Today many homeowners find themselves upside down in their property and in financial hardship due to a challenging economy.
They are uncertain as to what to do, and realize they cannot maintain the monthly payments for a home that is worth less
than the actual loan balance. Some have turned towards a loan modification, but unfortunately a great number of homeowners
who apply will not qualify. Are there any helpful answers to resolve this situation?
Today many who need to sell property that has devalued are doing a Short Sale.
A Short Sale is the ability to sell the home for a fair market value, yet the bank accepts less than what is owed on the mortgage.
A number of homeowners are turning to their Realtors and Short Sale Negotiation companies, like L.A. Real Estate Network Inc.,
to facilitate their Short Sale. One of the criteria a bank looks at is a seller's hardship - which must be a legitimate hardship
due to one or more of the following reasons: unemployment, reduction in job hours, death of a spouse, decline in business if self-employed,
a medical or recent disability or illness, relocation, military obligations, and divorce.
In a Short Sale you cannot walk away with any monies from the sale, but are free from the "non-recourse" debt against the home.
A Short Sale is not like a Foreclosure. A Foreclosure is detrimental to one's credit score.
A Short Sale is not reported on a credit report but is usually reported as "debt settled" which is less damaging to one's credit.
How long could this process take? What information will you need to submit to find out if you qualify for a Short Sale?
Are you not sure what questions to ask? Please feel free to call with no obligation.
We are here to provide you with options and possibilities.
Foreclosure Prevention Info
Foreclosure is the legal action that your financial institution can use to take back your home when you miss your monthly mortgage payments.
When this happens, you lose your house, which is sold at a Public Auction. Foreclosure will seriously affect your ability to qualify for credit
in the future, so you should avoid it if at all possible.
There are several ways of avoiding foreclosure and dealing with it when you receive the foreclosure notice.
First of all, you should never ignore letters from your lender. When you have problems making payments contact your lender right away.
Explain your situation and provide them with your financial information. If you qualify, your bank can offer one of the solutions explained below.
If you had temporary financial problems and you have recovered but your net income is now less than it was before the default,
you may qualify for refinancing or mortgage modification. You may be able to refinance the debt and/or extend the term of your mortgage loan.
This may help you catch up by reducing the monthly payments to a more affordable amount.
Another alternative in case of temporary problems may be a special forbearance. Your lender may be able to arrange a repayment plan based on your financial situation.
They may even provide for a temporary reduction or suspension of your payments. In short, your missed payments may be put at the end of the mortgage loan period.
You may qualify for this if you have recently lost your job or your source of income or if you had an unexpected increase in living expenses.
You will have to provide your lender with proof that you would be able to meet the requirements of the new payment plan.
Partial claim is another option. Your lender may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current.
When your bank files a partial claim, HUD will pay your lender the amount necessary to bring your mortgage up to date. You must execute a promissory note,
and a lien will be placed on your property until the promissory note is paid in full. The promissory note is interest-free and will be due if you sell or leave your property,
or when your mortgage matures. To qualify for this method your loan must be at least 4 months delinquent, and your mortgage may not be in foreclosure.
You must prove that youÕll be able to begin making full mortgage payments.
You also may want to try a pre-foreclosure sale or a short sale. This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating.
You may qualify for this solution if the amount of mortgage you owe is significantly lower than the Fair Market Value of your house.
Due to the nature of this transaction, you may not be able to get a full price for your property and the lender must agree to take a loss.
In most cases, you can expect less than the market value of the house. Remember, it is not a Òdream deal,Ó but considering the circumstances it may be your best option.
Money received from such sale will allow you to pay off the lender(s). If you decide that a pre-foreclosure sale is your best solution, please contact me immediately
regarding listing your home for sale. Time is crucial and we must get started right away. I understand the urgency of your special circumstances and will work diligently
to get your home sold within your appropriate time frame.
The Most Used Options Available for Stopping the Foreclosure Process
Loan Modification: A Borrower can negotiate with his/her lender to get their loan in good standing again.
There are many options available to you to get a modification approved like a separate payment plan for your delinquency or even adding the delinquency to the end of your loan.
You can even lower your monthly payment by having the lender reduce your interest rate and in some cases extend the terms of the loan. With this option you need to qualify.
Reinstatement: Pay your lender(s) all of your past due payments to bring your mortgage current.
Refinance: As part of the Housing Stimulus Law for 2009, if you and your property qualify, you may be able to do a refinance. Strict guidelines apply.
Reverse Mortgage: Must have large equity. Must be 62 years of age.
Sell Your Home: The old fashion way by hiring a Realtor. You may simply sell your home before the Foreclosure Sale Date.
Sometimes the homeowner is unable to sell the home outright at the desired sale price and this is not an option.
Sell Your Home by Doing a Short Sale:This is when you owe more than your house is worth. Hire a qualified Realtor who specializes in Short Sale.
He/She may be able to negotiate a Short Sale on your behalf with your lender(s). In this instance the lender may take less than what you owe on the loan to
avoid a lengthy and costly foreclosure process. This is a good option to minimize the impact on your credit. Some tax consequences may apply in foreclosure.
Deed-in-Lieu of Foreclosure:You simply give the home back to the lender and walk away. Strict restrictions apply.
The consequences are similar to a foreclosure. Not the best option.
Bankruptcy:This is a last resort. This will only save your home temporarily. If you miss one payment during this process the lender will put you right back into foreclosure.
Chapter 7: Debt Elimination/Liquidation Ð Chapter 13: Restructuration of your debts.
Foreclosure:You may elect to allow the home to be entered into mortgage foreclosure. This is the most damaging to you. The lender will take your home and all of your equity.
If there is no equity, your lender may get a deficiency judgment against you and want you to repay the shortage or Òdeficiency.Ó This is the most damaging to your credit and
your ability to acquire another home loan. Plus the foreclosure stays on your credit record for 5 to 7 years. Tax consequences may apply.
Are There Alternatives to Foreclosure?
Options When Facing Foreclosure
Do Nothing/Foreclosure Ð If a homeowner does nothing, they most likely will lose their home at a foreclosure auction.
Loan applications generally ask if the applicant has ever been foreclosed upon. Credit reports also disclose this damaging information. Not the best option.
Reinstatement Ð If in default, the borrower may pay all past due amounts including: back interest, attorney/trustee fees, late fees and taxes, can bring the loan current.
Refinance Ð This option permits a property owner to replace their original mortgage with a new one. This option requires that the property owner
qualify for a new loan and may also include a higher interest rate and possibly a prepayment penalty.
Loan Modification Ð The ability to restructure the current mortgage between you and your lender.
It is a change in one or more of the loan terms which results in a payment the homeowner can afford.
Forbearance Ð The lender may arrange a repayment plan based on the homeownerÕs financial situation. The lender could provide a temporary payment reduction or suspension of payments.
Information will be required from the lender to show that you are able to meet the new payment plan.
Deed in Lieu of Foreclosure Ð Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained,
all mortgage payments and taxes must be current. Most loan applications ask if the borrower has ever given property back to a bank.
Bankruptcy Ð This option can liquidate debt and/or allow more time. You will need to retain a qualified bankruptcy attorney.
Chapter 7 (Liquidation) Ð To completely settle personal debt.
Chapter 13 (Wage Earner Plan Ð Individual) Ð Payments are made toward a plan to pay off debts in 3-5 years.
Chapter 11 (Business Reorganization) Ð A business debt solution.
Sale of Property/Short Sale Ð If the property has equity (money left over after all loans are paid), the homeowner may sell the home without
lender approval through a conventional home sale. On the other hand, a Short Sale, also known as a pre-foreclosure sale, can be negotiated with your
lender if what is owed is MORE than the propertyÕs value.
Understanding Short Sales
What is a Short Sale? A Short Sale is a negotiation process which permits a homeowner to sell their home for less than what is owed.
Will the bank pursue me for the difference I owe? It depends. The factors that determine if a bank will pursue the difference depend on the type
of loan on the property (recourse or non-recourse) and where the property is located. L.A. Real Estate Network Inc. negotiates with our clientÕs
best interest in mind and always seeks a release of future liability in writing from the lender.
Does a ÒhardshipÓ have to be present for a Short Sale to occur?
Yes, a Short Sale is for people suffering financial and/or personal hardship(s). A Short Sale is not simply an escape from a bad investment or an
ill-suited loan, a true hardship must exist. Lenders are placing an increased focus on whether true hardship exists. L.A. Real Estate Network Inc. helps our clients submit a compelling hardship letter to
demonstrate the difficult hardships that exist for our clients.
Why do I have to submit a Short Sale package?
Simply because all lenders require it. A Short Sale package includes tax returns, bank statements, paystubs and a financial statement, among other documents,
which are required to demonstrate that a genuine hardship exists. L.A. Real Estate Network Inc. helps take the guesswork out of what lenders want and help
clients submit a complete Short Sale packet to avoid unnecessary delays.
Can I sell my property for any price?
No, lenders research comps in the area and will generally not accept an offer that is below the market value.
In general, if your lender believes it is better off financially to foreclose, it will do so. A lender can also proceed to foreclose if the borrower does nothing,
submits an incomplete Short Sale packet, or submits unreasonable low offers. L.A. Real Estate Network Inc. works with the Listing Agent and the BuyerÕs Agent to
ensure all parties have the information they need to close the property as quickly as possible.
Will I get any money from a Short Sale? Not usually. Most lenders will not allow a borrower to receive any money from the transaction because the lender
is taking a loss. If the lender thinks you are getting paid from the sale, they will terminate the Short Sale. While L.A. Real Estate Network Inc. cannot
negotiate for proceeds from the sale to go to the seller, L.A. Real Estate Network Inc. does negotiate with the lender for the best possible credit reporting for our clients.
How long does a Short Sale take? It depends on your lender(s). Some sales have closed very quickly while others have been delayed by unresponsive banks.
The only way to know is to begin the process. L.A. Real Estate Network Inc. works diligently with professionalism and dedication to ensure your file is not forgotten
or at the bottom of the pile. L.A. Real Estate Network Inc. also provides an on-line tracking system which allows for monitoring of the file by our clients.
Will a short sale hurt my credit? When a Short Sale is completed the words ÒShort SaleÓ do not appear on your credit report. Lenders can report the sale in a variety of ways,
including ÒPaid Settled.Ó If you are late with your payments, your lender will likely report this and your credit would be affected. L.A. Real Estate Network Inc. negotiates
with lenders to report the Short Sale in a manner that would have the least negative impact on our clientÕs credit.
Frequently Asked Questions
What is a foreclosure?
In simple terms: You have not been making the payments and they are taking back the house. You borrowed money using your house as collateral with
the agreement that if you could not pay it back, then the lender could take the house.
Can the bank just come and kick me out of my house?
No. Sometimes people are told by collectors ÒJust leave the keys in the mailbox.Ó You still have time until the sale has
actually occurred, and then the house is no longer yours.
How long does the foreclosure process usually take?
From the time you miss your first payment to the final foreclosure sale, itÕs not uncommon for five months or more to pass.
In some states this could be more and in others considerably less. It will also depend a great deal on your mortgage holder
and how aggressively they pursue your case.
Can you explain some of the steps of the foreclosure process?
Each state is slightly different, but a basic overview is as follows:
Pre-Foreclosure:
Customer misses mortgage payment. Late notice sent to homeowner by bank.Customer misses additional payments.
Bank attempts in writing and by phone to contact homeowner and resolve situation. No arrangements are agreed upon and homeowner continues to miss payments.
Bank issues demand for payment under the note in full, based on the acceleration clause. Most mortgage notes contain language which basically says if you
fail to pay the bank under the terms of the note with monthly payments as promised they can accelerate the note, meaning that the full amount is due on demand.
For example, if your mortgage is $100,000 with payments of $1000 per month, you are only required to pay $1000 per month unless you miss these payments and the
bank subsequently demands the balance based on this acceleration. Once this happens, you legally owe the full balance of $100,000 plus back interest, plus late
charges, plus legal fees all at once. You will find from this stage on the bank will not accept monthly payments. They will instead demand much more to reinstate the loan.
Although I consider this step in the pre-foreclosure category, once demand has been made and the note has been accelerated you should already have contacted a foreclosure
specialist who is an expert in dealing with these matters. No acceptable arrangements or payments have been made with the bank to stop foreclosure process.
After 3 months have passed since the lender first filed a Notice of Default, a Trustee Sale Date is set which is normally 3 weeks out.
The highest bidder at the sale is now the new owner of your property and sends a Marshall to formally evict you from your home with only an hour to
collect your personal belongings while the locks are being changed.
Formal Legal Foreclosure Process:
Bank sends Notice of Intent to Foreclose.Immediately following the notice, bank files action in the court system to foreclose.
Legal notices (see soldiers and sailorsÕ notice below) as required by law are published in local papers.
No payment or settlement arrangements are made with the lender.
Notice and waiting periods expire.Court issues order allowing bank to foreclose.
(Beware, several of these steps happen so quickly that the process can be very short.)
Legal notice of actual foreclosure sale published in local papers.
House sold at auction to highest bidder.
When should I be alarmed?
Most people arenÕt alarmed until they receive a notice of default (in some states a Lis Pendens or a Notice of Intent).
At this point you should be very alarmed. You should already have a foreclosure specialist helping you to protect your position at this point.
When in the foreclosure process should I move out of my house?
YOU DONÕT MOVE OUT!!!!! By doing this, you give up the majority of your rights. STAY in your house.
What you need is advice and coaching. Knowing ALL of your options will give you power and having a plan that you can see will work will give you peace of mind.
Once the foreclosure process starts, is there anything I can do to stop it?
Yes. Working from your first late payment, there are at least 10 or 20 different ways to resolve the situation.
The longer you wait, however, the more some of these options will become unavailable.
At what point will I have absolutely no option left?
Never. You have not lost until the fight is over. Even after a foreclosure, even after an eviction,
you still have as much right to buy your house back in the open market as anyone else. Realistically, if you have not been able to save the house before a sheriff evicts you,
chances are strong you will never be able to structure a deal to buy the house back. This is largely based on the assumption that you hired a capable attorney and had the
ability to strike a deal. If so, you would have done so long before a sheriff removed you from the house. Although possible, I have not yet seen anyone repurchase a home after a physical eviction.
I am receiving a lot of mail from people that claim they can help me. Where are they getting my address?
Due to the legal nature of the foreclosure process, your name and address may be part of public information
offered through the court system and ultimately published in certain journals and publications.
What kinds of people send these letters and can they really help me?
Many groups of people try to contact homeowners in foreclosures: Real Estate Brokers/Agents: Some agents just want to list your house on the local MLS,
hope to find a buyer and hope they can get a Short Sale approved. Our company, L.A. Real Estate Network Inc. Inc., and its agents are properly trained
in the area of Short Sales and assisting homeowners in avoiding foreclosure.
Having a properly trained agent representing you will be the difference in having a successful sale.
Mortgage Brokers: If there is enough equity in your home, Mortgage Brokers can help you to refinance and stop the foreclosure by paying off your current mortgage in full.
This solution often works well, but you must be careful because the interest rate and closing costs on these types of loans can be high.
Due to your credit situation you will pay much more than at a bank, but some brokers may try to charge even more points or interest than another
just to gouge the debtor for more fees if they think they can get it.
Investors: Some are ethical and some are un-ethical.
NEVER GIVE A POWER OF ATTORNEY TO AN INVESTOR OR SIGN YOUR TITLE TO YOUR PROPERTY OVER TO THEM.
Chapter 13 Attorneys: If you have the financial ability to complete the Chapter 13 plan then this is also a viable way to save the house.
Be aware that many of these attorneys will be more than happy to file a Chapter 13 for you whether it is the best option or not. It is my personal feeling
that this should be an option of last resort unless your personal circumstances indicate this is the best solution for you. Keep away from lawyers
running Òbankruptcy millsÓ as I call them. These firms may let paralegals handle your entire case, never really getting to know your
situation or giving you the personal attention you need.
Crooks and Con Artists: I include in this group those who will take your money with promises to keep the house and provide no services.
In the worst cases, I have heard of groups that will take title to your home, force you to pay them rent with the promise that they can save your home.
The result is they either save your home keeping any equity for themselves or in the alternative, collect rent from you until the home is sold.
Furthermore, you would no longer own your home and Chapter 13 would no longer be an option.
How will I know which is the best option for me?
This is a tremendously complicated question. The answer will depend upon your assets, liabilities, income, expenses and the underlying
reason why the house is in foreclosure. The best solution will also depend upon the type of mortgage you have and where in the foreclosure
process you are when you make the decision to save the house.
From your experience, how are most of these cases settled?
Our latest statistics indicate the following: Approximately 40% of clients refinance, approximately 35% file Chapter 13,
approximately 20% reinstate their existing mortgage, and about 5% are unable to save their homes or use a more unusual method.
What happens to the money paid by the new purchaser?
Monies will be distributed in order of priority. First priority will be real estate taxes. If monies are available after taxes,
monies will go to the first mortgage then the second mortgage, third mortgage etc. The next money will go to any lien holders or
attaching creditors. This process will continue until all liens and encumbrances on the property are paid. If by some chance there
is still money left over, it goes to the former homeowner.
May I bid at my own auction?
Any given sale may be a bit different and it will look like this:
The Auctioneer will read various legal notices and legal descriptions of the property.
He or she begins taking bids on the property. If the Auctioneer has not already pre-qualified bidders by asking for their deposit checks when a bid is made by a party,
the Auctioneer will ask for their deposit check. For most residential auctions this will be $5,000. The Auctioneer will solicit bids for higher amounts.
Depending on the auction, increments will be set by the Auctioneer. Examples of increments may be $100, $500, or $1,000. This process will continue until it
has become clear to the Auctioneer that the high price has been reached. The Auctioneer will announce the standard Ògoing once, going twice, going three times, sold!Ó
and the auction is concluded.Foreclosure deeds and purchase papers will be drawn up by the new purchaser and the mortgage holder.
A grace period will be given to allow the purchaser to line up financing. In most cases, this should be thirty days.
A closing will take place and the new owner will formally take title to the property.
What does it mean when debts merge? LetÕs say for example that the first mortgage is foreclosing and forecloses out the second and third mortgage.
The second and third mortgage holders no longer have any right or title to your home. You may still owe this money but they have no right to foreclose
on the home nor do they have any security interest in the home in any way. If you had filed a Chapter 7 bankruptcy prior to the sale and received a discharge
after the sale, you would not owe them any money and they would no longer have a security interest either. Your debt, to all intents and purposes, will be
extinguished completely. If someone else buys your home at the auction, the bank, the second, and third mortgage holders have lost all their rights
to the property but on the other hand if you buy the property back the debt may ÒmergeÓ back to the property with you and reattach, as if the auction never foreclosed them out.
What happens when a property is auctioned subject to a first mortgage?
This happens when the mortgage is being foreclosed by the second mortgage holder. They can only foreclose from their position.
Let us say for example there are outstanding taxes of $10,000 and a first mortgage of $90,000 on the property with the second mortgage foreclosing.
At the auction, the second mortgage would foreclose from their position subject to the first mortgage and the taxes. You find at this type of auction a
bid of $1 is the same as bidding $100,000. To own the house out right one would have to satisfy the first mortgage and the taxes.
What happens if no one at the auction bids an amount high enough to cover my debt?
If the mortgage was $150,000 and the high bid at the auction was $100,000, the $50,000 balance would be called a deficiency.
Under most loans in most states you would still be responsible for the $50,000 as an unsecured debt and the bank would have legal
rights to pursue you, roughly the same as what would exist on a credit card debt. Most banks will make a bid on the property for the
amount outstanding on the mortgage including interest and court costs. If there are no bids higher than that made by the bank, the
property goes to the bank and the bank takes it in as Real Estate Owned (REO). The banks will do this to protect their interest and
this allows them to keep the property, which will hold its value, in lieu of their mortgage payments.
What is the difference between a foreclosure and a sheriffÕs sale?
The Mortgage Forgiveness Act of 2007 was signed into law on 12-20-07 and is now officially effectively getting rid of the question
ÒWill I be taxed on the Short Sale?Ó Prior to this action, forgiven mortgage debt due to Foreclosure, Short Sale, or Deed in Lieu of
Foreclosure, was potentially taxable income to the borrower. This was the subject of much media attention and led to many questions and
concerns from sellers wondering whether or not they were going to get Òhit with taxesÓ on the Short Sale. The new law, however, temporarily
waives these taxes for debts forgiven (as high as 35%) from the beginning of 2007 to the end of 2009.
What if IÕm in bankruptcy?
Since a bankruptcy prevents debt collection activity and foreclosure is a collection activity and a Short Sale is an alternative
to foreclosure, most lenders will not discuss a Short Sale if the property is in bankruptcy. We will not even get past the gatekeepers.
What if there is a renter, can I still list the property as a Short Sale?
As long as the renter is aware of the situation and is willing to cooperate with the current owner then, yes.
Does the Short Sale service negotiate IRS liens?
Yes and no. We will attempt to have an IRS lien removed or released from the property. When we succeed you will
pay an Approval Success Fee. However, we will not negotiate the liability nor will we dispute the validity of an IRS lien.
These are negotiations that should be handled by your tax attorney, not us.
However, if nobody disputes the validity or amount of the lien, we will attempt to get it removed.
Will the seller receive any proceeds from the sale?
No. In order for the lender to agree to a Short Sale, the seller must not receive any proceeds.
Can buyers ask for credit back from the sale?
Yes. They may ask for credit back for closing costs.
Disclaimer: We are not attorneys nor are we credit counselors. The information that we are presenting here
is general information and should not be confused with legal advice. If you require legal advice, please consult with your attorney.
All information provided is deemed reliable, but not guaranteed.
You MUST seek advice from an attorney or CPA regarding your legal rights and tax implications of a Short Sale.
