There are few things more stressful than finding out that you’re about to lose your house. Cash flow is tight, bill collectors are blowing up your phone, unhappy family members might be pointing fingers, and you’re in enough hot water without having to find a new place to live, too. All you can think about is making the problem go away.
Maybe you already have an idea of what might happen in foreclosure, especially if you know someone who has already been there. Most people don’t realize they have more options than to stay or leave. Moving away might be a temporary solution, but there’s more to it than just giving the house back to the bank. How will the foreclosure affect your credit? Will you even be able to buy a car after this is over?
No matter whether you’re the homeowner or someone who works with homeowners in foreclosure, you should be aware of all the options in this situation. If you’re the homeowner, it is best to understand everything you can about the foreclosure process. If you’re someone who works with homeowners, it’s your job to help that homeowner understand their options during this difficult time. It helps if everyone has a realistic view of what could happen and why.
Two of the options have been covered frequently in the media lately: deed-in-lieu and loan modifications.
A deed-in-lieu is nothing more than a voluntary foreclosure. It saves the bank time and money, but your credit still gets hit with the full ramifications of the foreclosure.
What about loan modifications? The government’s Home Affordable Modification Program (HAMP) promotes mortgage loan modifications as being a viable way to deal with the foreclosure crisis. Yet the current rate of success for those loans to go from trial to permanent modification is 4 percent. Using California as an example, roughly 140,000 trial loans have entered into the modification process; however, only 5,600 loans will be modified based on their current success rate (4 percent). California filed over 450,000 notices of default for 2009. Those being helped are few and far between given the current numbers.
Let’s look at some more probable options.
1) Option one: stay in the house as long as possible, using bankruptcy procedures to stall the courts until the foreclosure auction date. It doesn’t prevent the foreclosure, but it does let you stay put at the lowest cost.
2) The real estate agent can list the property for the amount due on the mortgage and try to convince the buyer that the house is worth it before the foreclosure auction date arrives. Since most buyers wouldn’t fall for that, the homeowner may choose to revert to the first option.
3) The homeowner can list the property with a real estate agent who is willing to wait out the short sale process and encourage buyers to do the same in order to get a discount on the property. The buyer may get a great deal on the house, and the real estate agent may still get credit for the sale, but it doesn’t always work that way.
One complication arises when the agent has to convince the buyer to not only sign the purchase agreement, but to wait at least 60 to 90 days to take possession. The typical buyer needs something that is already available.
Several roadblocks can come up during the process of negotiating a short sale if the seller and/or his agent don’t completely understand how to manage those negotiations. Lenders are very careful to train their loss mitigation department in debt collection, so sellers and agents who aren’t as well-trained in short sale negotiation skills can be easily sidelined.
For instance, sometimes promissory notes and deficiency judgments can be avoided after a short sale. Did you know that? It can be worth a great deal to a homeowner when you not only learn how the system works, but also how to work the system.
4) List the property as a short sale, but work with an investor who already wants to buy the property and is willing to wait out the process and negotiate the short sale on behalf of the seller without cutting out the real estate agent. Maybe the investor will keep the property as a rental, or maybe they’ll sell it. They do get something out of the deal. An educated and competent investor also knows how to use contracts and the lender’s own paperwork to get the best results for a homeowner in trouble.
Here’s another reason why the homeowner would rather work with someone who coordinates short sales on a daily basis. Did you know that there’s more to the BPO process than just being there when the bank appraiser comes to the door? Do you have any idea how to use the process to maximize the short sale outcome in your favor? A good short sale investor does.
Every real estate agent who works with homeowners who are threatened with foreclosure should know these four options. Homeowners can file bankruptcy and stay until the auction, sell the property for the amount due on the mortgage, ask the lender to approve a short sale and hope a buyer will wait for that to happen with them, or apply for a short sale with an investor waiting to become the buyer.
If you need to learn more about how foreclosures and short sales work, Strategic Real Estate Coach is here for you. Our Silver Membership is absolutely free, and gives you all the networking and downloadable reports you need to get up to speed!
Attorney Jeff Watson has some great commentary on the legal side of real estate investing. You can find that and more on his blog. Just visit topshortsalelawyer.com.
Give people the best and most up-to-date information possible. Help people understand what they’re up against, and what could happen with each choice. When homeowners make an informed decision about their future, they have a chance to stop feeling beaten down and walk away feeling relieved.
Need to know more about foreclosure options? Get free online training from Strategic Real Estate Coach!
Tags: avoiding foreclosure, finance, forclosure, Foreclosure, foreclosure alternatives, foreclosure options, Foreclosure/Repossession, General Real Estate Tips, housing market, Mortgages, real estate law, rental property, short sale investing, short sale training, short sales