Mortgage Tips, Tricks & Secrets

Facing Foreclosure?

Here’s a seldom understood fact about bank foreclosures;

Those home owners that have the most equity get foreclosed on first.

Currently (as of October 20, 2007) most home markets are soft — and if you lose your ability to make the house payment you’re obviously in jeopardy of losing your home.

If you go to your lender and say “hey, I need a loan; I have plenty of equity in my home as collateral,” the lender won’t do it.

Most banks are not collateral lenders, however they always love using it as extra security.

Banks only loan on your ability to repay. If you lack repayment ability - you lose.

Also, it doesn’t matter if you just made an extra principal payment of $8,000 from that recent tax refund - you still owe the next regular payment in 30 days. Missing three consecutive payments with a mortgage that’s secured with a trust deed note means the lender has the right to foreclose on your property to protect themselves.

Here’s Who Get’s Foreclosed On First…

The home owner with the MOST equity is always facing foreclosure first.

Let me explain.

If you were a mortgage lender with a portfolio of delinquent loans and people behind on their payments (in a soft market), which homes would you foreclose on first?

For example, if average home values were $300,000 in your area a few years ago in a “strong” market but now home values have dropped temporarily to say $250,000 — lenders will be out to protect their investors first and foremost when it comes to foreclosed property.

Say your home used to be worth $225,000 — now valued at only $175,000 with you owing only $125,000, guess what. When it comes time for foreclosure you have $50,000 in equity and you’ll be first as compared to the home owner in the same value range with less equity.

In fact, lenders will sometimes bend over backwards to work with the home owner who is at risk of losing less equity — believe it or not. They really don’t want to foreclose on a home that is worth $175,000 and you owe $210,000.

Hence, this is why I’m a proponent supporter of the big long mortgage (BLM) which means I keep and use as much equity of my home as possible in play. NO I don’t use the cash to buy expensive cars or take lavish vacations — but I DO put the money to work in a tax advantaged investment, which coupled with the tax deduction on mortgage interest puts me way ahead of the game and means I’m last on the list of foreclosures if I run into trouble.

The motto; he who has the least equity available (from the lenders standpoint) finds himself facing foreclosure last.