9 Alternatives To Foreclosure
Published 10-18-11 by Tony HunthausenHuntington Beach, CA:
Put Those Foreclosure Fears To Rest.
Discover What Your Bank Does Not Want You To Know.
Quickly Determine Which Option Is Right For You.
Foreclosure can be a very frightening and humiliating experience. In many cases, it’s not even your fault!
Whether we live alone or are the provider for loved ones, it is one of the most devastating financial challenges a family can face. But here’s the good news:
1. You’re Not Alone !
2. Foreclosure Can Be Easily Avoided!
One Thing The Bank Does Not Want You To Know…
Before I share the ‘9 Alternatives To Foreclosure’ with you, I want to let you in on a dirty little secret:
“The Banks Do Not Want Your House!”
Although it may seem that way at times, it’s simply just not true!
I need you to remember that.
Banks are in the lending business, not the real estate investment business. They MAKE money when they loan out money. The borrowers then ‘perform’ on those loans or pay the money back with interest.
They LOSE money when they have to hire attorneys to help take your property through foreclosure to get the title back, to then be able to force the sale, to then lose more money trying to re-market the property and get it ready for sale, to then pay commissions to list and sell the house. Again…all so they can get their money back…so they can go lend it out again at a profit!
They do NOT like ‘non-performing’ loans on their books. These lenders have a lot to gain by working things out with you.
As you review the ‘9 Alternatives To Foreclosure’ below, it is very important to look at your personal situation from a logical or financial standpoint. That is how the bank looks at it. They ask themselves, “How can we minimize our losses?” You should do the same. I can promise you that they are looking out for their best interests…not yours!
You must also be proactive and ask yourself the same question, “How can I minimize my own losses?” If at any point in this analysis process you’d like my assistance, I’d be happy to provide it.
“Doing Nothing?” Yes…This Is An Option…But NOT An Alternative That Will STOP Foreclosure! It is not an option we want to focus on here.
When you apply for any type of loan in the future, most applications generally ask if the applicant has ever lost a home to foreclosure. Credit reports also disclose this damaging information and can result in higher interest rates on car loans, credit cards and other financing. Many potential employers are now asking this question, too! The long term cost of doing nothing is staggering! This is NOT the best option!
With all that said, whether you:
• currently owe more to the bank than your house is currently worth,
• have been forced to relocate or have transferred out of state for your employment and your house isn’t selling,
• have recently lost your job and don’t have income to make your mortgage payment,
• have experienced a bump in your monthly payment as your mortgage rate adjusted upward and can no longer afford the payment,
• have recently gone through a divorce and neither party wants the house…which again, might be upside down,
• recently declared bankruptcy, or
• recently experienced a business failure,
You still have the original agreement with the bank to pay them back what they loaned you…plus interest. If you don’t, they ultimately have the right to ‘throw you out on the street.’
Of course they’ve got to foreclose first to get ownership to the property back. But after that, they can force the sale at a public foreclosure auction.
Here’s where the emotion comes in! This is where people become frightened. The thought of being thrown out on the street is not a pleasant one.
The thought of your neighbors knowing everything that is going on and your house selling at a public auction is humiliating. Unfortunately, the whole foreclosure process is confusing and too many homeowners end up in denial and do nothing. Or once they do get educated on the process, their indecisiveness stops them from taking any type of action.
It’s the classic ‘paralysis of analysis’ that we hear so much about. They somehow think something magical is going to happen to solve their problem. Whether you take any action or not, the clock is still ticking…
Remember: Time is of the essence!
You’ve got to get answers…and quickly! You’ve got to understand the foreclosure process. Getting help early in the process is much better than waiting until it’s too late, when there’s not a lot of help anyone can offer.
I commend you for being proactive and taking a logical approach and requesting this report, even though situations like these can be very emotionally draining. After reviewing the ‘9 Alternatives To Foreclosure’ you’ll be well on your way to successfully determining which option might best suit your needs.
There are certain qualifications’ for each alternative. As you narrow down the options that best suit your needs, you’ll want to be sure you determine whether or not you qualify for those options as quickly as possible.
That’s where I can be a tremendous help. On a daily basis, I hear the same two questions:
Is there a way I can stay in my house?
What are all my options to help me avoid foreclosure?
My answer is always, “Let’s see what you qualify for!” I wrote this report to help you quickly get educated on what you qualify for and put your foreclosure fears to rest.
The first four options you’ll read below will allow you to stay in your home, and the last five options involve you relocating. So let’s go through them now…
The 9 Alternatives to Foreclosure
1. Reinstatement – This is by far the easiest, simplest and quickest solution to stop a foreclosure. You request the total amount ‘in arrears’ or the amount you are behind in payments from your bank. After some strategic analysis, you then decide whether to take money from savings or borrow from a family member, friend, or private investor to bring the payments current that are behind. This option exists all the way up to the day before the final foreclosure sale, so you need to be aware of any pending foreclosure deadlines.
This decision is an important one. You’ll want to have your property valued as soon as possible to see if this option is a fit for you. You may be in an ‘upside down’ situation.
a. Benefit: You do not need a mortgage company or lender’s approval. You do not need to ‘qualify’ for this option.
b. Drawback: This can quickly deplete hard-earned savings requiring the homeowner to be able to pay all back payments, fines and late fees. If you are upside down, you will have a hard time convincing a family member, and for sure a private investor to loan you the money to reinstate.
2. Refinance – In a situation where you have sufficient equity in the property, and your credit is still in good standing, you may be able to refinance your mortgage.
• Benefit: In some cases, when mortgage rates are lower, the new monthly mortgage payments are lower. There are a few government programs that will still allow you to refinance if you have only missed one payment in the last 12 months.
• Drawback: In most cases, due to a heavy debt load and lower credit scores, a refinance will almost always raise mortgage payments, if you can even qualify in the first place. Gone are the days of being able to ‘state’ your income. You must prove everything to the bank in the qualification process. The overall process is very expensive as well.
3. Loan Modification – By dealing with your existing mortgage company, you can attempt to ‘refinance’ the debt by getting the lender to agree to either extend the terms of the loan, lower the interest rate, and in rare cases, even lower the principal balance. This allows the homeowner to stay current on the loan by providing a steady and more affordable payment.
To qualify, you must prove to the lender that you can afford at least the ‘reduced’ payment and that you have at least partially fixed the problem(s) that caused you to be late on your payments in the first place. The first thing is to find out who owns your loan and if they are even actively pursuing loan modifications. They might not be.
• Benefit: Your monthly payments can be reduced, and sometimes even the principal balance of the loan is also reduced.
• Drawback: Qualification is required for the new payment and often requires ‘full documentation.’ Your lender also has to be actively pursuing modifications.
4. Forbearance or Repayment Plan – If this option exists in your state, many lenders will arrange a repayment plan, based on your financial situation, if the situation that caused you to miss payments was temporary and has been fixed. The lender may even be able to provide a temporary payment reduction or suspension of payments for a few months.
At the end of this forbearance plan, it is normal that your payments will go up for a few months to spread out the missed or suspended payments over several months. Financial information will be required from the lender to show that you are able to meet the new payment plan requirements.
• Benefit: You can make up back payments you missed over time.
• Drawback: Qualification is required to show that you are in a financial position to pay not only the current mortgage payment, but also the portion of the back payments owed.
5. Rent the Property – If by chance you have a mortgage payment, including taxes and insurance, that is low enough where market rents will cover it, you could convert your property to a rental and use the rental income to pay the mortgage.
• Benefit: You will be able to keep the property indefinitely.
• Drawback: Without the experience of being a landlord, the many issues that can arise with a rental property can bury you financially. Once the cost of an experienced property manager is figured in to the total cost of property ownership and maintenance, the numbers often no longer make sense.
6. Deed in Lieu of Foreclosure – In a ‘deed in lieu’ situation, you basically give the property back to the bank instead of forcing the bank to foreclose. It’s known as a ‘friendly foreclosure.‘ You need approval from your lender for this option, and you will have to vacate the property.
• Benefit: In a successful ‘Deed in Lieu,’ your lender will often forego it’s right to a deficiency judgement against you, releasing you from any future tax liability.
• Drawback: You will be required to look for a new place to live and vacate the property. This essentially is the same on your credit as a foreclosure. Most loan applications ask if this has ever happened and this will affect your credit for several years.
7. Bankruptcy – If you have non-mortgage debts that make it difficult to make your mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.
Here’s the catch: due to the long-term impact, bankruptcy has to be considered the WORST case scenario and should only be considered when no other options are left.
Yes, this option can liquidate debt and/or allow more time to negotiate settlements with your creditors, but it does NOT stop the foreclosure process. Since Oct 2005, bankruptcy laws have changed in favor of the creditor and are now less beneficial for the consumer.
Here are current types of bankruptcies
1. Chapter 7 (Liquidation) To completely settle personal debt,
2. Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3-5 years, and
3. Chapter 11 (Business Reorganization) A business debt solution.
• Benefit: You do not need approval from your lender.
• Drawback: A bankruptcy only stalls the foreclosure process. It does NOT stop it. It is a very costly process and is very damaging to your credit score as it stays on your credit report for 10 years.
You also have to answer “YES” every time you fill out a loan application when your asked if you’ve ever declared bankruptcy. The cost of borrowing money over the long term, if you are even approved due to the bankruptcy, must be considered up front before ever filing bankruptcy.
8. Sell the Property – If your property has equity (money left over after all loans and other liens against the property are paid off), you can sell your home without lender approval through a conventional real estate sale. In this case, you will walk away with cash from the sale.
You will want to list your property with a qualified Real Estate Professional who has a strong understanding of the foreclosure process in your local area.
• Benefit: You will avoid foreclosure and, if there is equity in the property, you could walk away from the sale with cash.
• Drawback: In many cases in today’s market, homeowners do not have enough equity to make this option work. Many are in that ‘upside down’ situation we hear so much about.
Negotiations with the bank to accept a discounted loan payoff or ‘short sale’ will be required (see next alternative). Also, you will ultimately have to vacate the property and relocate your family to another home.
9. Short Sale – When you owe more to the bank on your mortgage than the home is currently worth, a negotiation with your lender to get a discounted loan pay off approved, is required to be able to sell your house. You’ll need to hire a qualified Real Estate Professional who specializes in these types of transactions and situations as there are several moving parts.
There are many things that will be required by your lender. You are typically required to list your property on the market and must have a financial hardship to qualify. A ‘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 with
your bank.
Here are some examples (and there are many more) of acceptable hardships:
1. Mortgage payment increase,
2. Job loss,
3. Divorce,
4. Excessive debt,
5. Forced or unplanned relocation.
• Benefit: The bank pays all fees associated with a short sale to the appropriate parties. There are no up-front or out of pocket fees to you, the homeowner. With the right person helping you, all the work and strategic negotiation is done for you. You are able to stay in your home while the short sale is being negotiated.
You can also salvage some of your credit rating as a short sale allows you to avoid foreclosure. A short sale also keeps a foreclosure off of your public record and you often avoid a deficiency judgment from the bank releasing you of any future tax liability.
You can then qualify for another home mortgage in as little as 24 months as opposed to 5 years for a foreclosure.
• Drawback: Working with your lender is a very trying and aggravating process when you don’t know what questions to ask to protect yourself and defend your rights. You ultimately need to relocate to a new property.
You are best served by working with a qualified Real Estate Professional to guide you along the way, help protect you and help you defend your rights.
There you have it! The ‘9 Alternatives To Foreclosure!’ I hope you found this information helpful. In order to make the right decision and take the appropriate course of action…awareness is always key!
You’ve now got some homework to do…and fast! All of which we’d love to help you with. The homeowners I talk to everyday are so relieved once they determine which option is right from them and have a clear course of action. They experience that ‘sigh of relief’ moment which represents a major emotional and financial turning point in their lives.
Here are a few things I recommend doing right now so that you can being to feel much better:
1. You need to know what your property is currently worth. I can get this number for you very quickly. There are other sources like Zillow.com, but I’ve seen they can be off anywhere from $30k – $100k from recent closings. Give me a call.
2. You need help to determine your lender’s ‘Qualification Process’ to be able to determine which option is the best for you. We work with all the different lenders and know their qualifying criteria.
Your lender is looking to see if you meet a few certain criteria:
a. Financial Hardship – First and foremost a lender will want to see that you have a ‘financial hardship.’ Again, a financial hardship is a verifiable issue that has or will cause you to miss payments, or have financial difficulties.
Almost every lender will want to see that you cannot afford to pay your current mortgage, or will have difficulty paying it sometime in the near future . The way that this is demonstrated is on a financial worksheet that I can provide, along with a letter of explanation regarding our current or impending hardship. This is financial form is essentially a monthly profit and loss statement.
While this may sound difficult, in reality determining whether you have monthly shortfall or not is actually relatively easy.
b. Monthly Shortfall – Some of the items taken into account are:
• Mortgage Payment Adjustment
• Job Loss or income reduction
• Too Much Debt
• A Business Failure
The Shortfall equation is:
Total Monthly Income – Total Monthly Expense = Monthly Shortfall
3. You need to know who owns your loan and what government sponsored programs they are currently offering, if any, to see if they can help provide you with some much needed debt relief.
You’ll want to set up a time to meet with me, so I can help you review your financials. From there we’ll quickly determine your financial hardship and monthly shortfall.
We’ll then review your current property valuation and find out who owns your loan. With this information, you will be able to decide on the best alternative for you and your loved ones.
After you decide which option you feel is best, I will also advise you to consult with an Attorney and CPA regarding taxes and liability that might be associated with your specific decision, including questions to ask to them.
I look forward to meeting with you soon.
Please Note : If you’ve recently been denied a loan modification or a Notice of Default or Notice of Trustee Sale has been recorded against your property, call me right away.
I’ll help you get the pending sale date postponed so you have enough time to make the correct decisions.
My direct number is (714) 334-7808 You can also e-mail me at Tony@HunthausenGroup.com
Talk soon,
Tony
Huntington Beach and Orange County Short Sale Notes
Published 09-04-10 by Tony HunthausenWe visited with several home owners this past week who owe more on their homes than they are worth. The #1 question for all of them has been “what are my options”?
To effectively evaluate this question there are many variables that must be identified and discussed. Whether or not you actually want to stay in your home is a very important question. Some families have out grown their current home and always thought they would be able to sell it and move up when the time came. Trying to save it now may seem counter productive to their long term hopes and dreams. If they truly are experiencing financial hardship that is affecting their ability to pay their mortgage, a short sale is a way out.
Others desperately want to keep their homes and there are several possible options to help in this case as well. These include things like forbearance and loan modification, with the most hoped for option being loan modification. We can help you determine what your chances are to accomplish this and give you some direction to proceed. Unfortunately for many, their financial hardship and the degree of modification they would require, does not bode well for this being a viable option.
There is no magic formula or one size fits all solution when it comes to evaluating the many options for distressed homeowners. If you are a distressed homeowner in Huntington Beach or any of the surrounding southland communities, we are here to help you determine what the best option is for you. We also encourage you to check out some of our other blogs and videos on this subject.
More on Loan Modification vs Short Sale
Published 02-17-10 by Tony HunthausenAs we talk to more and more homeowners who are in distressed situations with their home loans, an issue that often comes up is the concern and worry that many have regarding their good credit rating. They have worked hard to attain it and don’t want to lose it. As a result they have struggled to continue their mortgage payments at all costs, draining their savings, going into higher and higher credit card debt, and some even tapping retirement accounts.
In these situations it is clear that the homeowner won’t be able to continue making the payments as they are currently structured given their present financial situation. Many folks initially feel that they want to try and keep the home if possible and do a loan modification. They think this would be best for their credit and are not excited about going through a short sale and a move. This may be the house they could live in for the rest of their lives, or they may think it will make a good rental down the road when they can move up into a bigger home.
Here are some important questions to ask yourself it you are a homeowner in this situation.
1. Is this the home you want to live in for the long run?
2.How far underwater are you with regard to loan balance vs current market value?
3.If you worked out a loan modification, how long would it take you to regain lost equity plus costs of sale? Figure 3-5% per yr appreciation depending on how conservative you want to be.
4. Are you aware that most lenders aren’t highly cooperative with attempts at loan modification or short sale unless you are delinquent on your loan by 2 months or more? Please don’t consider this advice to quit paying (we are not financial advisers), but only a statement of fact from our experience.
5.What is a conservative return you might get on some of that money if you were not paying it on your mortgage for a home that may be underwater for another 5-10 yrs with no real return.
6. Add up your mortgage, taxes, insurance, HOA dues plus a maintenance and vacancy factor (maybe 15-20% for a SFH – could be less or more on any given year) to see what rent payment you would need to cover these costs should you decide to modify your loan and eventually keep it and rent it. How much would the loan need to be modified to make it work? Even with the modification, are you prepared to deal with the potential periodic cash infusion that may be needed to keep it going if maintenance and/or vacancy increased?
7. If you did a short sale and could buy again in as little as two yrs for a lower price than you are paying on now, would that make sense, especially if any ding to your credit could be repaired by then?
Their are other questions, but these are some to get started with. Most homeowners for whom this may not be their long term dream home that we have worked with, after considering the important questions and much soul searching, come to the conclusion that they need to take advantage of the short sale process and move on. One day they will look back on it and see it as a bump in the road from which they did recover.
Typically we are told that a loan modification or short sale can affect your credit mild to moderately for 1-2 yrs, depending on where it was to start with. Some have indicated that that time may be reduced with some more aggressive repair strategies. In may cases a FICO score may drop as little as 50 points (compare this to a foreclosure where it may affected by as much as 300 points and stays on your credit history for 10 yrs).
Our advice is, therefore, not to be overly concerned about your credit rating. Ask yourself the right questions and consult with a real estate expert to help in your decision. If you are not in the Southern California area and don’t know a good agent, give us a call and we will refer you to an expert in your area.
Short Sale or Loan Modification?
Published 02-15-10 by Tony HunthausenIt is very apparent as we visit with more and more distressed homeowners here in the Huntington Beach and Los Angeles/Orange County area, that most do not have a clear idea of what their options are. Those options vary depending on what the homeowners goal is with regard to keeping their home.
In one case, for example, the homeowner refinanced into a negative amortization adjustable loan sometime within the last three years or so, and now is faced with rising payments and an adjusted high interest rate. They always thought they would refinance again, but now have little or no equity required for refinance, and are unable to sustain the higher monthly payments. At the same time they still have a good job with steady income, and really want to stay in their home. These folks should definitely work with their lender to try and do a loan modification. In many cases now, the lender has instituted a loan modification program that the borrower may even be able to access online.
Take the same example for a homeowner who has lost their job. Loan modification would not be an option since they cannot show income even for the modified loan payment. In this case the homeowner’s next best option to avoid a foreclosure would be to apply with their lender for a short sale.
There are also many cases in communities around the country, including our area of Huntington Beach and Orange County, where homeowners are so far underwater with regard to home value vs loan balance, that meaningful loan modification may not be a viable option. This is especially true if financial hardhsip is also involved. In these cases a short sale is also the best option.
The short sale process is the best option for all parties when the only other viable option available is foreclosure. In doing a short sale, it is important to work with a realtor who has gained expertise in this specialty area, and who can help a distressed homeowner through the often difficult, complicated, and sometimes long process. Tony Hunthausen is a Certified Short Sale Professional and a Certified Distressed Property Expert.
There are other options available that might be appropriate in certain circumstances like forbearance and deed in lieu of foreclosure, but loan modification and short sale usually end up being the two primary options under consideration by most homeowners.
As they see themselves moving toward one of these options, many homeowners experience great anxiety and worry about not only the basic process, but whether or not they will end up on the street without a place to live. Call us or an expert realtor in your area, and we can help make sure this doesn’t happen to you, and that you fully understand your rights and the solution you should pursue to either save or sell your home.
