The decision to allow your home to go into foreclosure is a very serious one; but sometimes holding onto a home facing foreclosure could in fact being doing more financial harm than good.
Below are a few signs that your avoidance of foreclosure could be a form of slow financial suicide:
- Your home is worth significantly less than your mortgage. If you're mortgage is significantly more than the value of your home, then you're facing a negative equity situation. Homeowners with negative equity are in fact in a worse predicament than renters. For example, if your mortgage is $200,000 and your home is worth only $100,000 then you are $100,000 in the hole. Returning the home to the mortgage lender during bankruptcy could be the first step to stopping the financial bleeding.
- Your financial status has changed for the worse and will remain so into the foreseeable future. If you've suffered a disabling injury, lost a spouse or joined the ranks of the long-term unemployed, then avoiding foreclosure may not be the wisest decision. If you're like most, you purchased your home when you were in your financial prime, so the reality is that you may need to allow the foreclosure to proceed if you can no longer pay the mortgage because of significant changes in your finances.
- You're in a toxic mortgage and you can't get out no matter what you do. While we haven't heard a lot about them, adjustable rate mortgages (ARMs) are still impacting homeowners and forcing many into foreclosure. Mortgages which start off with low monthly payments and then shoot up in costs can be a financial shock to anyone. If you're struggling to pay an ARM and facing foreclosure then you may want to consider returning the home to your lender during bankruptcy so you can get a fresh start.