Avoid Foreclosure
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The document discusses options for homeowners facing foreclosure, including reinstatement, selling the property, refinancing, pursuing a mortgage modification or deed-in-lieu of foreclosure, filing for bankruptcy, or taking advantage of protections for military servicemembers. It also provides an overview of the basic foreclosure process and notes that 1 in 10 homes are currently delinquent or in foreclosure. Additionally, it summarizes the short sale process, whereby a lender may accept less than the full loan balance at closing, and compares the consequences of foreclosure versus a successful short sale.
Avoid Foreclosure
- 1. T he current U.S. housing market and financial crisis have caused tremendous stress and heartache for families across America. During times like these, there are always a certain percentage of homes or homeowners who are distressed. According to the Mortgage Bankers Association®, as many as 1 out of 10 homes are either delinquent or in foreclosure, and unfortunately, 7 out of 10 homeowners in foreclosure proceed without the assistance or advice of real estate professionals or mortgage representatives. If you or someone you know is among the millions of people affected by the prospect of foreclosure, understand that you have options. Options Be sure to talk to a professional to find the best option for your specific situation. For Homeowners to • Avoid Foreclosure... Reinstatement To reinstate a mortgage, • Sell the Property If sellers have equity in their • Deed-in-lieu of Foreclosure • Short Sale When homeowners owe the homeowner has to pay property, they can sell it and A deed-in-lieu of more on a property than all the missed payments, prevent a foreclosure. foreclosure is sometimes it is currently worth and © 2009 Buffini & Company All Rights Reserved. Used by Permission. CDPE Bonus IOV late fees and legal fees that referred to as a friendly one of the previous are due up to the date that • Refinance foreclosure because the solutions does not apply the loan is reinstated. If homeowners have sufficient homeowner essentially to their situation, there gives the deed back to is the option of pursuing equity and income and their • Forbearance or the bank. a short sale (see reverse credit has not been too badly side for more information). Repayment Plan damaged, they may be able The lender allows the to refinance. • Bankruptcy buyer to pay the missed A bankruptcy may stop amount over a period of • Mortgage Modification a foreclosure and allow 1 out of 10 homes time or the lender places homeowners to reorganize are either A loan modification is very the missed payments on their debt and keep their similar to a lower interest property. delinquent the end of the amortization refinance where the lender of the loan. lowers the interest rate on or in foreclosure. the existing loan to lower • Servicemembers Civil • Rent the Property the payments. Relief Act (SCRA) In some cases, homeowners This law provides facing foreclosure will have • Short-refi certain protection to payments low enough to This process involves the military personnel who allow them to rent their refinance of a home with are in foreclosure in property and keep up their a reduction in the principal specific situations. mortgage payments. balance and often the interest rate as well. Source: Distressed Property Institute, LLC, www.cdpe.com. Reprinted with permission. The Basic Foreclosure Process... 1. Default—homeowners must miss a payment or default on payment for the property to enter the foreclosure process. 2. Legal Notice—the lender of the foreclosing property must notify homeowners that they are entering into the foreclosure process. 3. Bank Sale or Auction Date—homeowners are informed that they have a bank sale or auction date at which point the foreclosing mortgage company will gain control of the property. 4. Redemption Period—the period of time in which homeowners may present payment to the bank and regain possession of their property. (Not all states have a redemption period.) For more information, contact your real estate agent or mortgage representative.
- 2. Short Sales What You Need to Know... In the past, it was rare that a bank or lender would accept a short sale. However, due to the overwhelming market changes, lenders have become much more negotiable when it comes to these transactions. Recent policy changes within many organizations have made the chances of getting a short sale approved even higher. The following information describes the short sale process: • Homeowners are “short” when they owe an amount on their property that is higher than the current market value. • A short sale occurs when a negotiation is entered into with the homeowner’s mortgage company to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is “sold short.” Foreclosure vs. Short Sale Homeowner Consequences... Issue Foreclosure Successful Short Sale Future Fannie Mae Loan A homeowner who loses a home to foreclosure is ineligible A homeowner who successfully negotiates and Primary Residence for a Fannie Mae backed mortgage for a period of 5 years. closes a short sale will be eligible for a Fannie (Effective May 21, 2008) Mae backed mortgage after only 2 years. Future Fannie Mae Loan An investor who allows a property to go to foreclosure is An investor who successfully negotiates and Non Primary ineligible for a Fannie Mae backed investment mortgage for closes a short sale will be eligible for a Fannie (Effective May 21, 2008) a period of 7 years. Mae backed investment mortgage after only 2 years. Future Loan with any On any future 1003 application, a prospective borrower will There is no similar declaration or question Mortgage Company have to answer YES to question C in Section VIII of the regarding a short sale. standard 1003 that asks, “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” This will affect future rates. Credit Score Score may be lowered anywhere from 250 to more than 300 Only late payments on a mortgage will show points. Typically, this will affect a score for more than 3 years. and an after sale mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points if all other payments are being made. A short sale’s effect can be as brief as 12 to 18 months. Credit History Foreclosure will remain as a public record on a person’s credit A short sale is not reported on credit history. history for at least 10 years. There is no specific reporting item for a “short sale.” The loan is typically reported “paid in full, settled.” Security Clearances Foreclosure is the most challenging issue against a security A short sale on its own does not challenge clearance outside of a conviction of a serious misdemeanor most security clearances. or felony. If a client has a foreclosure and is a police officer, in the military, in the CIA or any other position that requires a security clearance, the clearance will be revoked and the position will be terminated. Source: Distressed Property Institute, LLC, www.cdpe.com. Reprinted with permission.