Foreclosure’s Hidden Danger

When you were looking into a home loan, you likely heard about laws that protect your other property should you forfeit on the loan. These laws came into effect during the Great Depression to protect people who were losing everything and encourage home-buying to help revive the economy.

These laws protect home owners so that even if they are foreclosed upon, they can take their cars and their property and their wages and move on with their lives. Their credit may be shot, but they will not be tossed into the street with nothing – they will have the means to survive.

The idea of refinancing was born much later. It can be a wonderful tool when used to help home owners get the best rates available, or even to help them get away from a mortgage company that they don’t like. Unfortunately, there is no reason why “sinking boats” cannot refinance in their desperation, and these people sometimes find that the initial boost that the refinance gave them is not enough.

If these people find themselves foreclosed upon, without a chance of paying off their debt, then they are in bigger trouble than they ever would have thought. When the law was passed during the Depression to help home owners, refinance was not a concept of the time. Refinancing, then, is not written into the protection of the law. Because of the wording of these laws, once you refinance, your property becomes forfeit along with your home should your home be foreclosed.

What does this mean? It means that everything but the shirt on your back now belongs to the bank to help them recoup their losses. This includes your car, your TV, and can even include an attachment to your wages until their loss is restored. No one expects this blow to come, and it leaves the debtor with no real way to start over, and no assets with which to do so.

If this is sounding like a horror story to you, then you are not far from wrong. Refinancing is a great way to help you save money on better rates and better companies, but it is not the cure for a sinking ship. In fact, refinancing when you can’t make your payments is almost akin to throwing chum into the shark-infested waters as your boat goes down. There is nothing at the bottom but bankruptcy and pain.

So how do you avoid this trap? If you are falling behind on your payments, talk to your loan officer about the problem. Let him or her help you to work out a plan to get back on track. Some won’t help much, and some might charge huge late fees, but when it comes down to it, they don’t want your house, they want your payments. If there is simply nothing you can do, then sell if you can, and deal with it if you can’t. A little hardship now, with the chance to recover, is better than giving up and tossing chum to the sharks.