I am working with a few clients that are suffering through a mortgage foreclosure. As soon as they received the sheriff’s notice, I sat with them to discuss their options. In both cases, we put together an exit strategy that I would like to share with you.
First, we had to prioritize what was important in a new home. In our case, we decided that keeping the kids in the same school system was paramount so we knew we had to look for a new home in that area.
Second, we had to look at resources we had to move into a new home. One option to consider is moving into an apartment. Another option was to consider purchasing a home on a land contract. The land contract should have a 5 year balloon which should be enough time for someone to reestablish one’s credit. The third option is to rent a house in the same area as the current home. I was amazed to learn that even though the area that we were looking was very well heeled with expensive homes, that there were a lot of rental properties. Not only that, these rental houses were fairly large (over 3,000 square feet…large by my standards anyway) with very modest rents. It appears that the mortgage foreclosure crisis has created a glut of these large homes that people need to get some money out of for on reason or another. It may be that the owners have passed away and the kids are trying to get some money from the houses and cannot sell them today. Anyway, it appears that staying in the same area would not only be easily accomplished, it would be quite economical too.
The third part of an exit plan is to calculate is the date that you have to be out of the foreclosed property. Under Michigan law, home owners can be evicted six months after the sheriff’s sale unless the property is abandoned. After the sheriff’s sale and until the the order of eviction is filed, the use of the property remains exclusive to the former home owners. Hence, you get to live rent and mortgage free for six months. At the risk of sounding like a conniving jerk (a phrase hurled at me t by my wife once in a while), a home owner can use this period to save up money for a down payment on a land contract, or a security deposit and moving costs. Think about it, living rent and mortgage free for six months is a great boon to anyone’s finances. You just need enough discipline to save what you can.
Interestingly, the sheriff’s sale for my clients’ property was scheduled for last month. Although we had our exit plan in place, the bank did not appear at the sale. I cannot tell you why the bank did that, but I can give you plenty of good reasons why the bank made the right move. First of all, when the bank owns the home, it incurs substantial holding costs on the property such as taxes and utilities. Moreover, the bank has to hire a property maintenance company to visit the property to keep out trespassers, squaters, thieves and vandals. It is far more economic for the bank to keep people in their homes and perform these functions than for the bank to start forking out bailout dollars. Third, the banks already own tons of property. They were not supposed to be in the real estate business, but now they are. The banks are unhappy about this. Finally, there is talk of legislation to put a moratorium on foreclosures.
The moral of my story is to let you know that even though the bank may post a notice of foreclosure on your door, it may not actually attend the sale. It is important, however, that when this does occur, you must circle the proverbial wagons, keep calm and talk with attorney or some calm and detached third party about assembling an exit strategy. You have no idea how much inner peace you will achieve during the storm of a foreclosure, once you have put that plan together. Foreclosure sucks and for many of us, its a fact of life. Embrace it, face it and continue to live….elsewhere.