John R. Newe
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Pre-Foreclosure

Short Sales and Foreclosures

What is the difference between a “Short Sale” and a “Foreclosure”?

 

“A short sale is a sales transaction in which the seller's mortgage lender agrees to accept a payoff of less than the balance due on the loan," according to the California Association of REALTORS®. "A short sale may or may not involve a property in foreclosure."

 

A foreclosure is the legal process by which a borrower's interest in mortgaged property is taken because of a default on the loan. This usually involves a forced sale of the property with a real estate broker or at public auction with the proceeds of the sale being applied to the mortgage debt.

 

 

Short Sales

 

The “short” in short sale refers to the fact the mortgage payoff amount agreed to in the possible sale of the home is “shorter” (less than) the actual mortgage balance(s) owed on the property.

 

Properties are more likely to become short sales when the market is soft and the rate of home price appreciation is low. However, the loan is generally the main instigator for a short sale. The loan in a short sale is often subprime, highly leveraged, negatively amortizing, includes a prepayment penalty, or all of the above.

 

Why would a lender agree to a short sale? Lenders make their own business judgments when accepting or rejecting short sales. When negotiating short sales, knowing a lender’s concerns improves the ability to get the short sale approved. The bottom line is that lenders are in the business of making and servicing loans, not taking properties back through foreclosure and reselling them. Some of the things lenders want to avoid are:

 

·        Spending time and money to foreclose, evict borrowers, and resell properties.

·        Adding a bad loan and REO (real estate owned, lender owned) to their portfolio.

·        Paying property taxes, insurance, maintenance, and repairs for REO properties.

·        Risking theft and vandalism to the property, either by the borrower before they vacate the premises or by others when the REO property is vacant.

 

We have a team of sales associates with the experience to assist you in a short sale.  They know how to negotiate with banks, prepare the proper paperwork, and handle the whole transaction – putting you at ease!

 

Foreclosures

 

If faced with foreclosure, what are my options?

 

Answer: Talk with your lender immediately. The lender may be able to arrange a repayment plan or the temporary reduction or suspension of your payment, particularly if your income has dropped substantially or expenses have shot up beyond your control.

You also may be able to refinance the debt or extend the term of your mortgage loan. In almost every case, you will likely be able to work out some kind of deal that will avert foreclosure. If you have mortgage insurance, the insurer may also be interested in helping you. The company can temporarily pay the mortgage until you get back on your feet and are able to repay their "loan." If your money problems are long term, the lender may suggest that you sell the property, which will allow you to avoid foreclosure and protect your credit record. As a last resort, you could consider a deed-in-lieu of foreclosure. This is where you voluntarily "give back" your property to the lender. While this will not save your house, it is not as damaging to your credit rating as a foreclosure.

 

When do foreclosure proceedings begin?

 

Answer: Usually after the borrower has missed three consecutive mortgage payments. The lender will record a notice of default against the property. And unless the debt is satisfied, the lender will foreclose on the mortgage and proceed to set up a trustee sale, where the property is sold to the highest bidder.

 

Will I be able to buy again after losing a home to foreclosure?

 

Answer: It can happen. But a lot will depend on your circumstances and the mortgage interest rate you are willing to pay. Generally, most lenders will consider your request for a home loan two to four years after your foreclosure. Predatory lenders will issue a home mortgage in less time. But beware - they routinely charge high mortgage interest rates, fees, and penalties for this privilege. A quality lender will expect you to show that you have cleaned up your credit. Providing a reasonable explanation about the circumstances that led to the foreclosure - such as exorbitant medical expenses - is also helpful.

 

How can I protect my home from creditors?

 

Answer: Check with the County Recorders Office. It may provide special protection through the filing of a homestead exemption, which exempts some or all of the value of your equity in the homestead - or home that you live in and the land on which it sits - from claims of unsecured creditors. Whether to file a homestead exemption will depend on your situation. Contact your county recorder's office for details.

 

 

Contact John R. Newe NOW for assistance for help regarding a possible short sale before heading into foreclosure.

 

Foreclosure Solutions & Options



The current U.S. housing market and national financial crisis has caused untold stress and heartache for many American families. Foreclosure is one of the most devastating financial challenges that a family can face and one that many times can be avoided. The options available to Kansas City Metro wide area residents for foreclosure are many. Following is a brief explanation of these solutions, including their benefits and drawbacks:

Reinstatement
A reinstatement is the simplest solution for a foreclosure; however it is often the most difficult. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender's approval and will 'reinstate' a mortgage up to the day before the final foreclosure sale.

  • Benefit: Does not require the mortgage company or lender's approval.
  • Drawback: Requires that a homeowner be able to pay all back payments, fines and fees.

Forbearance or Repayment Plan
A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe.

  • Benefit: Allows the homeowner to make back payments over time.
  • Drawback: Requires that a homeowner be in a financial position to pay not only their current mortgage, but also a portion of the back payments owed. Some mortgage companies will require a homeowner to 'qualify' for forbearance.

Loan or Mortgage Modification
A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. These typically result in a lower payment to the homeowner and a more affordable mortgage.

  • Benefit: Reduces the payment a homeowner is required to make on a monthly basis and may reduce the principal balance of the loan
  • Drawback: Requires that a homeowner 'qualify' for the new payment and will often require full documentation. Lender has to be actively pursuing modifications.

Rent the Property
A homeowner who has a mortgage payment low enough that market rent will allow it to be paid, is able to convert their property to a rental and use the rental income to pay the mortgage.

  • Benefit: Allows homeowner to keep property indefinitely.
  • Drawback: The issues that can arise with a rental property are many, and rent often does not cover the full cost of property ownership and maintenance.

Deed in Lieu of Foreclosure
Also known as a 'friendly foreclosure', a deed in lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option, and the homeowner must also vacate the property.

  • Benefit: Many times in a successful deed in lieu, the lender will forego their right to a deficiency judgment.
  • Drawback: Requires that a homeowner vacate the property, and a deed in lieu may be reported to credit bureaus as a foreclosure.

Bankruptcy
Many have considered and marketed bankruptcy as a 'foreclosure solution,' but this is only true in some states and situations. If the homeowner has non-mortgage debts that cause a shortfall of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.

  • Benefit: Does not require lender approval.
  • Drawback: If a homeowner cannot afford their mortgage payment, a bankruptcy will only stall—not stop—the foreclosure process. Bankruptcy can be costly, is damaging to credit scores, and can only be declared once every seven years.

Refinance
If a homeowner has sufficient equity in their property and their credit is still in good standing, they may be able to refinance their mortgage.

  • Benefit: In some cases, this will lower payments.
  • Drawback: In today's market, a refinance will almost always raise mortgage payments, and is an expensive process.

Service members Civil Relief Act (military personnel only)
If a member of the military is experiencing financial distress due to deployment, and that person can show that their debt was entered into prior to deployment, they may qualify for relief under the Service members Civil Relief Act. The American Bar Association has a network of attorneys that will work with service members in relation to qualifying for this relief.

  • Benefit: If qualified, this will lower payments on all consumer debt in addition to mortgage payments.
  • Drawback: Must be active military to qualify.

Sell the Property
Homeowners with sufficient equity can list their property with a qualified agent that understands the foreclosure process in their area.

  • Benefit: Allows homeowner to avoid foreclosure and harvest some of their equity.
  • Drawback: In many cases today, homeowners do not have sufficient equity to sell their property without negotiating a short sale (see next solution).

Short Sale
If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify. Hardship can be simply 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. Acceptable hardships include but are not limited to: mortgage payment increase, job loss, divorce, excessive debt, forced or unplanned relocation, and more.

  • Benefit: A short sale allows the homeowner to avoid foreclosure and salvage some of their credit rating. This also keeps foreclosure off the individual's public record, and in many cases will allow the homeowner to avoid a deficiency judgment. Borrower may qualify for another mortgage in as little as 24 months (as opposed to five years for a foreclosure).
  • Drawback: Short sales can be a trying process in which a homeowner is best served by contracting with a qualified real estate agent to guide the way.

This represents only a summary of some of the solutions available to homeowners facing foreclosure. Call JOHN R. NEWE today for a free confidential evaluation of your individual situation, property value, and possible options. 

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