We've been covering the Rules for Foreclosure. These are a set of principles that all foreclosure clients should adopt to get the best results from their foreclosure crisis. We've learned what works and what doesn't work for our happiest clients - these rules are what works.
The First Rule: Get on a written budget. Knowing where your money is going, every month, in advance, is the most important thing anyone can do to improve their finances. This is even more important when you're fighting a foreclosure.
The Second Rule - Save money! Nothing lasts forever, not even a foreclosure lawsuit in Florida (really!). No matter what your goals and no matter what your outcome, you should be piling up as much cash as possible every single month. You are in the middle of a crisis - cut your lifestyle. Now is not the time to take a cruise or buy a new car (or God forbid lease one). Set your budget up right now as if you were going to have a housing payment. Because, guess what: eventually you probably will.
That brings us up to Rule #3. Start planning for your foreclosure Plan B. No matter what your goals are for your property, you should plan in advance for your exit strategy if your primary goals fail.
Knowing your Plan B is so important to getting through a foreclosure crisis with your sanity intact. Plan B keeps you from daydreaming nightmare scenarios. Plan B eliminates the stress of the unknown.
So how do you figure out Plan B? For most homeowners, that means you should start with the assumption (for planning purposes only) that you cannot keep your house. Assume that the bank will not cooperate with anything you do and that eventually, hopefully after several years, you will need to face the fact that the bank is likely to foreclose on you. What's your way out of the deficiency? What's your best exit strategy?
Here's a brief overview of three exist strategies you might consider as your Plan B. Your Plan B should always be specific to your life. These are just examples.
If you have more than one lien on your property, like a first and second mortgage, a first mortgage and a line of credit, or a first mortgage and a Homeowner's or Condo Association lien, you should think about a short sale of your property. So plan for a short sale. Short sales require a good Realtor and good legal advice. If you don't know a good Realtor, find one. We have a list of several Realtors with great short sale track records. Give us a call and when can give you their names.
If you have only one lien on your property, you should plan for negotiating with the bank for a settlement in exchange for your consenting to the foreclosure sale. This is another area where good legal representation is key. Plan on settling well before the day of trial. You'll usually get better results when your back is not up against the wall.
In a worse case scenario, you may want to consider bankruptcy as your Plan B. If you are in real dire straits, consider a Chapter 7 bankruptcy before the entry of a final judgment against you. But don't take this step lightly - this is only for people with no other option. Only the rarest of circumstances have we suggested bankruptcy to our clients, but it can be a viable Plan B for the hardest hit.
If you don't have your Plan B, you're could make yourself sick imagining every possible horrible scenario. I've seen clients do it, and every time I think I've heard them all I get a new client with a new imagined fear. No, you won't get thrown in jail. No, the police will not kick you out of your house in the middle of the night. No, you won't have your children taken away by family services.
Short sale, negotiation, or once in a blue moon bankruptcy. Those are most people's real exit strategies.
Armed with your Plan B, you can now work on Plan A: Your goals. What outcome you want to accomplish. And here's the best news - Plan A happens much more often than Plan B.
So eat your veggies first, work out in the morning, and Start with Plan B. It'll make life more hopeful.