The Real Story…
News and commentary about the real estate market and related topics.
Dave Parrish, ABR®, CRSA, CSP, GRI, ePRO®, Realtor®
Avoiding Foreclosure…
Nationwide, 1 out of 10 homes are either delinquent or in foreclosure…
The 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 your home is at risk of foreclosure, you don’t have to panic. There are many ways to ease the difficult situation, and one may be right for you.
The country has seen a recent spike in foreclosures and defaults. As a result, in addition to new legislature, lenders have been more willing to work with distressed borrowers to help keep them in their homes.
If you or someone you know is in this unfortunate situation or may be soon, now is the time to act. I hope you’ll find that the following information will not only explain the ins and outs of foreclosure; but, how you can avoid it and what your various options are.
You don’t have to be the next victim of foreclosure. There is help available—if you know where to look.
Be sure to talk to a professional to find the best option for your specific situation.
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.) The normal redemption period for Alabama is 1 year. However, there are exceptions to this rule which can extend or cause forfeiture of the redemption period
For more information, contact your real estate agent or mortgage representative.
Options for Avoiding Foreclosure…
• Reinstatement – To reinstate a mortgage, the homeowner has to pay all the missed payments, late fees and legal fees that are due up to the date that the loan is reinstated.
• Forbearance or Repayment Plan – The lender allows the buyer to pay the missed amount over a period of time or the lender places the missed payments on the end of the amortization of the loan.
• Rent the Property – In some cases, homeowners facing foreclosure will have payments low enough to allow them to rent their property and keep up their mortgage payments.
• Sell the Property – If sellers have equity in their property, they can sell it and prevent a foreclosure.
• Refinance – If homeowners have sufficient equity and income and their credit has not been too badly damaged, they may be able to refinance.
• Mortgage Modification – A loan modification is very similar to a lower interest refinance where the lender lowers the interest rate on the existing loan to lower the payments.
• Short-refi – This process involves the refinance of a home with a reduction in the principal balance and often the interest rate as well.
• Deed-in-lieu of Foreclosure – A deed-in-lieu of foreclosure is sometimes referred to as a friendly foreclosure because the homeowner essentially gives the deed back to the bank.
• Bankruptcy – A bankruptcy may stop a foreclosure and allow homeowners to reorganize their debt and keep their property. Consult an attorney to see if this is a viable option for our situation.
• Servicemembers Civil Relief Act (SCRA) – This law provides certain protection to military personnel who are in foreclosure in specific situations. For more information: http://www.military.com/benefits/legal-matters/scra/overview
• Short Sale – When homeowners owe more on a property than it is currently worth and one of the previous
solutions does not apply to their situation, there is the option of pursuing a short sale.
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.”
It is important to note that the Short Sale option is not an automatically approved option. There is an approval process that the troubled homeowner must go through to be approved for the option of a short sale. This can be a somewhat lengthy process; so, it is extremely important that the homeowner pursue this option as early as possible. Ironically, lenders generally will not discuss a short sale if the loan is not in default. However, if you can show cause to support that default is eminent, you should certainly attempt Short Sale pre-approval prior to default, as Short Sale Pre-Approval does not stop the foreclosure process and time can run-out on the homeowner. The Short Sale must be closed prior to the actual foreclosure sale on the courthouse steps.
The chart below explains the consequences to the homeowner for a successful short sale versus a foreclosure.
Regardless of the option chosen, communication and a pro-active plan are essential to avoiding foreclosure.
For more information, contact a qualified real estate agent.
