Options and Solutions for Homeowners Facing Foreclosure?

Your Options Should you be Facing Foreclosure

Do Nothing – If a homeowner does nothing, they most likely will lose their home at Foreclosure auction. The ramifications of a Foreclosure are outlined below. Doing nothing, without being informed, is not the best option.

SAVE YOUR HOME

1. Payoff/Refinance – Completely paying off the entire loan amount plus any default amount and fees. Usually this is accomplished through a refinance of the debt. With this option, there should be equity in the home. Under President Obama’s plan, Making Home Affordable, the refinanced loan cannot be greater than 105% of the home’s fair market value, a litmus test that disqualifies many homeowners in the Southern California market.

2. Reinstatement – Homeowner requests total amount owed to the mortgage company to date and pays it. This solution does not require the lender’s approval and will “reinstate” a mortgage up to 5 days prior to the day of Foreclosure sale.

3. Forbearance or Repayment Plan – Involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe. The lender may be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements.

4. Partial Claim – A loan from the lender for a 2nd loan to include back payments, costs and fees.

5. Loan Modification – Involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan or all or any of the above. There must be a hardship to qualify for a loan modification. If you are capable of making your current payment but don’t wish to because there is no equity in your home, the bank will not consider you for a loan modification.

There is a lot of work involved in getting a loan modification, but it could be a lifesaver for keeping your home. Keep in mind the lender may require that you “qualify” for the new payment and will often require full documentation. The principal balance is rarely reduced. Typically any “reduced” principal balance is deferred to the end of the mortgage or the loan term may be extended to 40 years to compensate for the shortfall.

Be careful!! There are a lot of foreclosure rescue scams out there. Below is a list of references where you can find HUD-approved counseling agencies that will provide services for free. However, most of these agencies are overworked and understaffed, which can result in an even longer approval/rejection time from the bank. If you are considering a 3rd-party mortgage modification company, while it may be typical for most attorneys to request an upfront fee or retainer, never pay the entire fee up front.

(See our FREE report, Questions and Answers on Mortgage Modifications)

WHEN YOU CAN’T SAVE YOUR HOME

Deed in Lieu of Foreclosure – Also known as a “friendly foreclosure,” a Deed in Lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. A Deed in Lieu requires lender approval and requires the homeowner to vacate the property. Banks generally require the home be well maintained.

A Deed in Lieu typically only works with one mortgage and no liens on the property. It spares the homeowner the stress often associated with the public process of a Notice of Default and subsequent newspaper publication advertising the Trustee’s Sale. It may, however, be reported to the credit bureaus as a foreclosure and can present the same financial consequences as a standard foreclosure.

Foreclosure – May be the best option if the lender is unwilling to negotiate a Short Sale or requires the homeowner to sign a note for a non-recourse loan. Foreclosure wipes out any junior lien holders, although any recourse loans are still collectible debts. This allows the homeowner to stay in the property during foreclosure proceedings, which may be several months.

The downside is it requires being several months behind in payments. A Notice of Default and Notice of Trustee’s Sale become public record. Foreclosure remains on a person’s credit history for 7 years. Homeowner may be ineligible for Fannie-Mae backed loan for 5 years vs 2 years with a Short Sale. May lower credit score by more than 250 points and will affect credit score for over 3 years.

Many homeowners, too overwhelmed to truly consider all their choices, think if they “walk away” and give up their home to the bank, they are done with it all. However, there can be serious financial and tax liabilities associated with a Foreclosure . Just because you give up your home, does not mean the bank or the IRS or the FTB forgets you. You could still be liable for the deficiency on your mortgage as well as income tax consequences for the “cancelled debt.”

It is best to consult A CPA or tax attorney for professional advice about the ramifications of a Foreclosure for your personal situation.

(For more detailed information on the impact of a Foreclosure vs a Short Sale, please see our FREE report, Foreclosure vs Short Sale – Homeowner Consequences)

Bankruptcy – Bankruptcy has been marketed by many as a “foreclosure solution,” which in some situations it can be. If the homeowner has non-mortgage debts whose payments are causing them to fall short of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.

A bankruptcy will only stall – not stop – the foreclosure process. It is best to consult a qualified bankruptcy attorney for the impact on your individual situation as well as to determine if a bankruptcy will allow you to keep your home.

Sale – If the property has equity (money left over after all loans and monetary encumbrances are paid), the homeowner may sell the home without lender approval through a conventional home sale.

Short Sale - A Short Sale, also known as a PreForeclosure sale, can be negotiated with your lender by your Real Estate Professional if what is owed is MORE than the property’s value. This may be your best option if you want to avoid foreclosure and have tried to get your lender to reduce your loan balance and work towards an acceptable loan modification, but it has FAILED (which, unfortunately, many do), if your loan has been modified already and you are now delinquent again, or you don’t qualify for a modification.

Below is a brief summary of a Short Sale. For a more comprehensive explanation of the steps involved in a Short Sale, why it might benefit you, what defines a hardship, paperwork you can be expected to submit, etc., Please feel free to view our FREE report, “What is a Short Sale and How Will it Help Me?” or just give me a call.

What is a Short Sale and Why Should it Be an Option?

A Short Sale is used to describe a sale where the debt owing against a property, combined with the costs of its sale, exceeds the property’s market value. Simply put, you are selling the home for less than you owe on it. The lender must approve this sale and accept less than what they are owed as full payoff. The amount of debt in excess of proceeds from sale is called a “Deficiency.”

Will it Save my Credit?
Nobody really knows how it will affect your credit because it all depends on the requirements of the end person reviewing your credit. In general, if you are not behind on payments or early in your missed payments, the missed payments will be less of an impact on your credit. A Foreclosure is one of the worst items that can be on your credit, and it remains on your credit history for 7 years. However, depending on how the lender reports your short pay. i.e., “settled for less than owed,” “settled,” or “charged off,” the impact can be significantly less than a Foreclosure reporting.

What are Some of the Benefits?
A sense of pride that you attempted to work out your situation in the best possible way. Less stress from the constant collection calls from your lender(s). More time in your home to create a better plan for moving. Your home remains vacant less time than if the property became bank-owned. You pay no upfront fees. The Realtor’s® commission is paid by the bank.

With a Short Sale, you will be eligible for a government-backed mortgage in 24 months vs 5 years for a Foreclosure. It may be hard to imagine now, but with this overwhelming debt no longer hanging over your head, you may well find yourself in a financial position to be thinking home ownership again in a couple short years. Don’t regret a decision later because you were too overwhelmed to look for options today.

A Short Sale will generally yield a higher sales price than a home that has gone through the foreclosure process. This could result in a reduced deficiency debt due by you to the bank (generally recourse loans) as well as less federal and state income taxes.

You should consult with a CPA or attorney for the consequences of a Short Sale and how it impacts your individual situation.

What are some of the Challenges?
The long time lines associated with Short Sales. You can expect a Short Sale to take 60-120 days and sometimes more to close. The amount of required paperwork the lender(s) require can be burdensome. The banks are not required to agree to a Short Sale and are oftentimes very uncooperative. Agents are reluctant to take Short Sales because of the amount of work it requires, the lack of knowledge in how to complete a short sale, and the uncertainty of the sale actually closing.

For a more comprehensive explanation of the steps involved in a Short Sale, what defines a hardship, paperwork you can be expected to submit, etc., please feel free view the full reports; “What is a Short Sale and How Will it Help Me?” and “Foreclosure v. Short Sale – Homeowner Consequences.”

Our Solution
Michele Fieldson and her team provide Short Sale representation in the manner we represent clients every day, with respect and honesty. We will tell you up front what we need to complete your Short Sale and provide you weekly updates at a minimum. (Actually you’ll have your own log-in site to review daily for monitoring all activity on the sale of your home.)

Your home will be marketed with our 95-Step Home Selling System just like our regular listings with our 100% Satisfaction Guarantee, EZ-Exit Listing Agreement, and our extensive internet marketing, handyman service, virtual tours and more. Just because your home is a Short Sale doesn’t mean we don’t try to get top dollar.

We do not market the house as a Short Sale to the public (no PreForeclosure signs, etc). However, we do disclose the Short Sale status as regulations require in the Multiple Listing Service (MLS). This disclosure is made to other agents and only as a precursor to potential buyers putting in an offer.

There’s a lot of information in this report, but please don’t be overwhelmed. As a REALTOR® who has earned the Certified Distressed Property Expert (CDPE) designation, I have received extensive training and education in Foreclosure Avoidance. I understand the full range of solutions and am ready to help.

Contact Michele Fieldson today for a confidential consultation. I can answer your questions and help you and your family on the road to recovery.

Directory of References and Help Lines:

Homeownership Preservation Foundation:
Ph. 1-888-995-HOPE 
Website: www.995hope.org

Fair Housing Administration:
Ph. 1-800-Call-FHA
Website: www.FHA.gov

HUD-Approved Counseling Agencies:
Ph. 1-800-569-4287
Website: www.HUD.gov/counseling

Tips for Avoiding Foreclosure:
Website: www.hud.gov/foreclosure/index.cfm

Check your eligibility for a loan modification:
Making Home Affordable Program
Website: www.MakingHomeAffordable.gov

List of Lenders and Services with Contact Information:
Website: www.HopeNow.com

How do I know if my loan is owned by Freddie Mac?
Ph. 1-800-FREDDIE
Website: www.FreddieMac.com/mymortgage

How do I know if my loan is owned by Fannie Mae?
Ph. 1-800-7FANNIE
Website: www.FannieMae.com/loanlookup

Local Real Estate Attorneys Doing Loss Mitigation:
(Typically attorneys charge consultation fees, so inquire ahead of time)

California Mortgage Assistance Coalition, A Professional Law Corporation
1451 Rimpau Ave., Suite 105
Corona, CA 92879
Phone: 951-582-2540, ask for Rob Casjens or
562-391-2205, ask for Kathy Freeman

(We receive no financial compensation or incentive for this referral.)