Home Equity Could Save Troubled Homeowners from Foreclosure

Home equity values are up, so selling the home is an option

Home equity represents the difference between the market value of a house and the amount the owner still owes on it. With real estate prices at record highs, many homeowners are enjoying astonishing amounts of equity in their homes, often amounting to several times as much as they owe. This could come in handy should you find yourself in financial trouble and unable to make your house payment. As a bonus, you can avoid being taken in a real estate scam.

It’s possible that you have seen signs on poles around your community that offer “foreclosure help.” The suggestion is that if you have trouble making your house payments, these companies may be able to help you avoid having your home taken from you by your lender. The scam works like this: The “help” comes in the form of an offer to buy your home. Often the offer consists of nothing more than the promise to pay any back amount owed. The stated agreement is that you will sign over your home to the company, they will pay off your debt, and you can then rent the home from them until you are back on your feet financially. At that time, they will sell the home back to you at an agreed-upon price.

The problem comes as soon as you sign over the title to your home and they evict you. Foreclosure help is usually nothing more than deed theft. Fortunately, the booming housing market may help those with financial trouble from losing their homes to either scammers or the bank. Home foreclosure is usually a last resort after a homeowner misses their house payments for a period of time. In the short term, the lender will assign penalty fees, but eventually, if the payments aren’t made, the homeowner will be evicted and the house sold. This is usually done at auction, as lenders want to get their money back as quickly as possible. The homeowner is left with bad credit and no house. In short, it’s a financial disaster.

During the last five years, home values have increased dramatically nationwide. This has increased the equity in many homes to record levels. It is not unusual for a homeowner to have equity valued at several times the amount they owe on their mortgage. This may seem like little consolation to a homeowner who has suddenly lost his or her job, but that equity may be just the ticket to avoiding foreclosure or personal bankruptcy. Instead of waiting for the bank to take the home and sell it, the financially troubled homeowner can sell the home themselves to pay off the mortgage. With prices as high as they currently are, the homeowner can often realize a sizable sum of cash in the transaction, as well. Granted, he or she will be without a home, but they will have some cash in hand and the won’t have a foreclosure on their credit report.

Anyone with serious financial troubles that prevent them from making payments on their mortgage should first contact their lender, as many of them will work with a homeowner who experiences a temporary setback. Lenders really don’t want to evict their customers unless they have to. Still, there is some consolation in knowing that in the current market, there may be a way out that avoids losing the home to either the bank or scammers.