I get calls almost daily from people who are struggling to pay their mortgage. Their reasons vary from having lost their job, their income has decreased, they bought more home then they could afford, or they have an adjustable rate mortgage and their payments have gone up significantly.
The problem is they can't refinance or sell the property because they owe much more than it is currently worth. As a Realtor in today's market, it is important to understand how to help these people. These people need solutions and answers to their questions. That's why I've invested so much time and money to become an expert in helping people who are in these distressed situations. I have a Certified Distressed Property Expert (CDPE) license which essentially means I'm educated and experienced in ways to help people avoid foreclosure.
This blog will give you some basic information about short sales and how to avoid a foreclosure. For more information specific to your situation, please feel free to call me directly.
The current U.S. housing market and financial crisis has caused tremendous stress and heartache for many families. During times like these, there are always a certain percentage of homes or homeowners who are distressed. According to the Mortgage Bankers Association, as many as 1 out of 10 homes are either delinquent or in foreclosure, and unfortunately, 7 out of 10 homeowners in foreclosure proceed without the assistance or advice of a real estate professional. If you or someone you know is among the millions of people affected by the prospect of foreclosure, understand that you have options.
Call me and I'll explain the best option for your specific situation - Below are the options someone MAY have - every situation is different. I've also given you some information below about "Short Sales". They are currently one of the most popular options people are pursuing. One important point to make.....if you are currently in a distressed situation, you must seek help because the one thing you absolutely do not want to have happen is FORECLOSURE. There are too many lasting consequences and you do have alternatives.
OPTIONS FOR HOMEOWNERS TO AVOID FORECLOSURE:
- Reinstatement - To reinstate a mortgage, the homeowner has to pay all the missed payments, late fees and legal fees that are due up to the date that the loan is reinstated.
- Forbearance or Repayment Plan - The lender allows the buyer to pay the missed amount over a period of time or the lender places the missed payments on the end of the amortization of the loan.
- Rent the Property - In some cases, homeowners facing foreclosure will have payments low enough to allow them to rent their property and keep up their mortgage payments.
- Sell the Property - If sellers have equity in their property, they can sell it and prevent a foreclosure.
- Refinance - If homeowners have sufficient equity and income and their credit has not been too badly damaged, they may be able to refinance.
- Mortgage Modification - A loan modification is very similar to a lower interest refinance where the lender lowers the interest rate on the existing loan to lower the payments.
- Short-Refi - This process involves the refinance of a home with a reduction in the principal balance and often the interest rate as well.
- Deed-in-lieu of Foreclosure - A deed-in-lieu of foreclosure is sometimes referred to as a friendly foreclosure because the homeowner essentially gives the deed back to the bank.
- Bankruptcy - A bankruptcy may stop a foreclosure and allow homeowners to reorganize their debt and keep their property.
- Servicemembers Civil Relief Act (SCRA) - This law provides certain protection to military personnel who are in foreclosure in specific situations.
- Short Sale - When homeowners owe more on a property than it is currently worth and one of the previous solutions does not apply to their situation, there is the option of pursuing a short sale.
The Basic Foreclosure Process...
- Default - Homeowners must miss a payment or default on payment for the property to enter the foreclosure process.
- Legal Notice - The lender of the foreclosing property must notify homeowners that they are entering into the foreclosure process.
- Bank Sale or Auction Date - Homeowners are informed that they have a bank sale or auction date at which point the foreclosing mortgage company will gain control of the property.
- Redemption Period - The period of time in which homeowners may present payment to the bank and regain possession of their property. (Not all states have a redemption period.)
Short Sales - What You Need to Know...
In the past, it was rare that a bank or lender would accept a short sale. However, due to the overwhelming market changes, lenders have become much more negotiable when it comes to these transactions. Recent policy changes within many organizations have made the chances of getting a short sale approved even higher.
The following information describes the short sale process:
- Homeowners are "short" when they owe an amount on their property that is higher than the current market value.
- A short sale occurs when a negotiation is entered into with the homeowner's mortgage company to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is "sold short."
Foreclosure vs. Short Sale - The Consequences
Issue:
Obtaining a Future Fannie Mae Loan for a Primary Residence (Effective May 21, 2008):
- Foreclosure: A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years.
- Successful Short Sale: A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.
Future Fannie Mae Loan Non Primary (Effective May 21, 2008):
- Foreclosure: An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years.
- Successful Short Sale:An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.
Future Loan with any Mortgage Company:
- Foreclosure: On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 that asks, “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” This will affect future rates.
- Successful Short Sale: There is no similar declaration or question regarding a short sale.
Your Credit Score:
- Foreclosure: Score may be lowered anywhere from 250 to more than 300 points. Typically, this will affect a score for more than 3 years. Only late payments on a mortgage will show and an after sale mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points if all other payments are being made.
- Successful Short Sale: A short sale’s effect can be as brief as 12 to 18 months.
Your Credit History:
- Foreclosure: Foreclosure will remain as a public record on a person’s credit history for at least 10 years.
- Successful Short Sale: A short sale is not reported on credit history. There is no specific reporting item for a “short sale.” The loan is typically reported “paid in full, settled.”
Security Clearances:
- Foreclosure: Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. If a client has a foreclosure and is a police officer, in the military, in the CIA or any other position that requires a security clearance, the clearance will be revoked and the position will be terminated.
- Successful Short Sale: A short sale on its own does not challenge most security clearances.
If you know of someone who is among the many people facing the prospect of foreclosure, please call me with their name and number. I'm happy to provide guidance and assistance to them.
It's a good life!
Paul Hunter
The Hunter Group - RE/MAX Gateway
703-929-7145
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