $100,000 more than the market value of his home in Gilbert, Ariz. Mr. Cotner could rent a bigger home nearby for $600 a month, far below the $1,655 he now pays on his mortgage, home insurance and property tax. He says he recently stopped making mortgage payments because his lender wouldn’t help him reduce the principal on his loan under a federal program in which he believes he is qualified to participate. Given the sometimes lengthy legal process of foreclosure, he may be able to stay in the home for at least another nine months without making any payments…

Banks warn they may get tough with strategic defaulters by pursuing legal claims on a borrower’s other assets. “We will try to reduce people’s payments if they have a hardship,” says Thomas Kelly, a spokesman for J.P. Morgan Chase & Co. “But we have a financial responsibility to get people to pay what they owe if they can afford it.”

States where lenders generally can pursue such legal claims include Florida and Nevada but not California and Arizona, where laws generally prohibit lenders from pursuing other assets of mortgage borrowers. A new Nevada law will protect many borrowers from these judgments if they bought a home for
their own use after Sept. 30, 2009.

Another risk for mortgage defaulters is that banks could sell the rights to pursue claims to collection agencies or other firms, which could then dun the borrowers for up to 20 years after a foreclosure.

Such threats appear to deter some borrowers. A recent study from the Federal Reserve Bank of Richmond found that under-water borrowers were 20% more likely to default in a state where mortgage lenders can’t pursue claims on other assets than in those where they can.

Brent White, an associate law professor at the University of Arizona who has written about this issue, says homeowners should make the decision on whether to keep paying based on their own interests, “unclouded by unnecessary guilt or shame.” He says borrowers can take a cue from lenders that “ruthlessly seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility.”

It’s more than just a matter of the borrower’s personal interest, many mortgage bankers agree. Defaults hurt neighborhoods by lowering property values, and then of course what kind of message does it send to your friends and family about how you handle your affairs…But none of it is so easy to face when you may have been jobless for an extended period, or recovering from health or other life issues. In the face of these greater problems, even a mortgage commitment can seem less of a priority.

The important thing is not to give up, don’t despair! Hiding your head and living afraid to open the mail does nothing to make the problem go away – it only makes it worse! If you are looking at the possibility of facing foreclosure in Idaho contact Bill Cady Your Meridian Idaho Realtor to learn more about what you can do to prevent foreclosure, and what steps to take once the foreclosure is imminent.

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