Foreclosures- Keep the house or let it go?

If you are facing a foreclosure do you try to keep your house or let it go back to the lender? In the past many people who found themselves in financial difficulty (including late payments on their house mortgage) were able to find relief in the chapter 13 bankruptcy processes. Seeking protection from the court under the bankruptcy code may still be a wise solution for many homeowners facing foreclosure. With the downturn in the housing market this past year coupled with 100% financing from sub prime lenders homeowners may find themselves in financial difficulty and facing foreclosure. In some instances it may be better for the homeowner to let the house go into foreclosure.

For example, if you purchased a home in 2004 for $300,000 and made a down payment of $30,000 your outstanding loan would be $270,000 and your equity would be $30,000 plus any appreciation in the market which was significant over the past 3 years.

However if you purchases your home last year for $300,000 and got 100% financing your equity would be $ 0 and possibly a negative number if the home value has decreased over the past year which is the case in many areas or California. Let’s say the home values in your area went down by 5% in the last year. That being the case your $300,000 house purchased last year is now worth only $285,000 and you still owe the full $300,000 possibly at a high interest rate.

Some of the clients who come to my office considering filing bankruptcy in California find themselves in the latter category. It may be in their best interest to file for protection under that bankruptcy code but it may also be wise for them to abandon their home and its negative equity.