If you are headed toward foreclosure, it can be an emotional time. However, you need to know the options available to you. It's also important to view your alternatives from a strictly businesslike viewpoint. In that way, you can more successfully analyze which option might best suit your needs and desires, and possibly save your house, save your credit, or save your equity before it's gone forever.
Once you get behind on your mortgage, the clock has begun rapidly ticking. The sooner you decide on the course of action, the better chance you'll have of stopping the lender from foreclosing on your home.
Should you do nothing and wait?
Some property owners even think they'll benefit from "free rent" until the process is complete and the bank contacts the local sheriff to throw them out. But wouldn't you rather have debt relief, emotional relief, and possibly some money to start fresh in a new home? And remember, you'll want to keep a foreclosure off your credit report if at all possible.
Equity in real estate takes years to build but it can be wiped out in a single day, once your house is sold at public auction. Let us help you examine all the options you have available NOW. Then you'll be able to make a decision based on real facts, not wishful thinking.
I invite you to call me at 760-398-3544 and talk to me or email me at fred@fredsprescott.com. We will gather the details on your situation. Once we have your details, we will explore all the possible options to see which one is best for you. There's no cost or obligation and we'll hold everything in strict confidence.
We don't recommend that you try to sell your house on your own unless your loan is current and you have time to test the market. Bankruptcy should always be used as a last resort because (in our opinion) it rarely produces the result homeowners expect or hope for.
We do recommend that you allow us to explore ways to raise cash needed to cure your default or stop a foreclosure. If refinancing your house makes sense, we'll help investigate that.
You may be able to payoff or refinance your loan.
Completely paying off the entire loan amount plus any default amount and fees is usually accomplished through refinancing the debt. New debt normally is at a higher interest rate and you may have a prepayment penalty due to the recent default. This option is usually for people who have equity in their home.
You may be able to pursue forbearance.
In forbearance, your lender may be able to arrange a repayment plan based on your financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. The lender may require documentation to show that you are able to meet the new payment plan requirements.
You may be able to arrange a partial claim.
A partial claim is a loan from the lender for a second loan to include back payments, costs and fees.
You may be able to pursue a "Deed in Lieu of Foreclosure".
This involves giving the property back to the bank instead of the bank foreclosing. Banks generally require that the home be well maintained and all mortgage payments and taxes are current. Most loan applications ask if this has ever happened.
You may be able to file bankruptcy.
Some homeowners consider filing bankruptcy to stop a foreclosure. But it won't. It only delays it while the amount owed grows to an unrecoverable amount. Know that the bank that lent you the money on your house will get their money, or your house. They're a secured creditor. Bankruptcy will never wipe out your mortgage debt. You cannot avoid foreclosure by filing bankruptcy.
You may be able to sell your home without lender approval for a conventional home sale.
If the property has equity (money left over after all loans and monetary encumbrances are paid), you could get cash from the sale. At the other end of the spectrum, a short sale, also known as a pre-foreclosure sale, can be negotiated with your lender if what is owed is more than the property's value.
If the foreclosure can't be stopped, and it feels as though you situation is beyond hope
Then let us help you save as much of your equity as possible. Even if you have little or no equity, we know several ways to negotiate with your lender.
In fact, if you have the ability to pay more than you're obligated to pay each month now (perhaps because the financial setback you experienced was temporary) it's possible to negotiate a plan with your lender to keep you in your home and get you back on track.
But know this: from our experience, only a very few of the families we consult with who are facing foreclosure are able to save their home by agreeing to pay MORE each month. So, it may be in your best interest to explore your options for selling quickly at no expense to you.
When you decide to sell, you'll need another place to live. Maybe you can stay with friends or family, or maybe find a new place of your own.
Damaged credit will limit where you can move. Landlords and lenders will look closely at your ability to keep up with your financial obligations. But, once we're working with you, and we understand your situation, we may be able to get you into one of OUR homes with flexible seller financing. We may also be able to trade properties.
Let us offer you a fresh start and brighter future
Put an end to the stress and emotional hardship you may be experiencing right now. Sure, you may find an answer, on your own, without us being involved. But you owe it to yourself and perhaps to your family to get any help you could use. We want to help. It's what we do everyday.
Will you take the next step?
If you want more information without risk, we'll need to get some information about your situation and your property. You can call us direct at 760-398-3544 or email us at fred@fredsprescott.com for a FREE, friendly, no obligation consultation. We'll be happy to speak with you.
After evaluating your situation, we'll gladly share our ideas with you. We'll explain everything in clear, easy to understand terms. You'll still have all your other options available if it's determined we're not your best solution.
If you are behind on your house payments and don't have an immediate plan to cure your default, it is only a matter of time that your name will appear on public record as "someone in distress". Then, you'll have to deal with a barrage of real estate agents, mortgage brokers and real estate investors hoping to capitalize on your misfortune. Perhaps you've already experienced that! I hope not. It can be very embarrassing and upsetting. Help is only a click away. CONTACT FRED NOW!!
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Short Sale Transactions |
The real estate market runs in cycles. Presently, we are in an economic period in which mortgage delinquencies are on the rise. The primary cause of this is the combination of higher interest rates on mortgages and a slowdown in residential real estate sales. Some homeowners with adjustable interest rates are particularly stressed as their payment amounts increase, stretching their budgets to the limit. In this climate, we can anticipate seeing more foreclosures, "distress sales", and short sales. The information below will help you understand the short sale and how you can prepare for this transaction even before you begin the escrow process.
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· Short Sales benefit Sellers by helping them avoid long-term credit problems
· Lenders benefit in the Short Sale by avoiding the substantial expense of a foreclosure proceeding.
· The process of convincing a Lender to reduce its loan balance to close the transaction is often challenging, requiring the negotiating skills of a seasoned agent.
· Determine the Lender´s short payoff guidelines and follow them carefully.
· Your Escrow Officer will fulfill the important role of reporting the numbers and complying with the short payoff Lender´s requirements. Work with your Escrow Officer to generate preliminary "net sheets" for the Lender. Be certain to include every possible expense in the Seller´s "net sheet", and be aware of the "bottom line" as the process unfolds.
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What is a Short Sale?
This term refers to a transaction in which the sales price will not generate enough money to cover the payoff of the Seller's existing loan and closing costs. Working with a willing Lender, a Seller may be able to negotiate a payoff amount which is less than the actual amount that would ordinarily be required to payoff the loan. The lender agrees to accept the equity available in the property, and the Seller receives no proceeds from the sale of the property.
Why would a Lender or Seller find a Short Sale appealing?
Homeowners benefit by avoiding the long-term negative consequences to their credit which are associated with a foreclosure. Lenders benefit because they can avoid the substantial expense of a foreclosure proceeding. Most lenders do not want to own the properties used as collateral for their loans, because the maintenance costs and taxes add to their cost and decrease profitability.
What are the First Steps? |
- The Agent and Seller should start by having an extensive, truthful discussion about the Seller's financial status. People who are in financial trouble may be hesitant to discuss the details of their unfavorable situation, but honesty and full disclosure are essential to the successful closing of a short sale transaction.
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- The Seller should contact the Lender to find out whether the Lender is willing to consider a short payoff arrangement. The process of convincing a Lender to reduce its loan balance to close the transaction is often challenging, requiring the negotiating skills of a seasoned agent. Be mindful of the additional work that short sales require of both the agent and the Seller.
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- Ask your Escrow Officer to prepare a "net sheet" as soon as possible and update it regularly as information becomes available. This is a detailed estimated statement of the payoffs and closing costs that will be charged to the Seller at close of escrow.
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Working with the Lender
Determine the Lender's guidelines. You can anticipate a very specific list of required documentation that begins with a copy of the Listing Agreement or some other form of written authorization from the Seller. Additional requirements include: |
· Strong evidence of financial hardship to the Lender
· Pay stubs or other proof of current income flow
· 2 years of Tax Returns and W-2´s
· Latest personal checking account statement
· Copies of all past due secured and unsecured debt notices
· Copies of the latest mortgage statement
· Copy of the current tax bill
· Copy of a current appraisal, including comparable sales in the area
· Copy of the Purchase Agreement |
Entering Escrow
The short payoff is a condition of closing that must be set out in both the Purchase Agreement and Escrow Instructions. When the Lender's payoff demand is received in escrow, it is likely to include restrictions on closing costs and the payoff amounts to other lenders and creditors. Throughout the escrow process, the Seller and real estate agent should be proactive about the numbers that the lender will see. Take care to include every possible expense in the Seller's "net sheet", and be aware of the "bottom line" as the process unfolds. Your Escrow Officer can advise you immediately of any significant changes or discrepancies. Remember that the Lender will establish a minimum payoff figure which is prepared to accept, and its willingness to adjust that final figure may vary.
Your Escrow Officer will fulfill the important role of reporting the numbers and complying with the short payoff Lender's requirements. If you have been working with your Escrow Officer to generate preliminary "net sheets" for the Lender, then the Escrow Officer will be anticipating the requirements of these unique transactions and will be able to monitor the transaction to a successful conclusion.
Note: The information is intended to present general guidelines and is not a substitute for personalized financial advice. Always consult with a tax advisor or legal counsel before entering a Short Sale transaction.
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Short Sale FAQ's
The Unanticipated Tax Consequences
in a Short Sale or Foreclosure
Deeds in Lieu of Foreclosure FAQ
How to Avoid or Stop Foreclosure
Mortgage Forgiveness Debt Relief Act
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Short Sales/Foreclosures
and your Credit Score |
How long will a foreclosure affect my FICO score?
A foreclosure remains on your credit report for 7 years, but its impact to your FICO® score will lessen over time. While a foreclosure is considered a very negative event by your FICO score, it's a common misconception that it will ruin your score for a very long time. In fact, if you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as 2 years. The important thing to keep in mind is that a foreclosure is a single negative item, and if you keep this item isolated, it will be much less damaging to your FICO score than if you had a foreclosure in addition to defaulting on other credit obligations. Try to pay your auto loans, credit cards and any other credit obligations on time to limit the effect of this foreclosure.
Are the alternatives to foreclosure any better as far as my FICO score is concerned?
The common alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure are all "not paid as agreed" accounts, and considered the same by your FICO® score. This is not to say that these may not be better options for you from a financial perspective, just that they will be considered no better or worse for your FICO score.
If you are considering bankruptcy as an alternative to foreclosure, that may have a greater impact to your FICO score. While a foreclosure is a single account that you default on, declaring bankruptcy has the opportunity to affect multiple accounts and therefore has potential to have a greater negative impact on your FICO score.
For additional information regarding your FICO score visit myfico.com
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What is "Cash for Keys"?
The Department of Real Estate has been receiving questions and complaints from consumers about "cash for keys" solicitations. A "cash for keys" option is something your lender may offer after the foreclosure process is complete to avoid the hassle of an eviction and the expense of completing unnecessary home repairs due to damages caused by angry homeowners. If the lender can make a deal with a tenant to pay for the tenant´s security and utility deposits, moving expenses, temporary living expenses, and perhaps a bonus for a quick moving date, it may be beneficial for both parties.
Tenants and resident owners of foreclosed properties must take a significant amount of personal responsibility in this matter. They should become acquainted with federal and State law concerning foreclosures and tenant evictions, and also with local laws which apply to their particular situation. CLICK HERE for additional consumer information provided by the Department of Real Estate.
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