Jay Fleischman has written the best article I’ve seen so far on Why Foreclosure May Be the Best Thing For Your Personal Finances that takes the emotion out of a hard decision.
As Jay points out in the article, if you’re behind on your mortgage or are already getting foreclosure notices from your mortgage lender, it may be time to pay attention to what’s best for you financially. “I’m afraid of losing my home!” you may say. Or you may feel guilty about breaking the contract you’ve made with your creditors (some actually will try and convince you that you have a “moral obligation” to repay your mortgage). The truth is, you have a “contractual obligation” to repay your mortgage. As financial planner Carl Richards says in his book, The Behavior Gap, the only moral obligation you have is to make sure your family is financially safe and has a roof over their head.
The important thing to do is to crunch the numbers to see if it makes financial sense to fight for your home or let your mortgage company go forward with having your house foreclosed on. Look at your household expenses, your mortgage and other maintenance expenses, plus insurance and taxes. Run the numbers and compare those expenses to rent a home or apartment big enough for you and your family. If your mortgage and related expenses are higher, then it’s probably costing you more to “own” your house than if you were renting. And let’s face it, if you’re facing foreclosure, you don’t actually “own” your house. The bank pretty much owns it, yes?
If you were renting, you’d just be paying the rent. And utilities, of course. But none of that other stuff. If you were able to cut your expenses to just rent, utilities and renter’s insurance, would you be able to make ends meet, save money and start to pay off some of your other debts?
One of the questions I get asked all the time is: Will a foreclosure hurt my credit score? Absolutely. But the lower credit score will be temporary. The long term stress of trying to keep a home that you can no longer afford without sacrificing your family’s well being, may not be worth it in the long run. Would you rather have a great credit score or financial security?
Rather than spending lots of time, energy and money fighting a foreclosure, run the numbers and decide for yourself – is it time to cut your losses?
If you’re considering foreclosure or bankruptcy, check out the free report on how to know if it’s time to file at www.paulalangguthryan.com/freestuff
PS: Rockville, MD bankruptcy attorney Sari Kurland Bloch responded to add a few more tidbits to make this blog entry even more info-packed: State laws vary throughout the country, but in most states a deficiency judgment results from a foreclosure sale and second mortgage holders are very likely to sue the homeowner for the full amount owed. I suggest talking with a bankruptcy attorney to see if bankruptcy, which would allow you to prevent the reporting of a foreclosure sale and eliminate the debt. I also suggest short sales because it provides the homeowner the opportunity to negotiate the deficiency claim and eliminate future liability for the property such as home owners association dues and expenses.