One in every six homeowners in the United States is currently behind on mortgage payments and potentially facing foreclosure. More than ever, it’s important to identify options as a homeowner when in this situation. The good news is that foreclosure can be avoided, credit ratings can be saved and financial futures can be salvaged.
The idea of losing a home can be overwhelming and it is vital to have all the facts necessary to make an informed decision. Understand – you are not alone and there are many foreclosure options that could be of benefit.
Short Sales
A homeowner may consider a short sale when the amount owed on the property is higher than the current market value. A short sale, potentially the best course of action for some homeowners facing foreclosure, enters the homeowner into negotiation with the mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer will close on the property and the property is then sold shy of the value of the mortgage.
A short sale can be an excellent solution for homeowners who need to sell but owe more on their homes than they are worth. Tremendous changes in the market have encouraged banks and lenders to become negotiable in these transactions. Additionally, recent changes in corporate policy and the Obama administration have improved the chances short sale approval.
In order for homeowners to qualify for a short sale they must fall into one or all of the following circumstances:
Financial Hardship – A situation is causing the homeowner to have trouble affording the mortgage.
Monthly Income Shortfall – The homeowner has “more month than money.” Lenders will want to see that the homeowner cannot afford, or soon will not be able to afford, the property’s mortgage.
Insolvency – The lender will want to see that the homeowner doesn’t have significant liquid assets you to pay down the mortgage.
Amy Sims, an agent with the CDPE® Designation, provides south Orange County homeowners a comprehensive explanation of short sales in the current market and can help forge a course of action for resolution. She is offering a free, confidential report of a homeowner’s current standing in the market. Call Amy today at 949.559.5959 to discuss short sale options!
Foreclosure Resolution
The current states of the national housing market and financial crisis have caused much angst for many American families. Foreclosure is a devastating financial challenge, however there are many options available to south Orange County residents facing a foreclosure. The following is a brief explanation of these solutions, including the benefits and drawbacks:
| Reinstatement: A reinstatement is the simplest solution for a foreclosure. It can also be the most difficult. To receive a reinstatement, the homeowner requests the 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 the day before the final foreclosure sale. | |
| Benefit: Does not require the mortgage company or lender’s approval. | |
| Drawback: Requires that a homeowner be able to pay all back payments, fines and fees. | |
| Forbearance or Repayment Plan: This foreclosure solution requires the homeowner to negotiate with the mortgage company to allow them to repay back payments over a specified period of time. Typically, the homeowner makes the current mortgage payment in addition to a portion of the back payments owed. | |
| Benefit: Allows the homeowner to make back payments over time. | |
| Drawback: Requires that a homeowner be in a positive financial position and be able to pay not only their current mortgage, but also a portion of the back payments owed. Some mortgage companies require a homeowner to qualify for forbearance. | |
| Mortgage Modification: Mortgage modification reduces of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. Any of these result in a lower, more affordable mortgage payment for the homeowner. | |
| Benefit: Reduces the required payment a homeowner will make on a monthly basis and may reduce the principal balance of the loan. | |
| Drawback: Requires that a homeowner qualify for the new payment with full loan documentation. Lenders must be actively pursuing modifications. | |
| Property Rental: If the homeowner’s mortgage payment is low enough to be comparable to market rentals, it may be converted to a rental property and the rental income may be used to pay the mortgage. | |
| Benefit: Allows the homeowner to keep property indefinitely. | |
| Drawback: Many issues can arise with a rental property and the rental payment often does not cover the full cost of property ownership and maintenance. | |
| Deed in Lieu of Foreclosure: This solution is 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. Lender approval is required for this option and the homeowner must vacate the property. | |
| Benefit: Many times in a successful deed in lieu, the lender foregoes the right to a deficiency judgment. | |
| Drawback: Requires the homeowner vacate the property. A deed in lieu may also be reported to credit bureaus as a foreclosure. | |
| Bankruptcy: While this is often marketed as a foreclosure solution, this is only true in some states and situations. If the homeowner has debts unrelated to the mortgage that cause a shortfall of paying the mortgage and a personal bankruptcy will eliminate these debts, this may be a viable solution. | |
| Benefit: Does not require lender approval. | |
| Drawback: If a homeowner cannot afford their mortgage payment, a bankruptcy only stalls, rather than stops, the foreclosure process. Bankruptcy can be costly, is damaging to credit scores and can only be declared once every seven years. | |
| Refinance: If the homeowner has adequate equity in the property and has credit in good standing, they may be able to refinance their mortgage. | |
| Benefit: In some cases, this will lower monthly mortgage payments. | |
| Drawback: In today’s market, a refinance usually raises mortgage payments and is an expensive overall process. | |
| Service Members Civil Relief Act: If a member of the military experiences financial distress due to deployment, and that person can show debt was entered into prior to deployment, they may qualify for relief under this act. The American Bar Association has a network of attorneys that work with service members to qualify. | |
| Benefit: If the homeowner qualifies, this will lower payments the mortgage, and any other consumer debt. | |
| Drawback: Qualifying persons must be active military personnel. | |
| Property Sale: Homeowners with sufficient home equity can list the property with a qualified agent who understands the local foreclosure process. | |
| Benefit: Allows homeowners to avoid foreclosure and harvest some equity. | |
| Drawback: In many cases, homeowners do not have sufficient equity to sell the property without negotiating a short sale. | |
| Short Sale: If a homeowner owes more on the property than it is currently worth, a qualified real estate agent can market and sell the property through the negotiation of a short sale. The property must be on the market and the homeowner must have a financial hardship in order to qualify. Hardship can be defined as a material change in the financial stability of the homeowner between the date of the home purchase and the date of the short sale negotiation. Acceptable hardships include, but are not limited to, mortgage payment increase; job loss; divorce; excessive debt; forced or unplanned relocation and more. | |
| Benefit: A short sale allows the homeowner to avoid foreclosure and salvage credit rating. The foreclosure will not be included on the homeowner’s public record and allows the homeowner to avoid a deficiency judgment. A borrower may qualify for another mortgage in just 24 months (as opposed to five years for a foreclosure). | |
| Drawback: This can be a daunting process in which a homeowner is best served working with a qualified real estate agent. | |
The options above represent a summary of some of the solutions available to homeowners facing foreclosure. While the processes may seem straightforward, they are complicated and require the experience of seasoned professional.
A knowledgeable real estate agent with the CDPE® Designation, Amy Sims has a solid, unique appreciation of the factors affecting the market and can provide homeowners with a solution to best fit their individual situation. Understanding your options now could mean all the difference in the world. Please call Amy today at 949.559.5959 for a free, confidential evaluation of your circumstances, property value and potential options!