Archives for June 2009

8 Options to Foreclosure & Your 2 Best Options

Eight Options When Facing Foreclosure

Your Best 2 Options

Option 1: Short sale

A short sale is when you sell your home and the bank agrees to take a payoff “short” of the full balance they are owed. That is why it is called a short sale, not because it is a short process. In my opinion, most of the time this is the BEST and most responsible option a homeowner can take when he is upside-down on his home and facing a hardship that keeps him from making payments. A short sale will have the LEAST impact on the seller and the mortgage investor when done right.

For the borrower, it will have the least impact financially, most of the time owing nothing to the bank. It will have least impact on your credit, especially when negotiated properly, and the least emotional impact when you know you are doing what you can to make it right with the bank.

It is the best option for the bank because the bank does not want the property back. Having the property back on the books will hurt the bank more financially then taking a small loss on the loan payoff. Bank officials don’t want the expense of a foreclosure process, nor do they want the expense of managing a property they will have to ultimately sell at a loss anyway. If a bank isn’t getting payments, it just wants the property sold so they can re-coup their investment and re-invest at a profit. That is why short sale is the best option. Taking a difficult situation and making it the best possible win/win for both parties is the right choice almost every time!

Option 2: Loan modification

Most of the time when I first talk with homeowners facing foreclosure they are in the beginning process of trying to get a loan modification. A loan modification is when you lender agrees to modify the terms and or interest rate of your loan in a permanent or semi-permanent way. For example, if your loan was an adjustable mortgage and your rate just adjusted up from 6 percent to 12 percent, you may be able to have the terms modified to extend the 6-percent interest period for 5, 30 or even 40 years. More and more lenders are now approving loan modifications with certain hardships. Adjustable mortgages are the most common. Loan modifications are extremely difficult to do yourself and they always must be full doc, meaning you have to provide full documentation proving that you can afford the new interest rate and terms. This will be a deal killer for some and might eliminate this option. Also, when you submit your current income to qualify, your total debt-to-income ratios must meet the lender’s guidelines to approve the deal. If your income is too high or too low, you either may not get the deal you want approved or you may not get it approved at all. In Utah, real estate agents cannot do a loan modification for anyone but themselves. You must have a mortgage license to negotiate a loan modification on a mortgage for another person. I have both. Companies will charge you anywhere from $2500 to $4000 or one full mortgage payment. Beware of companies that will charge you the full amount up front and not refund any of your money if the loan modification is not approved. There are many companies making huge promises to desperate homeowners and getting zero results. Many states are now regulating up-front fees for loan modifications. You can also try one of the lender funded free services “like hope for homeowners”, although I personally haven’t gotten the best feedback about their services. I have read statistics saying that any where from 65 percent to 75 percent of loan modifications end up in foreclosure anyway. It’s no wonder why some lenders are leery to take the time to do them.

The rest of the Options

Option 3: The worst option Let the bank foreclose

To proceed with this option, you simply have to do nothing. The easiest and least responsible option you have: simply accept zero responsibility and do nothing. Ignore your bank’s phone calls, don’t explore your options, and blame the foreclosure on a bad economy. Recently, I attended a trustee’s auction and asked the auctioneer who was auctioning on behalf of the trustee (or lawyer handling the foreclosure) “Do you know if any of these lenders are seeking a deficiency judgment against any of these homeowners?” She replied, “Yes, all of them!” I then asked about all the other files that they had initiated the foreclosure process on but were postponed due to a short sale or work-out agreement. She said “none!” The fact is that most of the work-out agreements or short sales properly negotiated can be free and clear of any liability to the bank. Also, after a bank forecloses, secondary market mortgage purchasers like Fannie May and Freddie Mac will not purchase a loan with your name on it for at 24 months or longer from the date of foreclosure. With a short sale, that time is only 18 months depending on how you negotiate the short sale agreement and how they report to your credit.

Option 4: Refinance & principle-reduction refinance

One of the first things your lender will probably suggest to you when you contact them to work with you is a refinance. And why not? They will make money off you and get your loan off their books! (Hot potato mentality) Most of the time, this does not work out because the nature of the hardship causing the delinquency does not allow the borrower to fully re-qualify under today’s strict guidelines.

One of the biggest myths of this and last year is the principle-reduction refinance. A principle reduction refinance is when the lender will agree to refinance your loan, adjust the interest rate, and reduce the principle balance owed to the agreed upon current market value. Supposedly, government officials say they are rolling it out and everyone is talking about it, but as of this writing all of the lenders and PMI companies I have worked with won’t touch it. In fact, a representative from one of the big three lenders said she felt like a liar telling people about it because the programs have never become available. I don’t know a single person who has had this program approved this year (2009). If there is someone out there who has been able to qualify for and use this program, please e-mail me at investutah”at”gmail.com

Option 5: Work-out or forbearance agreement

Most loans at some point early on in the foreclosure process will have reached some sort of work-out or forbearance agreement. Many home owners who try and get a loan modification themselves will actually receive a work out aggreement.  A work-out or forbearance agreement is a written agreement you can reach with your bank to stall the foreclosure process and set up a payment plan to repay past-due payments. The bank wont actually modify the terms of the loan, just set up a repayment plan of current terms. The biggest mistake homeowners will make when doing a workout themselves is believing that the banks first offer is the final offer. Often, they will request 50-75 percent of past-due payments in a cashier’s check, due at the signing of the agreement to postpone foreclosure and set up a payment plan. With some simple negotiating skills, you can reduce that amount to 0 percent, tack the past-due balance on the top of the loan balance, and have a reduced payment for 6 months to a year. Who is to judge the homeowner, though? It’s not everyday that your average homeowner will try and negotiate with a multimillion, if not multi-billion dollar corporation. Doesn’t quite seem like a level playing field, does it?

Often times even when an agreement is reached, the nature of the hardship forces the homeowner again behind on their mortgage leaving them right back where they started.

Option 6: List your home and sell it!

This is the option that usually provides the quickest way out of a mortgage in default. List your home, sell it and pay off your mortgage. Unfortunately, there are a lot of people who owe more than what their home is worth and this is not an option.

Option 6.5 List your home for more than it is worth

Homes with high mortgage balances tend to list for higher list prices. Sometimes more than they are worth. Usually homeowners know that they are asking too much but don’t want to lose hope that just maybe they really can sell it and get out from under their mortgage in default. A huge mistake to make is to list your home with a Realtor™ who will take advantage of your situation and give you false hope. This person may make huge promises of a high sales price just to get a listing, only later to tell you to reduce the price. You need someone who will be honest and up front with you and show you your options and let you decide what is best for you. If you are in a short sale or distressed sale situation, you need someone who specializes in those areas.

Option 7: Deed in lieu of foreclosure

A deed in lieu of foreclosure is when you sign the deed back over to the bank instead of having them go through the foreclosure process to take title and sell your home. This saves the bank the time and expense of the foreclosure process, but they will still incur the additional expense of managing the home during the sale. It also has a significant impact on the bank’s books, affecting how much money they can lend and cash-reserve requirements. The bank’s officers do not want your house on their books in their REO department (Real Estate Owned by the Bank). Because of this, most banks will not willingly accept a deed in lieu unless you have marketed your home on the local MLS (multiple listing service) for a certain period of time, making a reasonable effort to sell you home yourself. Even then, the bank did not buy the home, you did. So, in my opinion, the homeowner should see the sale through to the finish. Some banks that accept a deed in lieu will still seek a deficiency judgment against the homeowner unless the deed in lieu paperwork specifically states that they won’t. You wouldn’t want the bank to manage the sale of your property poorly and then seek a deficiency against you a year later when the property sells. This also gets a little more complicated if there is more than one mortgage on the property. Most of the time it will not work if that is the case.

Option 8: Call the sign on the side of the road that says “Facing foreclosure? I pay cash for homes” You have probably seen these signs and wondered what they were all about. You may have even called a couple of them. The irony of these signs is the advertiser almost never actually themselves has any cash or will pay cash for your home. Most of the time the sign should more accurately read “I will try to find someone who might be able to pay cash for your home, maybe, but only if it is a really, really good deal”. What they will do is try to use on option contract to put your home under contact and flip it to someone who will close on it with either cash or a loan and make a profit. This, however, only works if you have real equity in your home. Most will pass you by at this point if you don’t have equity.

There are a few others who will still use an option contract to put your home under contract in the name of their business for less than what you owe the bank, subject to the bank approving the contract. They will then have you sign an authorization form allowing them to contact your bank and negotiate on your behalf. If they get their offer approved, they will then flip the contract or assign it to someone who will actually close on it with cash or a loan, making a handsome profit. One of the problems with this deal is the company does not represent your best interest. As a business, they are looking to make a profit. If they cannot get their contract approved at their contract price (65 percent of the value or better) they no longer are able to make the profit they need, nor are they capable of finding a buyer who can close on your property. At this point, the company could pull out of the sale, leaving you high and dry and most likely with an auction date right around the corner. Even if the bank counter offers a short sale price of 85 percent or 90 percent of value, this is not a big enough margin for the cash-for-homes guys to flip a property.

Another irony is the cash-for-homes companies sometimes advertise “no agents” or “no commission” to make you feel like you are saving money. But I have them approaching me all the time, asking my legitimate investors to pay cash for the good deals they sometimes bring. And, trust me, there is plenty of commission in those deals, even if it’s called otherwise.

The last scheme I will touch on is rent skimming. “An investor” will tell you that he has buyers for your home, but you first need to sign the deed over to him so he can negotiate with your bank. He may even have you seller-finance the home to him, promising that he will make the monthly payments for you so you won’t get any further behind. Many rent-skimmed homes are vacant, but sometimes schemers will have you move out so it will be “easier” for them to show the home or for them or to “supposedly” move in if they are “buying” it. They will then put a renter in your home, unless it is already rented, and begin pocketing the rent and not making any payment to you or the bank. They then stretch out the foreclosure process as long as they can and make a huge monthly income on multiple properties for as long as a year. This past year, there have been convictions in both Utah and Salt Lake counties for this. You would think that no one would do this but, sadly, they do.

5654 S 625 E, Murray UT

SOLD!! Asking 199,900! Priced like a short sale but, NOT A SHORT SALE! Can Close Quickly! Incredible remodel!

1321 N 1160 W, Provo UT

OFF MARKET! Asking 199,900! Priced like a short sale but, NOT A SHORT SALE! Can Close Quickly!

3647 W PAIGE LN, Cedar Hills UTs

SOLD- Asking 299,900! AUCTION! Special 1 DAY ONLY SALE!! Will be accepting offers and Bids on August 29th between 1 PM and 5 PM.

Incredible home priced to Sell! This home will not last! Dont miss this opportunity to BUILD EQUITY in this house! Must see inside. Call for availability & Details.

AUCTION-1 Day Sale Details

Hurry see the inside of this home and submit your bid before August 29th at 5 pm!

ALL BIDS MUST INCLUDE THE FOLLOWING

-All Bids must be at least 299,900
-Actual price may be higher than list price
-$5,000 Earnest money
-Bid must be on Approved real estate purchase contract
-Bid must be submitted on or before August 29th at 5:00 PM
-30 Day closing required
-No more than 10 days due diligence contingency
-No more than 14 days financing contingency
-*All bids are subject to owner approval
-Owner reserves the right to accept, reject or counter any offer
-Having a Buyers agent is not required to submit a Bid
-Buyers agent commission will not be paid if your offer or bid is rejected

Other items to consider when submitting your bid

-Net sales price to seller
-More earnest money will show you are serious
-Fast closing
-Less contingencies, IE all cash or no financing contingency
-Large down payment
-Strong pre-qualification letter  OR in house pre-qualification

1139 W 650 N, Provo UT Duplex

ACTIVE-Short sale!  Duplex! Asking 229,900. Great cash flow on this duplex.

Short sale submitted on May 25, 2009 to Countrywide (B of A) and Washington Mutual (Chase)

Looking for another offer! Call me for details! This could be an incredible deal!

462 N 1235 W #18, Orem UT

SOLD!-SHORT sale! Asking 156,000. Subject to 3rd party approval.

Short sale submitted on June 2nd. Need another offer, call me for details.

481 W ROSEMARY PL, Saratoga Springs UT

SOLD-APPROVED SHORT SALE! – Asking 214,900! Subject to final 3rd party approval.

Amazing deal at this price. Will not last! Call me right away if you are interested.

5293 W BRUSH BAY, West Valley City UT

SOLD!-Short Sale! Asking 169,900K. Subject to 3rd party approval.

Short sale submitted on approx May 4, 2009 to Green Tree only.

764 S 2475 W, Lehi UT

OFF MARKET-Short Sale! Asking 230,000

Short sale submitted to American Home Mortgage and Citi Mortgage on June 4th, 2009.

Looking for back up offers to verify closing.

6625 W Brugandy Way, Highland UT

SOLD!-SHORT SALE! Asking 650K, Subject to 3rd Party Approval

Burgnady Short Sale Front

Short sale submitted on May 16, 2009. Under Contract-Offer under review by ING and Wells Fargo. Only accepting back up offers at this time.