Strategic Foreclosure in Denver: Rarely The Best Move

Strategic Foreclosure in Denver: Rarely The Best Move

As the nation's economy continues to flounder, some Denver homeowners are seriously considering walking away from mortgages. Three words to the wise: DON'T DO IT. A recent report from Realtor Magazine notes that while there are many reasons not to default on your mortgage, one of the most significant is the potential effect on your creditworthiness – in both the present and the future. According to the report, individuals who default can take an immediate hit to their credit score of as much as 200 points. Worse yet, that note remains on your credit report for a full seven years. The implications of such a move can be personally devastating, as we will discuss below.

There's a lot of hype in the news touting the possible benefits of “strategic foreclosure,” but a two-minute news piece is not going to spell out exactly what you may be considering. In a nutshell, a homeowner looks down the road, sees that he will end up paying more than the house is worth, and moves to take advantage of the situation by “beating the clock.” Why do this? The usual reason is that the value of the home has dropped far below the owner's mortgage debt. The homeowner believes they can walk away from the property, usually after banking a few months of mortgage payments, then use those funds as a down payment on a new home, or as a security deposit on a new rental property.

But let's look at the effects of such a move. Freddie Mac (which, along with Fannie Mae, is one of the largest mortgage-backing institutions in the nation) notes that foreclosures, and their often-resulting vacancies, reduce the property values of every other home on the block, as well as in the entire neighborhood.

On the personal side, there's the negative impact on an individual's credit score, as we previously mentioned. That strike means you'll have a hard (if not impossible) time buying a car, or getting any kind of personal credit. Lower credit scores also affect your ability to rent a home, and will raise your insurance rates; they may even affect your ability to get hired with some employers. And, Fannie Mae is putting new regulations in place – regulations which are very simple, serious, and straightforward, with the potential to be truly crippling. If a homeowner has the means to pay their mortgage, or if they fail to make a good-faith effort towards a workout alternative with their lender, the seven-year hit literally hits home. If you fall into one of those categories, you're ineligible – for seven years from the date of foreclosure – for a new Fannie-Mae backed loan.

Today, more people than ever are facing foreclosure, but there are alternatives. If you are a homeowner who wants to avoid foreclosure in Denver and needs to know your alternatives, give the Bandy Team a call. We can help you in exploring and determining the best option for your situation, and we’re more than willing to help.