March, 2010
Today we are returning to our series on a homeowner’s options when facing a potential foreclosure. Remember, a foreclosure will affect your credit scores by a minimum of 200 points in most cases, and will remain on your credit history for seven years. So, in the vast majority of situations in Virginia, it is adviseable that homeowners seek alternatives to foreclosure.
So far, we have discussed the options of refinancing, and of selling and bringing cash to the closing to payoff the difference between current value and what is owed. Today we are going to discuss Lender Workouts a bit.
A lender workout can take shape in a variety of forms. The most common lender workouts are loan modifications, payment deferrment, and a repayment plan. If the homeowner is in a situation where they do not need to move, and would really like to keep their home, then in many cases, this should be one of the first considerations. They should speak to their mortgage company about doing a lender workout. If there is a viable way to get the mortgage status back on track, and retain ownership of the home, then everybody wins. The mortgage company is going to make far more money if they do not have foreclose on the property, and the homeowner keeps their home, with the opportunity to build equity in the home over the coming years.
The questions that arise from a request for a lender workout are:
- Does the homeowner qualify for a lender workout? The criteria differs from bank to bank, and loan product to loan product in some cases. There are federal regulations that are attempting to streamline some of the process (HAMP – Making Home Affordable Modification Program.)
- Does the workout make sense? Will the homeowner be any better off with the workout? I have seen cases where homeowners did a loan modification, only to see their monthly payment jump upward in a huge way.
- Can the homeowner sustain the new plan under the workout? A couple of scenarious we know of pertains to a homeowner who agreed to a repayment plan, pretty much knowing at the time there was no way they could honor the new plan. A second scenario involved a homeowner who had the bank agree to a payment deferrment, allowing them to tack the missing payments onto the back end of the loan. BUT, they still could afford to resume making their normal monthly payments.
So, while this is an avenue that many homeowners should pursue if they are struggling, those three questions are key…. Do I qualify? Does it make sense? Can I sustain the new plan?
A final thought on this topic for today. Time is of the essence in whatever decision you make. Just because you are trying to do a lender workout, or a short sale, or some other option, doesn’t mean that if you are behind on your payments, that the bank will stop the foreclosure process. So, whatever you are going to do, needs to be addressed fairly quickly.
If a lender workout isn’t the right option, then the next couple of options are where even more key decisions need to be made. In the next article or two we will discuss, short sales, deed in lieu of foreclosure, foreclosure and just walking away.
As always, call or email us with questions you might have.
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FOR IMMEDIATE RELEASE:
JEFF EDMISTEN Earns NAR Short Sales and Foreclosure Certification
Buyers and Sellers Benefit from REALTOR® Expertise in Distressed Sales
Spotsylvania, Virginia March 9, 2010 — JEFF EDMISTEN with THE EDMISTEN/BUCK TEAM at RE/MAX Bravo has earned the nationally recognized Short Sales and Foreclosure Resource certification. The National Association of REALTORS® offers the SFR certification to REALTORS® who want to help both buyers and sellers navigate these complicated transactions, as demand for professional expertise with distressed sales grows.
According to a recent NAR survey, nearly one-third of all existing homes sold recently were either short sales or foreclosures. For many real estate professionals, short sales and foreclosures are the new “traditional” transaction. REALTORS® who have earned the SFR certification know how to help sellers maneuver the complexities of short sales as well as help buyers pursue short sale and foreclosure opportunities.
“As leading advocates for homeownership, REALTORS® believe that any family that loses its home to foreclosure is one family too many, but unfortunately, there are situations in which people just cannot afford to keep their homes, and a foreclosure or a short sale results,” said 2009 NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “Foreclosures and short sales can offer opportunities for home buyers and benefit the larger community, as well, but it’s extremely important to have the help of a real estate professional like a REALTOR® who has earned the SFR certification for these kinds of purchases.”
The certification program includes training on how to qualify sellers for short sales, negotiate with lenders, protect buyers, and limit risk, and provides resources to help REALTORS® stay current on national and state-specific information as the market for these distressed properties evolves. To earn the SFR certification, REALTORSÒ are required to take one core course and three Webinars. For more information about the SFR certification, visit www.REALTORSFR.org or call 1-877-510-7855.
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To recap – The Homeowners Assistance Program (HAP) was put in place to assist:
Wounded, injured or ill members of the Armed Forces(30% or greater disability) and wounded Department of Defense (DoD), including Coast Guard and civilian employees reassigned to further medical treatment or rehabilitation, or due to medical retirement in connection with their disability;
Surviving spouses of wounded warriors;
Base Realignment and Closure (BRAC) 2005 impacted homeowners relocating during the mortgage crisis; and
Service member homeowners with orders for a Permanent Change of Station (PCS) move during the mortgage crisis.
Sitting in and listening to Don Chapman discuss the Homeowners Assistance Program was definitely enlightening. He brought up some great points of interest and clarified some of the misperceptions/misinformation associated with the program.
Don shared data which showed that HAP has purchased 48 homes to date and has helped approximately 500 families. He also indicated that there are presently 5900 applications in process.
He touched on many valuable points of the HAP, but the following stood out:
* When applying for HAP, do not fax or e-mail your application as it may end up lost in others’ paperwork. Instead, mail it directly.
* It is better for the family of the PCS member to stay behind until the house sells as to not incur two mortgages, making your first mortgage payment unaffordable before HAP is able to assist.
* If you are behind on your mortgage, HAP will be unable to assist you.
* You must have purchased the home prior to July 1, 2006 for PCS eligibility.
* HAP will review appeals, but they must be written and submitted to the executing district for review.
* For wounded, injured, and surviving spouses, HAP will assist after a foreclosure. If the home is sold through a private sale, HAP will reimburse 95% of purchase price, minus the sales price and any closing costs.
* For those who have PCS orders, HAP benefits will pay up to 90% of the purchase price, including any closing cost and realtor fees.
If you have questions on the HAP program, visit the website at http://hap.usace.army.mil/
Or if you live in the Fredericksburg real estate market, call Ruthie or Jeff for more information.
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Of the seven basic options when you are facing a default scenario on your home mortgage, today we are briefly discussing option number two. That is when you owe more on your mortgage than the home is worth, you can sell the property and bring the difference in cash to the closing table to pay off the mortgage.
Unfortunately, for the vast majority of homeowners in a distressed property scenario, this very simply isn’t an option. In the Fredericksburg real estate market, most homeowners who are upside down, are way upside down. Out of all the short sales we have managed, it is very rare to see one where the difference between what is owed and the home’s current value is less than $100,000. If someone had access to $100,000, they are probably making their mortgage payments on time.
But, in those rarest of instances, if the deficiency is small, and the homeowner knows they are going to lose the home eventually, they may be able to gather the cash to pay the difference, and just get out from under the mortgage. Most times the cash is borrowed from a parent, a friend, or another family member.
We did have one short sale scenario, where the homeowner was current on the mortgage, but just needed to move. The difference was going to be pretty nominal, something like $5,000 (relatively speaking.) She had the cash, and was willing to pay it at closing. So, this is an option, just not a likely one for most homeowners today who need to avoid foreclosure.
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One other note to speak about before I get into each of the seven basic options, and that is what I would almost always say is NOT an option in a distressed situation. That is agreeing to a contract with an investor, who is saying they will “save” you from a foreclosure. There are a lot of different scenarios in which this plays out, and virtually all of them puts the homeowner in extreme jeopardy. DO speak to a real estate professional BEFORE you take any action with an investor or a so called “save your home” specialist.
Ok. Option # 1 Refinancing. This is not a viable option for the vast majority of distressed properties across the country. The reason it is not a viable option is that the majority of homeowners who find themselves facing a foreclosure are “upside down” or “underwater” on their mortgage. Meaning, they owe more on the mortgage than the home is worth.
It is impossible for a lender to refinance a home and extend capital on a loan if the collateral, the home, isn’t worth the amount of the loan. If a homeowner put a lot of money down when they purchased the home, or they purchased the home prior to the late 1990′s, and now are experiencing difficulty paying the mortgage, then a refinance may be an option. This does happen sometimes due to job loss, costly medical situations, and other unexpected scenarios. A refinance, if possible is a good option.
But again, for the vast majority of homeowners in a distressed situation in the Fredericksburg real estate market, this is not a viable option. In the next article we will be discussing selling and bringing money to closing. That will be a short and sweet article, before moving into the more detailed options.
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Approximately 1 in 7 homeowners in America are in a “distressed property” situation. Meaning, they are in default or delinquent on their mortgage by 60 days or more. The other common denominator in most of these distressed homeowners is that they do not know what to do. They do not understand their options. This is a statistic that applies on a national level, but certainly sees it’s application here in the Fredericksburg real estate market.
I want to spend a couple of days discussing those options, in general terms, as there is only so much I can put into a blog post. But, we are available to discuss any issue in more detail, either telephonically or in-person.
Let’s start with understanding that there are 7 basic options for someone who is in a distressed property situation. Let’s look at what those options are:
- Refinance
- Sell and bring cash shortage to the closing table
- Lender Workout
- Short Sale
- Deed in Lieu of Foreclosure
- Foreclosure
- Do nothing and walk away
We will discuss each of these in turn in a little detail over the next week or so. I will take each issue one at a time, to try to shed some light on each scenario. So check back for updates over the next few days.
Remember, nothing printed here is intended to be legal advice, and we always recommend our clients consult with legal and tax professionals before making any decisions.
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