8 Options for Avoiding Foreclosure
Complements of:
1. Re-Negotiate With Your Current Lender
These are often referred to as workout programs. You may negotiate with your lender directly or use Free Public Services. You may use Specialized Software or Attorney Backed Loss Mitigation Companies that charge for the service. (See Resources Below) There are no fully guaranteed results but Professional Representation far out performs the novice homeowner and free options. To understand exactly what it is that these companies are offering to do you must understand the following terms:
A. Loan Workout
In some cases of a loan workout, the lender waives fees and fines. In others, past due payments are moved to later in the mortgage. This is designed to give the homeowner time to either improve their financial position or sell the home. This is a workout program that requires you to immediately pay at least 20% or more of the total delinquencies including foreclosure fees, plus the balance of the delinquency that will be added to their regular monthly payments over a period of 6 to 48 months. Forbearance plans do not remove a foreclosure action, but simply stop it in place until the loan is current. Usually the monthly payment will raise 30%-60% during this workout program.
B. Loan Modification
This is a permanent change in one or more of the terms of a loan agreement in an effort to get the loan reinstated, or current, and to arrange payments the borrower can afford. In some cases the interest rate may be reduced permanently, in other cases, the principal balance is reduced. In either case, the result is lower monthly payments.
C. Forbearance Agreement
The most common means of delaying foreclosure is to take the delinquent payments and foreclosure fees and add them onto the back end of the loan. Historically, those individuals who are successful with getting the late balance placed at the end of their note are those who can prove a suffered hardship, have a long standing relationship of good payments with the bank and have equity in their home. Banks are usually willing to do this only when their risk of non-payment is very low.
D. Deed in Lieu of Foreclosure
The three previous workout programs allow you to stay in your home, but the Deed in Lieu of Foreclosure does not. A deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and to avoid foreclosure proceedings. The deed in lieu of foreclosure offers several advantages to both you and the lender. The principal advantage to you is that it immediately releases you from most, or all, of the personal indebtedness associated with the defaulted loan. You also avoid the public notoriety of a foreclosure proceeding and may receive more generous terms that you would in a formal foreclosure. Advantages to a lender include a reduction in the time and cost of a repossession, and additional protection if the borrower subsequently files for bankruptcy. This is often referred to as a “Friendly Foreclosure.” In most cases, you will have a notation on your credit that you defaulted on the loan and the bank took the home back. It will severely damages your credit score but may be the last resort prior to foreclosure.
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2. Refinance the Property or Use a Hard Money Lender
This option is one of the first things that most homeowners attempt when they have fallen behind on their payments. If you remember, a couple of years ago refinancing a house was easy. If seemed as if all you needed were a pulse and an address for a broker to lend you money. Obviously times have changed. If you are currently in foreclosure, it is almost impossible to refinance. The only refinance happening right now if someone is in foreclosure is on the rare occasion where the homeowner has 40% or more equity in their property and in most cases the new payments will be higher than you currently pay.
***Homeowner Tip!***
The best way to get out of a hole is to STOP DIGGING! Instead of looking at ways to borrow MORE money that you can’t afford to pay back, it is better to look at options to get out of large debt quickly, avoid further damage to your credit, and start over with what you can AFFORD!
3. List the Property with a Real Estate Agent.
If you truly want out of the home, selling it is another option to consider. In selling the home, you need to remember that there are costs in getting the home in salable condition. The market has slowed t a standstill and there is a stipulated period of time that you must get your home ready, list it, find a buyer and close escrow. In today’s market, selling a home in a short period of time can be a difficult challenge and the time frame is crucial. A good tip for homeowners exploring this option is for them to get a Broker Price Opinion, where a Real Estate Broker will come out and evaluate the sales value of the home, and give them a realistic time frame of how long other comparable homes in the area are taking to sell. Next, there are closing costs to consider. Did you know that it costs a lot of money to sell your home? If you see a property in your neighborhood listed for $200,000 did you know that the seller will probably net around $167,000. Where does the money go? Take a look at the following chart and see the true cost to sell your home.
Realtor Commission | 6% | $12,000 |
Sales Price Discount | 5% | $10,000 |
Cost of Closing | 3% | $6,000 |
Loan Payments During Sales Period | Average home sale takes 6 months (6x$1000) | $6,000 |
Utilities Cost During Sales Period | Average home sale takes 6 months (6x$250) | $1,500 |
Property Insurance Cost | Average home sale takes 6 months | $600 |
Yard Maintenance | Average home sale takes 6 months | $300 |
Repairs Requested by Buyer | Typically the buyer will require a home inspection and then request repairs to be made. | $2,000 |
Home warranty requested by Buyer | Typically the buyer will request a home warranty. | $500 |
Termite Letter | Termite Letter Typically the buyer will Request a termite letter | $200 |
Total Cost to Sell Your Home: | $33,100 | |
This can be a deal breaker for those homeowners who are at 84% Loan-to-Value (LTV) or higher and do not have enough equity in the home to go to closing without paying money at closing.
4. Sell the Property Yourself or To A Home Buyer or Cash Investor
A. For Sale
While this is a popular option, you need to be aware of the pitfalls of selling the home on your own. Selling a home yourself can be difficult to do even when you’re NOT in Foreclosure. Attempting this while in Foreclosure is an even more daunting task! It requires considerable time and real estate market knowledge on the part of the home owner. You need to take a hard look at how the other homes around them are selling and compare apples to apples. Unless you have a truly unique and desirable home (ex: extra large corner lot, sparkling pool, loads of upgrades, etc.) then you need to understand that FSBO usually take longer to sell than homes listed by Realtors. FSBO’s do not get the exposure that a house on the Regional Multiple Listing Service gets, do not get shown by other realtors like a realtors listed home does, or have the visibility that realtor marketing can bring. There are also closing costs to consider in a FSBO as well that must be added in to the equation.
B. Sale to Cash Investor
When a homeowner is ready to walk away from the property fast, a cash investor is the way to go. Depending on the home’s value vs. the amount owed against the home, you may receive some “starting over,” or “walking cash” from the investor who purchases the property. You get to avoid the mark of foreclosure on your credit and this alternative is quick! Sometimes it can be done within a matter of days. You avoid all closing costs, you are not obligated to spend money getting the house ready for resale and you do not have to try and list, show and negotiate a contract with a buyer. This is a quick and effective way of getting out from beneath the burden of the home and starting over without further damage to your credit.
C. Short Sale
This option is usually for homeowners who have little or no equity in their homes. This option allows Investors to purchase the property from you for less than what you owe, and, more importantly to you, forgives the remaining balance in most cases. The significance of this option is simple. A vast majority of the homeowners currently in foreclosure have either no equity, or are actually upside down on their home. In most cases this is the best option for you with no equity.
** When analyzing the Investor Cash & Short Sale Options **
It is best to fully concentrate on understanding the rest of the options before determining if selling to an investor is the best choice. We will guide you with this option if that is the case. Short Sales are a sophisticated means of resolving foreclosure that require in depth education and coaching.
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5. Declare Bankruptcy: MISCONCEPTION!!
Bankruptcy laws vary from state to state, so this is a sticky topic of conversation to say the least. In most cases, bankruptcy does not stop foreclosure due to 2005 changes in bankruptcy laws. One thing you must understand when you are dealing with this option (unlike what most foreclosure advisers tell you) is that unless you are a bankruptcy attorney we cannot and/or will not advise you to file or not to file bankruptcy. This is giving legal advice without a license and we can be sued or investigated by state authorities. Unfortunately, most homeowners that file bankruptcy to stop their foreclosure end up losing their home within the year. This is due, in large part, to the fact that bankruptcy is generally stalling, can be extremely damaging to you and is, overall, ineffective. The question that bears asking “Do you really think bankruptcy is a good option for you?”
6. Borrowing Money from a Friend or Relative
This is the option that is the least common. The main reason for this is “PRIDE.” You have to be embarrassed about your situation and don’t want your friends or family to know about it. Most folks would rather call us, a complete stranger, and tell us their entire life story than go to someone you have known your entire life and ask for help. It is important to understand that pride is a large factor when dealing with this unfortunate situation.
7. Reinstate the Loan Yourself
You can pay the back payments, plus any fees and foreclosure costs. This will get you out of the foreclosure and back to their normal payments. Most likely you are not in the position do this. If you had the money to reinstate the loan you would have been making your loan payments on time in the first place.
8. Do Nothing; Allow the Property to GO TO AUCTION!!!
When the house goes to auction, you will receive whatever monies are left over after closing. However, it is important to note that it is extremely uncommon for a home to auction for more than market value. The lien holders get paid in order of recording after all fees have been paid, including foreclosure costs, taxes and judgments. If there is any money left over, it goes to you. In the past if the offering bid at the foreclosed auction was lower than the mortgage balance, the lender might consider it a bad debt and pursue you with a deficiency judgment. Now, after recent changes in federal law, a deficiency judgment (or debt obligation), that used to be approved and recorded by a court of law can be no longer pursuable (there are exclusionary laws regarding refinance, however) in order to obligate you to pay any outstanding balances after auction. The foreclosure is a negative mark on your credit history, and can affect your ability to secure another mortgage loan in the future as it stays on credit reports for seven years on average.
Why do we do this? Our explanation of these options correctly affords us the opportunity that most homeowners will want to work with us. Educating you on these options is a terrific way to build rapport, trust and confidence with us. We always go over the options because, by going over them correctly, we will learn everything we need to know about you, the home and your situation, so we can best negotiate with you and bring you to the best solution for you and your current situation.
Most importantly, to discover your “TRUE MOTIVATION”, we ask:
- “Do you want to stay in your home?”
- “Do you want to sell your house and get money at closing?”
- “Do you want to sell your house and save your credit?”
If we don’t know your true motivation, then you will find it very difficult to negotiate a resolution. You may also find out that your first option is not always your best option. By discussing the alternatives completely, we will be able to show you why our option is the best for you and why the others are not.
Contact me directly for your complementary no obligation consultation.
Email me HERE or Call Me Direct NOW:
Portland, OR – Vancouver, WA
971-222-3578
888- 896-2085
http://www.stopforeclosureportlandvancouver.com
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