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When Your Home Is "Under Water" You Don't Have To Walk Away
If your mortgage is worth substantially more than your home, you're "underwater" in mortgage jargon. If, in addition, you're having trouble making your mortgage payment, don't wait to act. You may be able to avoid foreclosure and save your home. Walking away is not your only option.
Feel free to contact us anytime -- in confidence. We can explain each option or arrange for a mortgage specialist to help you evaluate financing plans that would work best for your situation. Here are some alternatives to walking away:
When you owe more on your mortgage than your home is worth, a short sale is a method of selling your home with lender approval -- and avoiding foreclosure. In a short sale, an agreement is reached between the home seller and the lender allowing the home to sell for less than the mortgage amount, giving the lender all proceeds from the sale. Short sales often require much patience from the home seller and buyer to reach closing/settlement. To facilitate more successful short sales, the Home Affordable Foreclosure Alternatives Program (HAFA) was launched earlier this year.
Keep in mind, the HAFA program only applies to qualified home sellers who have borrowed from participating lenders. Slightly different rules apply to loans owned or guaranteed by Fannie Mae or Freddie Mac. HAFA does not apply to loans guaranteed by the Federal Housing Administration (FHA) or Veterans Affairs (VA).
If you're interested in selling your home through a short sale, contact us to learn more.
Even if your home has lost value, you may be able to refinance it to a lower, fixed-rate loan. Perhaps you have an adjustable-rate mortgage (ARM) that made a lot of sense when the spread between ARM interest rates and fixed interest rates was huge. At today's low interest rates, a fixed-rate loan may give you an affordable and stable monthly payment.
Refinancing can make good financial sense to homeowners who qualify, even if the new rate is just 1 point lower than the old rate. You'll need to factor in closing/settlement costs, but if you stay in your home for the long term, savings from lower payments will cover those costs. A mortgage specialist may be able to help you refinance and save your home. We would be happy to provide you with a list of reputable lenders.
If you qualify, your lender may modify your existing loan by lowering the interest rate, lengthening the term of the loan or reducing the principal -- perhaps to bring it more in line with what your home's true value is -- thus lowering your monthly payment. Contact your lender to find out if a loan modification could help you.
Short Sales Guideline issued by Treasury Department
Treasury Department Announces Home Affordable Foreclosure Alternatives Program
On November 30, 2009, the Treasury Department released guidelines and forms for its new Home Affordable Foreclosure Alternatives Program (HAFA). HAFA is part of the Home Affordable Modification Program (HAMP). HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program. HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac, which will issue their own versions of HAFA in coming weeks. HAFA is a complex program, with 43 pages of guidelines and forms, designed to simplify and streamline use of short sales and deeds-in-lieu of foreclosure.
Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.
Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
Uses standard processes, documents, and timeframes/deadlines.
Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).
The program does not take effect until April 5, 2010, but servicers may implement it before then if they meet certain requirements.
The program sunsets on December 31, 2012.
For additional information visit www.realtor.org/shortsales.
Press Release, HAMP Update—New Program Offers Borrowers Foreclosure Alternatives
Supplemental Directive 09-09, Introduction of Home Affordable Foreclosure Alternatives—Short Sale and Deed-in-Lieu of Foreclosure
How To Avoid Foreclosure By Conducting A Short Sale
Homeowners facing foreclosure may opt to sell their homes before they lose them. A pre-foreclosure sale is an effective way to minimize damage to your credit while getting out from under a mortgage you can no longer afford.
The problem some homeowners face, however, is owing their lender more than their home is worth. In these situations -- known as being "under water" or "upside down" -- the homeowner is conducting a short sale. Because proceeds from the sale do not cover the amount owed on the mortgage, the homeowner/borrower would still have an outstanding debt to the lender unless the lender approves the short sale and forgives the remaining debt.
Short sales are not for the "faint of heart," and here's why:
Lenders rarely agree to short sales in advance -- most sellers must have a purchase offer in hand before asking for lender approval.
Securing your lender's approval can be a detailed process requiring you to submit a variety of documents about your financial situation.
The buyer must have the patience to wait, perhaps weeks or months, for your lender to approve the short sale. Only a very motivated buyer is likely to enter into such a transaction knowing that the deal could ultimately fall through.
If you have more than one loan secured by your home, you will have to either pay off those other loans or negotiate with those lenders to release their liens so the short sale can proceed.
Still, lenders agree to short sales every day. The best path to success is working with a real estate professional who thoroughly understands the process and can guide you through it. That's where we come in. We'll help you price your home appropriately, find a committed buyer for your short sale, help you negotiate with your lender and keep the short-sale process on track through closing/settlement.
If you think a short sale could help you avoid foreclosure, call us to get the ball rolling! We'll arrange for your lender's loss-mitigation department to send a short-sale application or package immediately. Working together we'll get your home sold as quickly as possible.
Where To Find The Best Deals On A Home Today
Lower home prices in many places nationwide have caught the attention of investors and of those who have been waiting to purchase a home for their own use. If you're looking for a bargain-priced home, we can help you choose from a range of opportunities:
Pre-foreclosure sales occur when borrowers find they can no longer afford to pay their mortgage; they sometimes have a window of time to sell their home before their lender starts the foreclosure process. Because time is of the essence, these homeowners often lower the property's price and offer attractive terms to invite a quick sale. (Short sales are part of this bargain category; see stories on page 2.)
Foreclosure auctions involve homes where a homeowner has defaulted on the loan and the lender is selling the property at public auction (sometimes called a trustee's sale or step sale). Auction sales are often listed in the local newspaper.
Post-foreclosure sales. These homes include real estate owned (REO) by lenders and corporations. Lender REOs are foreclosed properties that did not sell at auction. Corporate REOs are usually homes purchased from a corporation's employees who were transferred before the properties could be sold. Most post-foreclosure properties are listed with real estate agents in the area.
Government-owned properties include homes that previously had loans backed by the federal government through programs sponsored by entities such as Veterans Affairs (VA) and the Department of Housing and Urban Development (HUD). Once these loans are in default, the lender takes over the property. Then, the government entity pays off the loan and takes possession of the property. Government-owned homes are generally listed in the newspaper or on the agency's website. The bidding process is conducted through real estate brokers who have taken the government agency's training program. While government-owned homes are sold “as is,” HUD may escrow part of the sales price to bring a property up to its standards to qualify for a Federal Housing Administration (FHA) loan.
Tax sales result when homeowners fail to pay their property taxes. The taxing authority schedules the tax sale at which a buyer can bid the amount owed in taxes (or more) and, if the bid is accepted, take ownership of the property. Even then, the original homeowner may have time to redeem the property (by paying the outstanding taxes, penalties, etc.). The rules of these types of sales vary from one locality to the next, so it is essential to be familiar with local processes.
Fix-up properties generally are in disrepair and are often sold "as is," with the discounted price reflecting their condition.
Estate sales result when people who have inherited properties decide to sell them. Many prefer to sell them "as is" to quickly liquidate the estate. Those who view the inheritance as a windfall may be less concerned about the sales price.
Divorce sales come on the market as part of a divorce settlement. As with estate sales, the owners may value a speedy sale over a higher price.
Builder close-outs occur when builders near the completion of a housing development. Eager to move onto the next project, builders may lower prices or, more frequently, offer valuable incentives such as free upgrades of appliances, fixtures and materials or special financing.
Although any of the above situations may produce a bargain opportunity for you, working with a knowledge-able real estate professional helps you avoid some of the pitfalls of bargain shopping and eases the process at every step. We can serve as your buyer's representative, using our expertise to represent and protect your interests as you negotiate with sellers and move through the purchase process.
Short Sale vs. Foreclosure
WHAT IS IT AND HOW DOES IT AFFECT YOUR CREDIT?
What does "short sale" mean? "A short sale in real estate occurs when the outstanding obligations(loans) against a property are greater than what the property can be sold for."
In this time of option-arms coming due, we will see more and more borrowers trying to negotiate short sales as opposed to going into foreclosure. In most cases, the borrower will be behind on payments and about to go into foreclosure, however they may not always be the case.
Some short sales are negotiated simply because a borrower knows he is upside down on his mortgage, but has not reached the point where he has late payments. In other words, he is in a loan let's say that is interest only and he has been unable to make principal payments. His original loan amount was $250000, but since he has been making interest only payments his loan now has a balance of $263000 and his home only appraises for the $250000 or possibly even less. Because the option-arm period is up, his mortgage payments are going to go up and he knows he will not be able to make them, and he has no equity. He cannot sell the home to cover the balance of the loan. At his point, he can either try to negotiate a short sale with the lender or go into foreclosure.
If the lender agrees to a short sale, they are buying back the loan for less then what they are owed. This is not something a lender has to do by any means, but it is an option for them. Why would they consider this? The real cost for the lender in a foreclosure action is that they have to carry the loan until they can resell the house. They have to pay the taxes and insurance and this can take time and the cost of carrying the loan can become quite substantial. In some cases, it will be more beneficial for them financially to take the short sale.
How does it affect credit? Typically the loan will show up on a credit report as "settled for less then the full balance". This will have a negative impact on the borrowers score, however it will be less then if it shows as "foreclosure". How much it will actually affect the score will depend on the rest of the borrowers credit history. A short sale can also have a negative affect on a borrowers credit if a deficiency judgment is issued by the lender. A lender may take this route even if they show the actual mortgage on the credit report as paid as agreed.
When they take the short sale these is still a difference between the actual mortgage balance and the amount of the short sale. The lender can then issue what is called a deficiency judgment against the borrower and this will show on a credit report just as any other judgment would. Sometimes the lender will put the borrower on a payment plan for the deficiency without issuing a judgment. Again, this would be optimal. The one instance where a lender will not consider a short sale is if the borrower is in bankruptcy. A short sale payoff is considered by lenders as a collection activity and collection activities are prohibited once a person has filed bankruptcy.
Avoid the Foreclosure Scams!
OCC Consumer Tips for Avoiding
Mortgage Modification Scams and Foreclosure Rescue Scams!
Scams that promise to “rescue” you from foreclosure are popping up at an alarming rate nationwide, and you need to protect yourself and your home.
If you’re falling behind on your mortgage, others may know it, too — including con artists and scam artists. They know that people in these situations are vulnerable and often desperate. Potential victims are easy to find: mortgage lenders publish notices before foreclosing on homes. Private firms frequently compile and sell lists of these foreclosed properties and distressed borrowers. After reading these notices, con artists approach their targets in person, by mail, over the telephone, or by e-mail. They often advertise their services on television, radio, or the Web, and in newspapers, describing themselves as “foreclosure consultants” or “mortgage consultants,” offering “foreclosure prevention” or “foreclosure rescue” services. And they are only too happy to take advantage of homeowners who want to save their homes.
If someone offers to negotiate a loan modification for you or to stop or delay foreclosure for a fee, carefully check his or her credentials, reputation, and experience, watch out for warning signs of a scam, and always maintain personal contact with your lender and mortgage servicer. Your mortgage lender can help you find real options to avoid foreclosure. It is important to contact your mortgage lender early to preserve all your options. There are legitimate consumer financial counseling agencies that can help you work with your lender.
This Consumer Advisory, issued by the Office of the Comptroller of the Currency (OCC), describes common scams, suggests ways to protect yourself, provides information on U.S. government loan programs and counseling resources, and lists 10 warning signs of a mortgage modification scam.
Common Types of Scams
Here are some examples of scams related to mortgage modification and foreclosure avoidance.
Foreclosure “rescue” and refinance fraud. The scam artist offers to act as an intermediary between you and your lender to negotiate a repayment plan or loan modification and may even “guarantee” to save your home from foreclosure. You may be told to make mortgage payments to the scammer directly — along with significant, up-front fees — and be told that the scammer will forward the payments to your lender. In reality, the scammer may pocket your money and leave you in worse shape on your loan. The scam artist also may tell you to stop making payments or stop communicating with your lender. Don’t follow that advice.
Remember that your mortgage lender should be the starting point for finding options to avoid foreclosure. You also should consider contacting qualified and approved credit counselors.
Fake “government” modification programs. Unscrupulous people may claim to be affiliated with, or approved by, the government or may ask you to pay high up-front fees to qualify for government mortgage modification programs. While government-supported mortgage modification and refinancing initiatives are legitimate, the scam artists’ claims are not. Keep in mind that you do not have to pay to benefit from these government programs. All you need to do is contact your lender or loan servicer.
The scam artist’s name or Web site may be very similar to those of government agencies. The scam artist may use such terms as “federal,” “TARP,” or other words or acronyms related to official U.S. government programs. These tactics are designed to fool you into thinking the scam artist is somehow approved by, or affiliated with, the government. The government is taking actions to stop this fraud, but you also need to protect yourself. So be wary of claims offering “government-approved” or “official government” loan modifications. Your lender will be able to tell you whether you qualify for any government initiatives to prevent foreclosure. You do not have to pay anyone to benefit from them.
Leaseback/rent-to-buy schemes. In this type of scam, you are asked to transfer the title to your home to the scammer, who will, supposedly, obtain new and better financing and/or allow you to remain in the home as a renter and eventually buy it back. If you do not comply with the terms of the rent-to-buy agreement, you will lose your money and face eviction. The agreement may be very hard to comply with, because it may require, for instance, high up-front and monthly payments that you may not be able to afford. In fact, the scammers may have no intention of ever selling the home back to you. They simply want your home and your money.
Remember that transferring your title does not change your payment obligations — you will still owe your mortgage debt. The difference will be that you will no longer own your home. If payments are not made on the mortgage, your lender has the right to foreclose, and the foreclosure and any other problems will appear on your credit report.
Bankruptcy scams. You may have heard that filing bankruptcy will stop a foreclosure. This is true — but only temporarily. Filing bankruptcy brings an “automatic stay” into effect that stops any collection and foreclosure while the bankruptcy court administers the case. Eventually, you must start paying your mortgage lender, or the lender will be able to foreclose. Bankruptcy is rarely, if ever, a permanent solution to prevent foreclosure. In addition, bankruptcy will negatively impact your credit score and will remain on your credit report for 10 years.
Debt-elimination schemes. Scammers may claim to be able to “eliminate” your debt by making illegitimate legal arguments that you are not obligated to pay back your mortgage. These scammers will provide you with inaccurate claims about applicable laws and finance, such as that “secret laws” can be used to eliminate debt or that banks do not have the authority to lend money. Do not stop making payments on your mortgage based on their claims.
How to Protect Yourself from Mortgage Modification and Foreclosure Avoidance Scams
Always proceed with caution when dealing with anyone offering to help you modify your mortgage or avoid foreclosure. Remember that you do not need a third party to work with your lender — any such party should make the process easier, not harder and more expensive.
Contact your lender or mortgage servicer first. Speak with someone in the loss mitigation department for mortgage modification options and other alternatives to foreclosure.
Make all mortgage payments directly to your lender or to the mortgage servicer. Do not trust anyone to make mortgage payments for you, and do not stop making your payments.
Avoid paying up-front fees. While some legitimate housing counselors will charge small fees for their services, do not pay fees to anyone before receiving any services. Make sure you are dealing with a legitimate organization.
Know what you are signing. Read and understand every document you sign. Do not rely on an oral explanation of a document you are signing — make sure that you read and understand what the document actually says. Otherwise, a document may obligate you to terms you don’t want or may even convey ownership of your home to someone else. Never sign documents with blank spaces that can be filled in later. Never sign a document that contains errors or false statements, even if someone promises to correct them. If a document is too complex to understand, seek advice from a lawyer you trust or a legitimate, trusted financial counselor.
Do not sign over your deed without consulting a lawyer you select. Foreclosure scams often involve transfer of ownership of your home to a con artist or another third party. Never agree to this without getting the advice of your own lawyer, financial advisor, credit counselor, or other independent person you know you can trust. By signing over your deed, you lose the rights to your home and any equity built up in the home — and you are still obligated to pay the mortgage.
Get promises in writing. Oral promises and agreements relating to your home are usually not legally binding. Protect your rights with a written document or contract signed by the person making the promise. Keep copies of all contracts that you sign. Again, never sign anything you don’t understand.
Report suspicious activity to relevant federal agencies, such as the Federal Trade Commission, and to your state and local consumer protection agencies. Reporting con artists and suspicious schemes helps prevent others from becoming victims. If your complaint or question involves a national bank and you cannot resolve it directly with the bank, contact the OCC’s Customer Assistance Group by calling (800) 613-6743, by sending an e-mail to firstname.lastname@example.org, or by visiting www.HelpWithMyBank.gov.
Contact a legitimate housing or financial counselor to help you work through your problems.
To find a counselor, contact the U.S. Department of Housing and Urban Development (HUD) at (800) 569-4287 or (877) 483-1515, or go to www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm.
Call (888) 995-HOPE, the Homeowner’s HOPE Hotline to reach a nonprofit, HUD-approved counselor through HOPE NOW, a cooperative effort of mortgage counselors and lenders to assist homeowners.
Visit NeighborWorks America’s Web site at www.nw.org/network/home.asp.
Visit the following Web sites for further information:
The OCC’s consumer information site for banking-related questions:
OCC Customer Assistance Group and consumer assistance site:
Federal Trade Commission:
Apply for a government-sponsored loan modification or refinancing. The U.S. government has developed a major loan modification and refinancing program to help homeowners find affordable loans and to save their homes.
Go to this Web site for information on these federal mortgage modification and refinancing programs: www.makinghomeaffordable.gov.
Ten Warning Signs of a Mortgage Modification Scam
“Pay us $1,000, and we’ll save your home.” Some legitimate housing counselors may charge small fees, but fees that amount to thousands of dollars are likely a sign of potential fraud — especially if they are charged up-front, before the “counselor” has done any work for you. Be wary of companies that require you to provide a cashier’s check or wire transfer before they take any action on your behalf.
“I guarantee I will save your home – trust me.” Beware of guarantees that a person or company can stop foreclosure and allow you to remain in your house. Unrealistic promises are a sign that the person making them will not consider your particular circumstances and is unlikely to provide services that will actually help you.
“Sign over your home, and we’ll let you stay in it.” Be very suspicious if someone offers to pay your mortgage and rent your home back to you in exchange for transferring title to your home. Signing over the deed to another person gives that person the power to evict you, raise your rent, or sell the house. Although you will no longer own your home, you still will be legally responsible for paying the mortgage on it.
“Stop paying your mortgage.” Do not trust anyone who tells you to stop making payments to your lender and servicer, even if that person says it will be done for you.
“If your lender calls, don’t talk to them.” Your lender should be your first point of contact for negotiating a repayment plan, modification, or short sale. It is vital to your interests to stay in close communication with your lender and servicer, so they understand your circumstances.
“Your lender never had the legal authority to make a loan.” Do not listen to anyone who claims that “secret laws” or “secret information” will be used to eliminate your debt and have your mortgage contract declared invalid. These scammers use sham legal arguments to claim that you are not obligated to pay your mortgage. These arguments don’t work.
“Just sign this now; we’ll fill in the blanks later.” Take the time to read and understand anything you sign. Never let anyone else fill out paperwork for you. Don’t let anyone pressure you into signing anything that you don’t agree with or understand.
“Call 1-800-Fed-Loan.” This may be a scam. Some companies trick borrowers into believing that they are affiliated with or are approved by the government or tell you that you must pay them high fees to qualify for government loan modification programs. Keep in mind that you do not have to pay to participate in legitimate government programs. All you need to do is contact your lender to find out if you qualify.
“File for bankruptcy and keep your home.” Filing bankruptcy only temporarily stops foreclosure. If your mortgage payments are not made, the bankruptcy court will eventually allow your lender to foreclose on your home. Be aware that some scammers will file bankruptcy in your name, without your knowledge, to temporarily stop foreclosure and make it seem as though they have negotiated a new payment agreement with your lender.
“Why haven’t you replied to our offer? Do you want to live on the streets?” High-pressure tactics signal trouble. If someone continually contacts you and pressures you to work with them to stop foreclosure, do not work with that person. Legitimate housing counselors do not conduct business that way.