Foreclosure Prevention Resources

Short Sale Disclosures (Mortgage Assistance Relief Services)

“Even if you accept this offer and use our services, your lender may not agree to change your loan.”

What Are Your Options?

Reinstatement

When you are behind in your mortgage and the payments are brought current including any legal costs and penalties and you are permitted to make regular payments then your mortgage has been reinstated.

Forebearance or Re-Payment Plan

The literal meaning of forbearance is “holding back.”

Loan borrowers sometimes have problems making payments. This may cause the lender to start the foreclosure process. To avoid foreclosure, the lender and the borrower can make an agreement called “forbearance”. According to this agreement, the lender delays his right to exercise foreclosure if the borrower can catch up to his payment schedule in a certain time. This period and the payment plan depend on the details of the agreement that are accepted by both parties.

Forbearance is usually for temporary financial problems. If the borrower has more serious problems, for example if it is a variable-rate mortgage and the interest rate becomes unaffordable for the borrower, then forbearance is usually not a solution.

Sell The Property

If a buyer has equity in their property, they can sell it and use the funds from their equity to cure the foreclosure. Unfortunately, many sellers believe that they have to sell much faster than they do and end up taking the first offer that comes along.

Rent The Property

In some cases a homeowner facing foreclosure will have payments low enough to allow him or her to rent his or her property and keep up with his or her mortgage payments. This is however often a short termsolution since when taxes and insurance payments come due, many homeowners cannot afford them. This causes the mortgage company to enforce an escrow account on the property. This will cause the payments to go up and it is very possible that the homeowner will end up in the same situation they were in before they rented the property.

Refinance

If you have sufficient equity and income and your credit has not been too badly damaged, you may be able to refinance. This is also typically a short term solution since the payments on the property typically go up considerably due to the refinance.

Mortgage Modification

A modification to an existing loan made by a lender in response to a borrower’s long-term inability to repay the loan. Loan modifications typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default.

Deed-in-Lieu of Foreclosure

A potential option taken by a mortgagor (a borrower) to avoid foreclosure under which the mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange for the release of all obligations under the mortgage. Both sides must enter into the agreement voluntarily and in good faith.

Bankruptcy

A bankruptcy may stop a foreclosure and allow you to reorganize your debt and keep your property. The reality however is that most of the time this is not the case and the bankruptcy only stalls the foreclosure. If you are not able to make the payments after bankruptcy the house will foreclose anyway.

The other major drawback to bankruptcy is that it makes it very difficult for you to sell your property once you enter the bankruptcy process. It makes it near impossible to negotiate a short sale. The only possibility is if the trustee for the bankruptcy agrees to release the property from the proceedings and allow it to be sold.

Servicemembers Civil Relief Act (SCRA)

MORTGAGES: The SCRA can also provide temporary relief from paying your mortgage. To obtain relief, a military member must show that their mortgage was entered into prior to beginning active duty, that the property was owned prior to entry into the military service, that the property is still owned by the military member, and the military service materially affects the member’s ability to pay the mortgage. by -uscg.mil

It is important to note that this relief is only temporary and in many cases the most prudent course of action for a Servicemember, is to sell your home. This is a personal decision based on your specific financial situation.

Short Sale

A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. It often occurs when a you cannot pay the mortgage loan on your property, but the lender decides that selling the property at a loss is better than pressing the current debtor. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrower.

How Does a Short Sale Work?

In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the borrower. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. Neither side is “doing the other a favor;” a short sale is simply the most economical solution to a problem. Banks will incur a smaller financial loss than foreclosure or continued non-payment would entail. Borrowers are able to mitigate damage to their credit history, and partially control the debt. A short sale is typically faster and less expensive than a foreclosure. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Lenders often have loss mitigation departments that evaluate potential short sale transactions. The majority have a pre-determined criteria for such transactions, but they may be open to offers, and their willingness varies. A bank will typically determine the amount of equity (or lack thereof), by determining the probable selling price from an appraisal or Broker Price Opinion (abbreviated BPO).

Lenders may accept short sale offers or requests for short sales even if a Notice of Default has not been issued or recorded with the locality where the property is located. Given the unprecedented and overwhelming number of losses that mortgage lenders have suffered from the 2009 foreclosure crisis, they are now more willing to accept short sales than ever before. This presents a opportunity for “under-water” borrowers who owe more on their mortgage than their property is worth and are having trouble selling to avoid foreclosure as a result.

Is a Short Sale Worth it?

This is a very heavy question. Plumb Realty Agents have been doing short sales for clients that have no other choice but to sell their home when they cannot make their mortgage payments and the lender is not willing to give them a loan modification they can afford.

An average a short sale from the time a home is listed for sale to closing, runs approximately 3 – 7 months and in some cases longer. Although it takes time and patience to sell a home as a short sale, it will help save a homeowner’s credit. For instance, under the current lending guidelines if a homeowner foreclosures on their home, they are ineligible for a Fannie Mae backed mortgage for a period of 5 years. If a homeowner sells their home as a short sale, they are eligible for a Fannie Mae backed mortgage loan after only 2 years.

An Investor who allows a property to go to Foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years. An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.

On any future 1003 home loan application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 that asks “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” this will affect future interest rates. There is no similar declaration or question regarding a short sale.

Credit Scores may be lowered anywhere from 250 to over 300 points for a Foreclosure. A Foreclosure will typically will affect credit scores for over 3 years. Only late payments on mortgage will show with a short sale and after the short sale is completed, it will be reported as paid or negotiated for less than the amount owed. This will lower credit scores as little as 50 points if all other payments are being made. A short sale’s affect can be as brief as 12 to 18 months.

Foreclosure will remain as a public record on person’s credit history for 10 years or more. Short sale is not reported on credit history. There is no specific reporting item for ’short sale.’ The loan is typically reported ‘paid in full, settled.’

Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. If a client has a foreclosure and is a police officer, in the military, in the CIA, Security, or any other position that requires a security clearance in almost all cases clearance will be revoked and position will be terminated. A short sale on its own does not challenge most security clearances.

Employers have the right and are actively checking the credit history of all employees who are in sensitive positions. A foreclosure is many cases are grounds for immediate reassignment or termination. A short sale is not reported on a credit report and is therefore not a challenge to employment.

Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment. A short sale is not reported on a credit report and is therefore not a challenge to employment.

In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment. In some successful short sales it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner.

In a foreclosure the home will have to go through an REO process if it does not sell at auction. In most cases this will result in a lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgment. In a properly managed short sale the home is sold at a price that should be close to market value and in almost all cases will be better than an REO sale resulting in a lower deficiency.

Will a short sale benefit a Realtor?

YES, the Realtor involved in a short sale is paid a commission. The Realtors commission is paid from the homeowner’s lender that agrees to the short sale. A short sale should never cost a homeowner a penny. All closing fees are paid by the homeowner’s lender.

This is the bottom line, a short sale helps everyone. It helps the homeowner save their credit and the many other items we have shared. It helps a Realtor in these hard economic times earn a living and provide for his or her family. It helps a new homeowner because most lenders will sell a short sale at a 10 – 15% discount off the current market values. It helps the lenders who are not receiving mortgage payments to get a non performing asset sold. On average a foreclosure will cost a lender $40,000 – $80,000 more then a short sale.

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