How Do I Avoid Foreclosure – Part 7

How Do I Avoid Foreclosure:

A step by step process for distressed homeowners.

Part 7

This is the seventh in a series of posts designed to be a step-by-step directory for distressed homeowners to use to try an avoid foreclosure.

We continue the discussion of various options that a distressed homeowner may have.  Some of these options only apply to homeowners in very specific situations and will not apply to most; however, if you meet the criteria you should take advantage of any opportunity that presents itself.

Bankruptcy

This option will stop the foreclosure for a period of time but may only delay the process.  Anyone considering this option should consult an attorney who specializes in Bankruptcy.  Be careful to select one who has a good reputation.  Call if you need a referral. 

There are several kinds of bankruptcy.  Chapter 7 Bankruptcy is a process to liquidate your assets.  Chapter 13 allows you to restructure your debt.  You may have 3 -5 years to catch up on your delinquent accounts.  

I major drawback is that you will find it difficult to sell your property during the bankruptcy process.  You will have to get the trustee’s approval to do so.  Also, if the homeowner is not able to make all of their payments after the bankruptcy the home will foreclose anyway.  All of the time and effort will have been wasted.

Note that a bankruptcy has an impact on your credit similar to that of a foreclosure.  Loan applications always ask in you have filed for bankruptcy, so there is a long lasting effect on your ability to buy on credit.

Short Sale

When a homeowner owes more on their home than it is worth and none of the other options listed in this and previous postings in this series do not apply, the Short Sale option may.  

In order to qualify for a Short Sale the homeowner must have a financial hardship that is acceptable to the lien holder.  Major loss of income, loss of a job, major medical, death in the family are some of the hardships that lien holder may accept.

As a result of the financial hardship, the homeowner must have a monthly short fall–more month than money.  

And Finally, the homeowner must be insolvent.  They can not have significant liquid assets that would allow them to pay their loan shortfall and expect the lien holder to forgive a portion of their loan commitment.

When a homeowner meets the lien holder criteria there is a strong possibility that a short sale will be approved.  The process takes time, a lot of documentation supporting the hardship, shortfall and insolvency; and a lot of work.  A majority of Realtors avoid short sales because of the amount of work involved and uncertainty that they will be approved.

There is also a strong possibility that the homeowner will owe taxes on the portion of the loan that is forgiven.  Not every attempt at a short sale is successful.  Each case is different and has to be examined in detail by a professional who specializes in helping homeowners avoid foreclosure. 

Those who do complete am approved short sale are able to purchase another home after two years.  The hit to their credit is not nearly as damaging as is a foreclosure or bankruptcy.  Loan applications do not ask if you have completed an approved short sale.  Long term this option is far superior to many of the others listed.   

Here are links to a few web sites with helpful information for less specific situations:

                               http://portal.hud.gov/portal/page/portal/hud/topics/avoiding_foreclosure

 

http://www.ForeclosureStopper.org

 

http://www.CDPE.com

 Feel free to contact Mike West, Realtor, CDPE if you have any questions or need help.

 (916) 337-0658              e-mail:   Mike@BMikeWest.com 

 

How Do I Avoid Foreclosure – part 6

How Do I Avoid Foreclosure:

A step by step process for distressed homeowners.

Part 6

This is the sixth in a series of posts designed to be a step-by-step directory for distressed homeowners to use to try an avoid foreclosure.

We continue the discussion of various options that a distressed homeowner may have.  Some of these options only apply to homeowners in very specific situations and will not apply to most; however, if you meet the criteria you should take advantage of any opportunity that presents itself.

Short-Refi

This is a relatively new option in which the lender may reduce either the principal on the loan and the monthly payment.  The qualification process is demanding and not all lenders will consider it.  It does show how far some lenders are willing to go to avoid foreclosure.  Make sure you have all of your documents in order and ready to submit.  Naturally, you will have to show on paper that you can meet the commitment on the new loan.

Deed-in-Lieu of Foreclosure

Known as a friendly foreclosure, in this option the borrower surrenders the deed to the property in exchange for a commitment from the lender not to pursue any further action against the borrower.  This usually only works when there is only one loan on the property.  If the owner has any equity in the property it is not a recommended course of action. 

The advantage to the lender is that they do not have to incur the cost of foreclosure.  Some lenders require that the borrower be up to date on their payments in order to qualify. 

Here are links to a few web sites with helpful information for less specific situations:

                               http://portal.hud.gov/portal/page/portal/hud/topics/avoiding_foreclosure

 

http://www.ForeclosureStopper.org

 

http://www.CDPE.com

In future posts we will discuss other options people may use to avoid foreclosure.  Those posts will be coming soon.

Feel free to contact Mike West, Realtor, CDPE if you have any questions or need help.

(916) 337-0658              e-mail:   Mike@BMikeWest.com 

 

How DO I Avoid Foreclosure, A Step-by Step Guide

How Do I Avoid Foreclosure:

A step by step process for distressed homeowners.

Part 1

“O.K., I’m in trouble, real financial trouble.  Due to circumstances beyond my control I can’t pay my bills.  The mortgage is due and I can’t come close to covering the payment.  What can I do”?

Unfortunately this scenario is playing out with thousands of home owners in our country today.  In fact, one in ten mortgages throughout the country are in trouble with even more headed in that direction.

Unemployment is at 10.2% and underemployment is at 20% in California.  Many of the wild west mortgages of the past few years are due to adjust, making the payments impossible to make for an ever growing number of borrowers.

Homeowners need help in the form of information and education.  Unfortunately, this is such an emotionally devastating situation many people shut down and do nothing.  The cold hard truth is that doing nothing is a sure fire formula for losing their home to foreclosure.

And foreclosure is not just a one time event.  Once a foreclosure is on you credit record it stays there for seven to ten years, making it difficult to obtain any kind of financing (home, auto, credit card, store card).  Those in this situation that do obtain credit are looking at interest rates well into the double digits.  People should do EVERYTHING POSSIBLE to avoid foreclosure.

We have to get the word out family, friends and neighbors that there are options available to them to increase their chances of avoiding foreclosure.  The thing is that they have to take action.  

There are many organizations available and willing to help without charging a fee.  Unfortunately, there are also far too many who will take advantage: fraud is rampant. 

The bottom line is that the distressed homeowner has to take action and be careful not to let an individual or organization taken advantage of them.

 

Contacting the lien holder and discussing your situation honestly is absolutely necessary.  However, before doing that there are a few steps to take first.

Take some time to learn what all your options are first.  This information is available in many places. 

Here are a few web sites:

                               http://portal.hud.gov/portal/page/portal/hud/topics/avoiding_foreclosure

 

http://www.ForeclosureStopper.org

 

http://www.CDPE.com

In future posts we will discuss these options to provide the information people need to make an informed decision.  Those posts will be coming soon.

Feel free to contact Mike West, Realtor, CDPE if you have any questions or need help.

(916) 337-0658              e-mail:   Mike@BMikeWest.com  

 

 

LOAN MODIFICATION PART II

LOAN MODIFICATION

Part II

This is a continuation of yesterday’s post on Loan Modification.

The Market  In recent years investors were clamoring for ever increasing returns on their investments.  Financial markets developed more risky loan products to meet that demand, knowing full well that in order to increase the reward there had to be an increase in risk.  These products allowed buyers to qualify for purchases that they could not otherwise afford and, they met the investor’s need for a higher return in investment.  Real estate related financing was riding high.

Home buyers were seduced into accepting loans that provided initially low monthly payments because those products allowed a buyer to purchase a larger and nicer home. Some even accepted negative amortization loans (a loan with an allowable minimum payment that did not cover the interest cost of servicing the outstanding balance.  Each month the shortfall between the minimum acceptable monthly payment and the actual cost to cover the outstanding principal was added to that outstanding principal!).  Many buyers found themselves an additional $ 10,000 in debt after having a neg-am loan for only six months!

Then the bubble burst.  Values stopped appreciating and immediately went into free fall.  Buyers disappeared and the exit strategy for many financially stretched homeowners evaporated.  They could not just sell and walk away with a clean financial record as they originally planned.  By the time they realized what had happened they were upside down on the largest investment most of us will ever make: our home.

Facing foreclosure is not a pleasant prospect.  Foreclosure and bankruptcy are stigmas that remain on a borrower’s credit report for seven years, making it difficult or even impossible to make any kind of a purchase on credit for those seven years.  Merchants who will extend credit will exact excruciatingly high interest rates. 

So, how can one remain in their home and avoid foreclosure? 

Unfortunately, many distressed homeowners will not be able to do so. However, there are options that will work for many. 

The first step is to attempt to get a loan modification.   

 

How do I qualify for a loan modification?  In order to start the process you must ask.    Prior to contacting your lien holder you can quickly complete an eligibility test at http://www.MakingHomeAffordable.gov.  This test will let you know if you are eligible for a modification through the government-sponsored Home Affordability and Stability Program (HASP)

Find a list of mortgage lenders and servicers at http://www.HomeNow.org.

Once you have completed this test it is time to call your lien holder.  Do Not Delay.  Have the information listed in yesterday’s post ready so that you are fully prepared to discuss your situation with them. Approach this call as a problem solving exercise, without emotion or placing blame.  The old adage that you can catch more flies with honey than you can with vinegar applies in spades. Different lenders have different names for the department that you should talk to. Common names may be loss mitigation, mortgage modification or H.O.P.E.

Loan Modification Experts  A word of caution at this point.  In the last year or so we have seen a proliferation of loan modification experts entering the market place.  Many collect fees up front: a RED FLAG.  Unfortunately, the business is rife with hucksters and con-artists who prey on distressed homeowners.  The doctrine of caveat emptor (let the buyer beware) applies.  Check references before you open your wallet.

What is a Home Affordable Refinance?   If Fannie Mae or Freddie Mac owns your mortgage, you may be eligible for a Home Affordable Refinance.  This program will allow qualified borrowers to refinance their home and often lower payments.

A borrower can find out if their mortgage applies by entering their property information in each of the following web sites.

How do I know if my loan is owned by Freddie Mac?

Website:   ww3.freddiemac.com/corporate

How do I Know if my loan is owned by Fannie Mae?

Website:  lookup.fanniemae.com/loanlookup

What are the qualifications for a Home Affordable Refinance?  According to the resources provided by the government, the following is a list of qualifications:

The owner must occupy the property of a one – four unit property

The loan on the property is owned or securitized by Fannie Mae or Freddie Mac (see links above)

At the time you apply you are current on your mortgage payments (you have been more than 30 days late on your mortgage payments in the last 12 months, or you have had your loan for less than 12 months and you have never missed a payment)

You believe that the amount you owe on your first mortgage is about the same or less than the current market value of your home

You have income sufficient to support the new mortgage payments, and the refinance improves the long-term affordability or stability of your loan

What if I don’t qualify, can’t afford my home, and owe more than it’s worth?   You are not alone and foreclosure is not your only option.  Some loan servicers are under contract with the investors which prohibit loan modification.  Others may not be willing to work with you for reasons that they will not disclose.

In these instances, you may wish to consider a short sale.  A short sale allows you to sell your home for less than you owe and avoid foreclosure.  We have clients who completed a short sale two years ago and are presently out shopping for another home.

Agents with the Certified Distressed Property Expert Designation have undergone extensive training in how to process and negotiate short sales.  Speak to your market expert to see if you may qualify.

Feel free to contact us.  We are always prepared to answer questions and help wherever we can.

Mike West

Certified Distressed Property Expert

(916) 337-0658

 

 

Loan Modification, What’s It All About

LOAN MODIFICATION

It is an unfortunate fact that far too many homeowners are in financial distress right now and are having trouble making their mortgage payment, or have stopped paying all together.  Many did not understand all of the ramifications of the commitment that they made when they signed their mortgage papers during escrow.  Others understood the possible changes that could be made at some time in the distant future but were sure that the worst case scenario would not happen to them.

Irrespective of the causes of this phenomenon, it has had a major impact on our economy, not to mention the families involved.  Many homeowners are struggling to meet their commitments even if they have not incurred financial hardship.  Some have decided not to continue to pay for a mortgage with a balance that far exceeds the current market value of their home.  Others have incurred a serious financial hardship that makes it impossible for them to continue to make their payments.

So what does a homeowner who is mired mortgage hell suppose to do?

Although most homeowners want to keep their home, the unfortunate truth is that many will not.  The individual homeowner’s circumstances and their mind set in dealing with their situation is the key to success.

The first step in trying to save one’s home is through loan modification.

What is a loan modification? A loan modification is a process through which your lien holder changes one or all of the following:

• Your interest rate
• Your principal balance through a reduction
• Your loan terms (examples: from adjustable to fixed rate, extend term of loan from 30 to 40 years, payment reduction for a specific period)

This process can allow borrowers to stay in their property when they can no longer afford their current payments.  Homeowner must provide documented proof of any hardship.

Why would a lender modify a loan? It is all about their bottom line!  They have realized that in some cases it is better for them to work out a solution with current borrowers to lower payments or possibly improve loan terms in order to keep homeowners in their homes.  The average foreclosure can cost a lender from 35 – 60% of the current value of a property, so keeping borrowers in their homes is frequently a cost effective business decision for the lender.

What do I need to qualify for a loan modification? According to the Making Home Affordable web site (http://www.MakingHomeAffordable.gov), you will need the following information for your lender to consider a modification:

• Information about your mortgage – such as a copy of your monthly statement
• Information about any second mortgage or home equity line of credit on the home
• Account balances and minimum payments on all other debts such as student loans, credit cards, installment loans
• Your most recent Federal income tax return
• Information and statements for all assets and asset accounts
• Information about your monthly gross income (before taxes) for your household, including recent pay stubs and documentation covering all other income

It is also advisable to include a letter describing any circumstances that caused your income reduction and/or the increase in other expenses (job loss, divorce, death in family, major illness, etc.).

More on loan modification to follow.

Mike West

Certified Distressed Property Expert

Always willing to answer questions and help when and where I can.

Short Sales 101 Part 1

Short Sales

 What is a short sale?   A short sale is transaction in which the seller is attempting to sell their property for less than they owe the lien holder or lien holders.  In almost all cases something has happened that prevents the homeowner from being able to make their mortgage payments.  

The difficult part of this process is getting the lien holder or lien holders to accept the short pay.  Short sale properties are available everywhere and offer the potential of being a GREAT BUY.  However, they usually take a long time to complete and, because many lien holders can not or will not accept a short pay, many attempts at a short sales fail.  Also, many buyers give up in frustration and move on to another property because they get tired of waiting for lien holder’s approval.

Do I qualify for a Short Sale?  Qualifications for a short sale include any or all of the following:

• Financial Hardship – an acceptable reason (as determined by the lien holder) causing the homeowner to have trouble affording their mortgage payment.  Some acceptable reasons include; death in the family, serious injury impacting a wage earner’s income, loss of job, major reduction in income… to name just a few.
• Monthly Income Shortfall – You have more month than money.
• Insolvency

In all cased the homeowner must document the reason they can not make their payments.  Tax returns, pay checks, documentation from employers are part of the paperwork required.

The fact that the value of your home has declined and your mortgage payment is too high given the current market value is not an acceptable reason.

More on Short sales will be posted soon.

California 90 Day Moratorium On Foreclosures. Is It Viable?

New Foreclosure Prevention Act For California Now Law

California’s new Foreclosure Prevention Act went into effect on May 22, 2009.  The object of the exercise is to delay the foreclosure process an additional 90 days, extending the period to a total of 180 days for those who qualify.  The object is to provide more time for lenders to work with borrowers to provide loan modifications, turning “non performing assets” into productive loans and keeping borrowers in their homes.

The question is, will it really help or is it just politics as usual?  As with so many of these statutes, in order for them to survive the political process little viable substance remains.  The end product is narrowly defined and the number of distressed home owners that will benefit is limited.

The 90 day moratorium applies ONLY if:

• The loan in default is in first position (a first, not a second)

• The loan was recorded between January 1, 2003 and January 1, 2008

• The borrower occupied the home as their principal residence at the time the loan became delinquent

• The loan servicer has not implemented a “comprehensive loan modification program

• The loan is not make, purchased or serviced by a California state

• or local public housing agency authority and he loan is not collateral for securities purchased by any such agency

• Imposing such a moratorium will not require the loan servicer to violate contractual agreements for investor-owned loans

• The borrower has not surrendered the property, as evidenced by a letter confirming surrender of the delivery of the keys to the lender

• The borrower is not currently in bankruptcy

• The borrower has not contracted with an organization, person or entity whose primary business is advising people who have decided to leave their homes regarding how to extend the foreclosure process and avoid their contractual obligations to mortgages or beneficiaries

It will be next to impossible to find a lender who does not claim to have a “comprehensive loan modification in place.”  Of course, the lender’s definition of a “comprehensive” program may differ slightly from the borrower’s definition.

Although contracts between loan servicers and investors are confidential, we assume that a substantial number prohibit the loan servicer from modifying loans.

State legislators are setting up a web site through which lenders can apply for exemption from the moratorium.  We expect that site to be busy once it becomes active.

A more extensive review of the statute can be found here:

http://www.cdpe.com/images/fbfiles/files/California_New_Foreclosure_Law.doc

Loan Modification: Is there a light at the end of the tunnel?

Is t Modificationhere a light at the end of the tunnel? 

Feedback indicates that the Federal Making Home Affordable program is having an impact.  Unlike the Hope for Homeowners program that was stifled by eligibility requirements and received less than 100 applications nation wide, the Treasury Department reports that over 120,000 homeowners have actually completed loan modifications with the Making Home affordable program.

It is good to hear that a Federal program is actually working.  Not just another marketing scam so prevalent in the market place today!

For the complete RISMEDIA story select this link:

http://rismedia.com/2009-06-11/federal-homeowner-program-may-be-making-a-dent-in-foreclosures/

 

 

Here is the link directly to the Making Home Affordable program:

www.makinghomeaffordable.gov

As always, let me know if I can be of any assistance in helping you with a distressed property situation.  I will be pleased to help.

 

 

Mike West

Realtor, Sr. Loan Consultant, e-PRO, Certified Distressed Property Expert

 

(916) 337-0658

WHAT IS A SHORT SALE? WHAT ARE THE PITFALLS?

What is a Short Sale Property?  What are the pitfalls?

 

A short sale property is one that is on the market with an asking price that is less than the seller owes on the property.

 

When some sellers determine that they are no longer able to make their mortgage payments, or they can see that they will not be able to make those payments in the near future, they place their home on the market for an attractive price, often below market value.  Their strategy is to attract buyers to put in offers at the asking price.  When sellers get an offer they communicate with the lenders hoping to get the lender to agree to release their lean against the property for the lower amount.  This tactic allows the sellers to avoid a foreclosure, a major impact on their credit report.   

 

If the financial institution agrees to accept that lower offer they usually give one of two options to the seller.  They can require that the seller sign a note, agreeing to pay back the difference between what they owed on the property and the price agreed upon with the new buyer, or they can forgive the difference.  I has been common practice to issue a 1099 to the seller for the amount forgiven, resulting in an added tax liability for the seller.

 

You can imagine that lenders are not usually in the forgiving business.  It is difficult to get agreement from lenders to do so unless there has been a justifiable hardship for the request to approve the short sale.  (Death, loss of a job, serious illness may be acceptable.  An adjustment in the interest rate resulting in a higher payment is seldom accepted.)

 

It is possible to get a very good deal in a Short Sale; however, the odds are against it.  Buyers making offers on Short Sale properties can expect the process to take months.  (The average days on market in May of 2008, for closed Short Sale transactions in El Dorado Hills and Folsom, CA was 168, nearly six months.)  A common practice is for a lender to tell the seller to wait until they have five or six offers and then present only the best offer for approval.   At that point there is no guarantee that the lender will approve the sale.   Buyers can wait for months and months and never hear anything from the seller or their agent.

 

Active Short Sale prices also skew property value calculations for their areas.  Some unsophisticated buyers use those prices when calculating values of neighboring properties when the active prices are unrealistically low.  Lenders frequently counter full price offers on Short Sale properties attempting to mitigate their losses, so Short Sale asking prices are not dependable data.

 

The California Association of Realtors has published a Short Sale Disclosure advising buyers and sellers of the pitfalls of entering a Short Sale transaction.  I will provide a copy to anyone who requests one.

 

Once again, it is possible to get a great buy in a Short Sale transaction but the odds are against it.  REO (Bank Owned properties) and normal owner seller transactions provide the buyer with a much greater likelihood of a satisfying purchase transaction.