Here we are in 2010. As we are all making resolutions to behave better, improve our lives and be better neighbors, some of us may not stay neighbors for long given the realities that we have to deal with after exchanging best wishes for the New Year. Many families in the US today, some worse than others, are still dealing with the economic turmoil that the country has been in for a last couple of years. The once most valuable accomplishment, the source of joy and pride, the token of achievement of the “American” dream has turn into a nightmare for too many families. Homeowners are in jeopardy- of losing their homes, their hopes, their dream and some times their families as well.
Reality Check …
1- Facing foreclosure is not the end of the world. If it is the best option given your personal circumstances, there are ways to make it bearable. The sooner you face to problem the easier it will be for you and your family.
2- Few lending institutions want homes on their balance sheets. Foreclosure is not a type of property; it is simply a legal process by which a defaulted borrower is deprived of his or her interest in the mortgaged property.
3- The foreclosure process can take a couple of months or longer depending of your state of residence and the type of foreclose process it uses ; Judicial or non-Judicial. Non-judicial foreclosures generally take less time to complete than judicial foreclosures. This is because the borrower pre-authorizes the sale of the home in the loan document, which orders foreclosure upon default.
4- There are ways to avoid foreclosure and remain in you home. Foreclosure is a CHOICE!
Several optional are available to homeowners in financial hardship who chose to avoid foreclosure and find a way to mitigate the situation.
1.Refinance
When homeowners realize that changes in their financial affairs may affect their ability to make timely payments, before falling behind, they can still be able to refinance their current loan. The Making Home Affordable initiative was launched in early 2009 to help homeowners who are current on their payments take advantage of today’s mortgage rates by refinancing via the Home Affordable Refinance. This scenario applies to a few borrowers, who are not in default. More information about the program can be obtained the HAMP’s website. The caveat is to be proactive and take advantage of existing program before being in default.
2.Deed in lieu of Foreclosure
A deed in lieu occurs when the borrower and the lender agree to trade the property in exchange for the cancellation of the note. The lender gets the property and cancels the note. This alternative is more likely to work in states where the foreclosure process is long and the lender opts to take possession of the property sooner, which lessens the probability of the property being in disrepair and also eliminates the cost of foreclosure.
3.Short Sale or Pre-foreclosure Sale
A short sale is a situation in which, in order to avoid foreclosure proceedings, the lender and servicer of the loan agree to accept the proceeds of the sale of the property, despite the fact that it may produce an amount below what is owed on the mortgage. In this case, the lender as not yet foreclosed on the property, which provides a window of opportunity for the owner to sell the property in order to, at least partially, satisfy the amount owed to the lender. This option is usually recommended for homeowners who have decided to move or who simply can no longer afford the existing mortgage payments. Short sales are usually preferable to foreclosures because they don’t damage the distressed owner’s credit as much and they lessen the adverse impact on the surrounding community.
Contact a decent realtor in your local area and get professional help. The National Association of Realtor has established a new certification to formally and properly train real estate agents on how to deal with borrowers in default, the lenders and/or servicers and market the property properly in order to mitigate the losses. Find a Short-Sale and foreclosure Specialist (SFR Certified) in your area and you should be in good hands.
4.Loan Workout
A workout encompasses many options that distressed homeowners can choose from and present to their lenders in hope of reaching an agreement.
(1) Forbearance is a plan that allows you to skip payments, or make partial payment if you have a reasonable plan to catch up. An anticipated income tax return may be a reason for your lender to grant forbearance. Inform your lender of expected disbursement of funds, bonus, or a new job.
(2) Reinstatement refers to making a payment that covers all your late payments, which allows you to continue with the original payment schedule.
(3) Repayment Plan usually allows you to add a particular amount to you monthly payment in order to catch up with the arrearages. The additional payment is deducted from the arrearages allowing you to become current after a certain number of payments.
(4) Loan Modification is the process of modifying the terms of your existing loan in order to establish a payment agreement commensurate with your current financial abilities. A modification is very helpful to those in financial hardship. The payments are based on your current income and debt ratios regardless of credit score or payment history. This option should be at the top of the list of homeowners who are victims of the current economy and who desire to remain in their homes. A loan modification is a long and tedious process, and homeowners should be patient and remember that no guarantee is given by the lender. The bank, after several months, can denied or recommend payments that the borrower can not afford. The Making Home Affordable website offers more information about the process and how to find counseling and help at no cost. Many companies and law firms offer to assist a fee upward of $4000. The process requires constant contact with the lender, a thorough documentation of the financial hardship and ability and persistence which professionals and attorneys can indeed assist with. However, a persistent and dedicated homeowner, with the proper documentation can perform the same duty and often reach a favorable outcome.
(5) Assumption is the method of transferring a house to a new buyer who agrees to take responsibility for (assumes) the existing mortgage. This option is rarely used since not all mortgages are assumable. This also requires permission from the lender approval of the new buyer by the lender under its guidelines. This option must first be discussed with the loan servicers and/or an attorney to avoid legal issues.
The foreclosure Alternative is another program established by the Obama Administration as part of the Making Home Affordable initiative. Borrowers who meet the eligibility criteria for Home Affordable Modification but don’t qualify for a modification or did not complete the process may be considered for the Foreclosure Alternative. This program provides incentives and standardized documentation to help facilitate short sales or deed in lieu of foreclosure if short sales are not successful.
Some features of the program include:
• Depending on the market conditions, 90 day up to one year to market and sell the property
• No foreclosure may occur during the marketing period specified in the short sale agreement
• Fees cannot be charged to borrowers by servicers, to participate in the program
• Mortgage servicers cannot negotiate a lower commission with the real estate broker after an offer has been made ( which is an incentive for realtor to take short sale listing)
The incentives of the program are:
• $1,000 for servicers for successful short sale or deed in lieu of foreclosure
• $1,500 for borrowers/homeowners to help with relocation expenses
• Up to $1,000 toward cost of paying junior lien holders(Second mortgage holder) to release liens
