We have written about personal debt and real estate a few times in the last year but a new wrinkle has surfaced and it may help more people out of tough times so I think I should write about it. Debt is a part of life and when it becomes overwhelming, people look at their home as a piggy bank. The problem is that more and more people have “sucked out” all of the equity from their homes and they are left with no assets. The phones are ringing and collectors are knocking on your doors but you still think everything will be alright.
Banks will lend you up to 90 per cent of the value on your home and in some cases they over extend that amount. If you default on your mortgage for three consectutive months, they will take the house back. In most cases the bank does not want to take your house but most people just try to avoid the issue until it is too late to take care of the problem. This is when they will call an agent and try to sell their house fast. Then they try to reduce the commission since there is no money left in the house and everyone is in a panic. People will also call the signs on poles that say they will buy your house for cash today but of course they will not pay what the home is worth and this also is a mistake. Some people call lawyers but they also want to get paid and this is usually a waste of time. So what should someone do when they are in such a situation?
Negotiate. The bank wants to get paid. The credit card companies want to get paid. The government wants to get paid. So negotiate with them and find a solution for everyone. Unfortunately, most of these debtors will not want to negotiate with you and they will give you terrible advice to borrow from family or sell your home.
Your first call should be to a Debt Councillor. I work with a great one and recently observed a situation where a client was looking to sell their home and get out of debt. Once we looked at the numbers we realized the best situation was to negotiate – keep their home, reduce their debt from over $70,000 dollars to about $30,000 dollars and before it was all wrapped up they were able to trade in their five year old car for a 2014 model within the same monthly payment. Everyone gets paid and through a Consumer Proposal they will pay the debt down in five years while their home increases in value. If you look at the numbers they wrote off over $40,000 dollars in debt, kept their home which will most likely value up over the $30,000 grand they will pay off in five years and they are driving around in a new car. Every situation is different and in some cases selling the home is the only option. Either way a Debt Councillor can help you work out the best solution.
by Darrin DeRoches,