Millions Will Not Benefit from Foreclosure Prevention Plans

Posted on March 19, 2009
Filed Under Mortgage | 1 Comment

There will be millions who will not benefit from foreclosure preventions plans. What are they going to do?

It may be that they do not have the earning to repay the loan. Or perhaps they can afford the repayment schedule but fail to qualify to avail of the plan benefits because the worth of the house is less than the loan amount. If one has gone deep down underwater then the question may well arise about the pointlessness of continuing with the loan. It could well take 10 or 15 years before the house recovers the value level it had touched two or maybe three years ago. Taking a decision is not easy. Some may have moral qualms about not honouring a commitment.

The economic climate right now is unusual and under the circumstances the results of walking away from the mortgage will not be as painfully acute as it would have been a couple of years ago. It is however always the better option to try to work out a practical and affordable deal with the lender. But if this is not possible then in all probability even if the borrower walks away from the loan, the lender will not sue him or her. The person will not be served a tax bill either. The damage to credit history will not be for long; neither will it be insurmountable.

Giving up the mortgage may mean trying for a short sale with the permission of the lender. The amount will be invariably less than the loan amount – given the present economic gloom. A second alternative would be handing over the deed to the lender on the assurance that the latter would not initiate foreclosure action for non-payment. In legal parlance this is known as ‘deed-in-lieu’. Thirdly if foreclosure starts then there is the hope that the bankruptcy judge will adjust the mortgage terms satisfactorily in proportion to the income of the borrower.

Non-eligibility for the Obama plan does not mean that the lender will not in the long run try to make adjustments. The lenders too are in a tight spot with thousands of houses having gone underwater and mortgage payments having dried up. At all costs they too do not want to proceed with foreclosures that ultimately leads to empty houses. Vacant deserted units draw upon lenders and bank the ire of the governments and the communities.

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