Monday, August 27, 2012

Foreclosure – Can Foreclosures be stopped

It is everyone’s dream to own a home or built a house for his or herself. There are a few who are fortunate enough to secure one paid in full while many others try to buy one through financing or securing loans.

However, even you are religiously saving for the so-called rainy days and even if you have sufficient finances, there would come a time that you would find it difficult to face up to your obligations. Sicknesses in the family, a possible retrenchment at work or emergency purchases are unexpected instances where you could find yourself in arrears with your payment and then suddenly you are now facing foreclosures.

When legalities come into play in your financial situations or mortgages, it means that your predicament is deep serious. Foreclosures are one of those legal terms that everyone detests, especially the homeowners and the financers or banks themselves.

In exchange for lending the money, the lender would hold a lien against the property, If the borrower does not make the required payments, then the loan goes into default and the lender could exercise the lien against the property, in order to take legal possession of the property for the purpose of selling the property to pay off the borrower’s loan. This process is called foreclosure.


Aside from the obvious reason of not paying their loans on time, homeowners get into foreclosures, even if they have avenues to explore, simply by ignoring calls or letters from their banks and lenders or just simply giving up on his/her property in the hope that the tide of things would turn favorable on them.

Although foreclosures are eventualities in securing homes through financing, it does not mean that this could not be stopped or remedied. The matter hinges on the homeowners themselves if they want to keep the property for sentimental reasons or just simply foreclose it and just face the consequences of their action, notably severe damage to one’s credit rating.

If you are delayed in payments to your mortgages and there is no relief in sight, in the immediate or near future, then you have to put the problem in perspective and make a contingency plan or efforts.

The standard measure of keeping or selling the property is that if your monthly house payment (including property taxes and insurance) does not exceed 40% of your gross monthly income, it should be possible for you to keep the property. If the payment is greater than 40% of your gross monthly income, consider selling or transferring the property to avoid negative impacts on your credit. This option would more likely be the path to be taken by borrowers who have equity in the property. By selling the property, the borrower could then pay off the mortgage, and pocket the difference if there is equity remaining.

If the financial setback is temporary and you need immediate money to make your loan current so that you could continue paying your debts, it is best to approach family and friends instead of hard money loans since they would lend money based on equity in the property. Just make sure to pay off your loans to your relatives or close friends for it is much difficult to have them foreclose on you to get their money back.

The best and simple solution to foreclosure proceedings is to deal directly with the situation. Be brave enough to talk with your banks or lenders and explain your situation. Remember, they do not want to foreclose on you they just simply want their money back plus interest. By exploring this angle, the lender and the borrower may arrive at a common ground to work on and resolve the situation in a way that is agreeable to both parties. The Loss Mitigation Department would deal on cases like this.

Basic lending guidelines would require all home loans would total up to less than 70% of the current market value of the property. If you have more equity than that, you should have no difficulty in obtaining a new refinancing deals or second trust deed to bring your loan current. Expect higher interest rates and loan fees.

There are several other alternatives available to you depending on the situations of the borrower, laws of the state and policies of the lender. You may consider forbearance, refinancing, modification, deferral of principal, a temporary indulgence and a Chapter 13 Bankruptcy.

In applying forbearance, your lender may be able to arrange a repayment plan based on your financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender that there is a temporary problem and it would be resolved in the near future and show that you would be able to meet the requirements of the new payment plan.

A similar portion is deferral of principal in which the borrower agrees to pay the interest only for a certain period of time and then making the usual monthly payments. But just like in forbearance, this is very difficult to obtain unless the bank is familiar with the borrower or the borrower has an excellent credit stature in the bank.

If you have recovered from a financial problem you may able to apply for a mortgage modification. This process involves renegotiating the terms of debt and/or extends the term of your mortgage loans, changing the interest rates or additional surcharges to the principal with the current lender. This may help you catch up by reducing the monthly payments to a more affordable level. Refinancing, on the other hand, means that the borrower obtains a new mortgage with a different lender; the operative word here is different. As much as possible this alternative should be avoided since it would make your problems worse for borrowers in distress would tend to agree to onerous terms just to get a lease on their loans.

A chapter 13 Bankruptcy could be another option for it gives the borrower the time to “re-organize” his finances and work out a payment plan prior to resumption of payment. This would help keep the property and not blemish your credit rating compared to a Chapter 7 Bankruptcy, which completely discharges any debt the borrower had accumulated under the mortgage.

As a last resort, you may able to voluntarily “give back” your property to the lender or a “deed in lieu of foreclosure.” This would not save your house, but it is not as damaging to your credit rating as a foreclosure. This may be availed of if the borrower is in default and do not qualify for any other options and your attempts at selling the house before foreclosures were unsuccessful.

In some other states, there are laws and other options that are available to borrowers with mortgage problems. There is the option of reinstatement which means that the borrower brings the foreclosed mortgage current, including all overdue amounts, as well as fees and costs. Likewise, there is the co-called redemption, however it is usually limited in how often he or she could take advantage of this option and this is limited to some states.

A foreclosure procedure takes a long time to materialize and homeowners are given the chance to bail themselves out of their predicament. Sometimes the best defense against foreclosure is just to make a response on their inquiries or demand letters. Ultimately, the only thing that would stop foreclosure proceedings is repayment of the debt, for every option mentioned here is just a delay in the proceedings.

For More Specific General explanation of Foreclosure procedure in your state.

Monday, August 20, 2012

Five Mistakes To Avoid When Making A Short Sale

The first mistake investors make when approaching a short sale is so prevalent that it deserves its own separate article.

What is this mistaken belief?

Bogus Belief #1: Short sales are quick and easy.

This belief is bogus because banks have a tedious process they have to go through in order to agree to a short sale. They also have to explain the huge loss on the deal to their shareholders, and they have a lot less interest in seeing the deal move quickly than either you or your seller. Short sales thus take an unusually long period of time to complete.

To avoid making the mistake of believing that short sales are quick and easy, you need to understand the process and plan your timetable accordingly.

Once you have the property under contract and go to the lender to negotiate a short payoff, a number of things have to happen. First, the lender will order an appraisal or Broker’s Price Opinion (BPO). The BPO is an informal appraisal done by a local real estate agent to give the lender some idea of what the actual value of the property is right now.

The lender will also ask for a hardship letter from the seller in addition to financial information (bank statements, tax returns and more) to prove to them that the seller really can’t pay. This step alone can take four to six weeks, and only after this step is completed will the lender start the process of negotiating with you.

Every offer and counteroffer has to be ground through the gears of the lender’s particular approval process. This means that every time you want to counter price or terms you can expect to wait a much longer period of time than if you were dealing only with a seller to get an answer.

And the secret reason short sales take an unusually long period of time to complete: loss mitigation officers are notorious for not returning calls or waiting for YOU to call THEM, even when they have the information you’ve been waiting for.

So even though you might only spend 10 hours of actual time on the deal, it can easily be two to three months before you’re able to get an acceptance of a deal with the bank. That’s why you should never put a firm closing date into a purchase contract where you’re going to be negotiating a short sale. Instead, write that you will close “30 days after acceptance of purchase price by lender.” Otherwise, your contract will expire a long time before the deal is finished.

But a second bogus belief also deserves its own separate article to explain.

Bogus Belief #2: Banks Lose Money on Short Sales.

In reality, banks lose MORE money by NOT letting investors buy the property before the foreclosure sale.

For example, the typical property that I buy needs an average of $15,000 of work to be worth its after-repaired value of about $100,000. Often, this property will be subject to a mortgage of $95,000, and the seller is usually two to three months behind in payments by the time he calls me. I will offer somewhere in the vicinity of $50,000 for this property, which means that the bank will “lose” $45,000 by taking my offer.

But if the bank decides to reject my offer and take the property to foreclosure, the bank then pays an attorney to file the paperwork, make the court appearances, search the title, notify the other lien holders of the foreclosure, go BACK to court when the borrower declares bankruptcy at the last minute, etc. Total legal fees: $5,000+.

In the meantime, the bank has $95,000 loaned out that’s NOT earning any interest, and according to federal regulations, has to keep 1-8 times the amount of the defaulted loan on deposit instead of loaning it out. Since the average foreclosure in my area takes about 9 months to complete, this means that for 9 months, the bank is losing 6% interest on over HALF A MILLION DOLLARS in depositor’s money. Total lost interest at 6%: $22,275.

When the bank buys back the property at the auction-which they will, since they’ll bid $95,000 on a house with an as-is value of $60,000-$70,000-they’ ll list it with a real estate agent for sale. When it DOES sell three months later for $70,000, they’ll pay the agent’s commission of 6%, all back taxes, plus the usual seller costs.

Three more months of lost interest: $7,000.

Agent’s commission on $70,000 sale: $4,200.

Transfer taxes, deed preparation, prorated property taxes etc: $1,500.
Total sale price: $70,000.

Total expenses: $39,975.

Net to bank: $30,025.

Selling to me for $50,000 and saving a year of hassle: priceless.

Bogus Belief #3: Seller bankruptcy stops foreclosure.

Many sellers seem to believe that if they declare bankruptcy, the lender can’t foreclose, allowing them to stay in the property forever without paying.

As the investor, this bogus belief makes trying to convince the seller to cooperate in a short sale difficult. Why would they want to sell if they think they can live free forever?

So it’s your job to be aware of this myth and inform the seller that bankruptcy actually DELAYS the sale for a number of months but does not stop foreclosure. This is therefore a critical fact to remember when talking to sellers in pre-foreclosure.

Bogus Belief #4: If the foreclosure auction is less than 6 weeks away, it’s too late to negotiate a short sale.

I used to believe this one myself. But that’s because I was making the mistake I warned you about in Bogus Belief #2. However, once I discovered that banks lose more money by not letting investors buy the property before the foreclosure sale, I realized that some lenders are actually willing to delay the auction in order to complete a short sale.

By attempting to negotiate a short sale even if the foreclosure auction is less than six weeks away, you’re helping the bank save money. And you’re helping the homeowner save his credit.

Bogus Belief #5: The seller can’t get any money if you’re not paying the bank in full.

This is true. Unless you are creative.

It is true that the seller can’t get any money for the sale of the PROPERTY that might appear on the closing statement. And this could be a deal-breaker for the seller who needs that $500 or $1000 in cash to move. Only there is a way to legally circumvent this dilemma.

Simply buy something else from the seller, such as appliances, furniture or any of his personal property you can use. Then put your purchase on a separate bill of sale, NOT on the closing statement.

It’s perfectly legal for the seller to get money, but keep in mind that it is impossible to get the bank to accept a short sale when there’s money for the seller listed on the purchase contract or the closing statement.

Most bankers realize you are probably giving the seller something to get out of the house. They just don’t want or need to know about it.

Monday, August 13, 2012

"RepoMan Cometh…Notice of Default Received…Now What?"

As the economy cools, mortgage foreclosures increase. Mike and Margaret had worked hard for all of their 10 years of marriage. During that period they had some rough patches and vowed not to get jammed up on their finances again. Mike from time to time would take a part time job to help make ends meet. Five months ago Mike was told by his employer that they were moving out of town and going to another state and merging the business and would not be taking any people with them. As an Informational Technology (I.T.) expert he kept the companies computers humming and made a decent living.

Margaret was staying at home to take care of an asthmatic child that needed acute attention almost around the clock. There were other medical complications that centered around this affliction that put a severe strain on the budget. Today, Mike and Margaret received a Notice of Default issued by the Mortgage Company by way of the local Sheriff who knocked on the door and served the notice of action. The order stated that all arrears, attorney fees and late charges would need to be made immediately or foreclosure proceedings would start right away. The total amounted to $8,493.22. Mike and Margaret had tried to work out a repayment plan as well other credit card debt consolidation. Without a job and being down four months on the mortgage payment and credit cards unpaid their credit scores plummeted below 500. Lenders were not willing to work anything out in the way of a new loan. The equity had shrunk since they had bought the house on top of the housing bubble two years ago. Values have fallen back now in their area and city. Behind every foreclosure is a sad story of people getting up against it.

What to do? Many people in this position chose to do nothing and somehow think that someone will swoop in and save them and all they have to do is wait. Denial abounds all the way to the Courthouse steps to the day of sale. A few states have a redemption period, other states it becomes a done deal at time of sale. Mike is frantically trying to find work but the I.T. jobs have all but dried up. When Notice of Defaults are filled in public records the sharks smelling blood start showing up on front doors with offers to solve their problems. All they have to do is sign a quitclaim deed over and agree to something like $1,000 and move out and the new owner will assume the liabilities. Letters pour in daily with similar offers of "help". Right at this moment, with all the costs to catch up and get current, there would be about $10,000 in equity when the smoke clears. Mike and Margaret decide to call three or four local Realtors and get a handle on some options. They also contacted a Bankruptcy Attorney to determine what those options would be in this particular case.

Mike and Margaret learned they could sell the property and ask the lender to consider a short sale, as selling costs are higher now (this is when the lender agrees to take less than what is owed). Short sales are given consideration by lenders as many foreclosures result in a 20% to 30% loss after the court house sale. The short sale may only cost a 10% write down. The seller gets nothing in this scenario. It was also mentioned that the seller could lease-option the property, which would involve sufficient money up front to pay the arrears and make the mortgage current. The lease option or lease purchase might be attractive to someone who has less than stellar credit but believe things will be better in a few years for the leasee/buyers by exercising the option and closing with a new loan. The original mortgage would be paid in full. A close relative may buy the home and lease it back to the Mike and Margaret. This would be a long shot. Mike and Margaret could try to sell the home themselves, but time is against them. They need to move fast and get a quick resolution on this challenge. The Bankruptcy attorney gave two options, a Chapter 13 Bankruptcy or Chapter 7 Bankruptcy (which now they would qualify having little income now). The Chapter 13 would allow them to put the arrears into the Chapter 13 Repayment Plan but the monthly mortgage payments would need to be made on time as well as to the Chapter 13 Trustee payments for all the other debts. Having gathered all the information they could, Mike went back and took two low paying jobs working 16 hours per day to hang on and get current. In this case, Mike and Margaret selected the Chapter 13 option.

If this is happening to you or someone you know, gather all the options and make a decision. To do nothing is just giving up. Bad things happen in foreclosures: divorces, health problems, credit erosion, BUT it is not permanent and it's not fatal. You can fight your way out of this and turn it around. Consider your options and take action Credit repair will be the final step. Reinventing oneself in other vocations will also need focus.

Dale Rogers

Monday, August 06, 2012

How to Avoid Foreclosure from Happening to You

Foreclosure is a term many people may have heard of yet are unsure as to what the term means exactly. Foreclosure is something which affects homeowners who have a mortgage or lien on their home and do not own the house outright. There are a few things which homeowners should be aware of with regard to foreclosure in order to prevent this from happening to them.

What Is Foreclosure?

Foreclosure is when a lender who currently holds a mortgage on one’s home can come in and repossess the home due to a number of reasons but mainly for nonpayment of a mortgage. For those individuals whose home is less valuable than their current loan balance, they may also owe a deficiency judgment as a result thereof.

How Do Foreclosures and Deficiency Judgments Affect the Individual?

There are many ways in which foreclosures and/or deficiency judgments can affect an individual. First and foremost, when a home is foreclosed upon that individual loses their living quarters plus any money which they have already paid for the home. When one has a deficiency judgment issued against them they will find that they will owe varying sums of money in order to make up the difference between the value of the home and the outstanding loan on the home. Also, it is important to note that either one of these incidents can affect the credit of an individual and cause a blemish on their credit rating for years to come.

Ways to Prevent Foreclosure

There are a few ways in which homeowners paying mortgages can avoid foreclosure on their beloved home. The first way in which to do so is to pay the mortgage bill on time. This is the primary answer for those who ask how to avoid foreclosure. For those who have difficulty with doing so from time to time, there are other ways to prevent this from occurring.

The homeowner should always address letters from the lender which revolve around late payments. Within these letters the homeowner will find important information that tells the homeowner what to do if they are having trouble making payments. The letter will ultimately include phone numbers and names of contact individuals at the financial institution so that they can discuss their payment issues with a lender representative. It is crucial for the homeowner to speak with the lender and not bury their head in the sand to avoid it. Avoiding a problem such as nonpayment of mortgages will not make it go away and will only make it worse.

Individuals who are having trouble making mortgage payments should also be certain to stay in their homes and not abandon the property in any way. This will only hurt the individual in the long run and make foreclosure even that much more of a possibility.

Lastly, if the home is a HUD home, there are HUD counseling agencies which will aid the homeowner in preventing foreclosure issues from arising. The homeowner should contact HUD authorities to discuss ways in which to keep their home and make payments.

Possible Alternatives to Foreclosure

For those individuals who have trouble making mortgage payments on their home and fear foreclosure, it is important to know about other alternatives which may be recommended besides the dreadful foreclosure. Not all of these alternatives will apply to each and every individual but some may prove to be very handy when all is said and done. The first is called a special forbearance.

The special forbearance is something which may be arranged by the lender whereby the homeowner receives a payment schedule adjustment and may also receive a suspension of payments for a certain period of time. The representative of the lender will discuss options with the homeowner and after reviewing their situation decide if a special forbearance is warranted.

Another alternative to foreclosure is the mortgage modification. A mortgage modification is where the homeowner has the option to extend the loan period or refinance their current loan to get a lower rate and therefore have lower monthly payments. This is a wonderful option for those individuals who do not make enough each month at the moment to currently pay their mortgage.

A partial claim is another alternative for homeowners facing foreclosure to consider. The partial claim is available to those individuals who have HUD loans. With this payment alternative, the Department of Housing and Urban Development would help the homeowner bring their mortgage up to the current balance by paying the money which is overdue. This is a way to help the homeowner get out from under the mounting debt and then try to get them on the right payment schedule.

Some individuals may find that selling their home is the best bet and they can do so by way of a pre-foreclosure sale. This allows the individual to sell their home for an amount less than the total mortgage amount due prior to having it sold via foreclosure sale.

Lastly, one may be able to submit a deed in lieu of foreclosure. Although this still will not prevent the homeowner from losing their house, it will help them in the long run by not having a foreclosure on their credit history.


Foreclosure is a serious matter for homeowners to face. However, it is important to know that there are ways to prevent foreclosure and alternatives to foreclosure do exist should such a thing be necessary in the end.

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