Apart from the emotional considerations that surface whenever a foreclosure is threatened (see our article on the emotional part of foreclosure), there are economic factors you just can’t ignore. Before you can decide whether or not to try to keep your house, you need to answer a few questions about your financial situation—which has no doubt changed since you bought your house.
To a large degree, your options depend on whether or not you still have equity in your house. When you bought your house, presumably it was worth more than the amount you borrowed to buy it. If your house is still worth at least as much as you owe on it, it may make a lot of sense to oppose the foreclosure or maybe to sell it and get out from under the loan.
These days it’s not so easy to know what your house is worth. Estimates of real estate values are traditionally based on the amounts that similar houses in the neighborhood have recently sold for. To find out that information, you can use http://www.zillow.com/, http://www.realestate.com/homevalues/, or similar websites. Local real estate brokers and agents can also give you an estimate by looking at similar sales in your neighborhood.
If there are other foreclosures going on in your community, a house similar to yours may have sold for far less than you could get for your house if you could afford to be patient. Also, buyers will pay substantially more for a well-kept home than for one that has been trashed, as many foreclosed homes are.
In truth, even professional appraisers have difficulty in telling what a house is worth when prices are plunging as they have been recently. Although prices have fallen 10% to 20% nationwide, many of my clients in California report home price decreases of 50% to 60%. Similar “hot spots” are being reported in other areas of the country, such as Florida, Nevada, Arizona, and parts of Texas. The only real way to find out your house’s market value is put it up for sale and see what you can get.
That said, take the best estimate you can come up with and use our Homeowners' Equity Worksheet to help you determine what, if any, equity you have in your house.