The process a distressed homeowner goes through varies from state to state. In Virginia, being a non-judicial foreclosure state, most proceedings involving properties whose owners have defaulted are ordered by the trustee who owns the note for the property. Court-order actions are not typical in Virginia. This results in a faster foreclosure process since the home sale by default is pre-authorized in most loan documents.
Various unexpected factors may occur to cause homeowners to become into this distress state. Some of the more common are:
Failure of your business
Adjustments to mortgage payments on variable rate loans
Death of a contributing partner
Borrowers health with potential to affect income
Predatory lending - deceptive, or fraudulent practices of some lenders
We at “Totally Yours” have undergone various training programs on the best practice and procedures to prepare documents and handle the stressful proceedings faced by distressed homeowners. Please feel free to contact us at your convenience should you have any questions or for a no obligation consultation. We understand what you are going through and would like to help in any way possible.
When a homeowner is suddenly faced with a financial shortcoming, depending on the shortage the homeowner should first consider taking advantage of the “Making Home Affordable” (MHAP) initiative program that was launched in 2009. This program can help if you have negative equity or an underwater mortgage. When a distressed homeowner applies for this program a refinance may be more possible as compared to a normal refinance request as well since the lender will be made aware of the shortcoming and that there is a high possible that the loan may fail if nothing is done.
Some of the criteria required however for these programs include but are not limited to the following:
The property can either be owner occupied or can be a second home or investement property at loan origination.
It also must be a one to four unit home
The existing loan must be backed by Fannie Mae or Freddie Mac
The loan-to-value (LTV) ratio must be between 80% to 125%. (note over 100% means negative equity)
All payments must be current
The property owner can finically support the new mortgage payment
The MHAP or sometimes referred to as HARP (Home Affordable Refinance Program) is earmarked to be stopped on June 30th 2012. After this date any refinancing can only be executed based on conventional refinancing requirements where the most affected criteria being the loan-to-value (LTV) ratio which is usually set to 80% or below.
If you are a homeowner dealing with bad credit, loss of income, adjustable rate mortgage, high payments or high rates you may have trouble qualifying for the “Making Home Affordable” program. The “Home Affordable Modification” program (HAMP) which was more recently introduced may be effective and provide you with mortgage payments you can afford.
Mortgage and Borrower Eligibility Requirements are as follows as of August 1, 2010:
First-lien mortgages owned, guaranteed, or securitized by Freddie Mac
Single-family 1 to 4 unit, including condos, cooperatives, Single-Family
Must be borrowers primary residence
Mortgage loan originated on or before January 1, 2009
FHA, VA, and RHS guaranteed mortgages are eligible subject to the relevant guidelines
Mortgages may be previously modified but can only be modified once under HAMP
Borrowers may be considered for a HAMP Trial Period if they are current or less than 60 days delinquent
A borrower must have proof of financial hardship
Borrowers who are under another workout arrangement could be considered for a Home Affordable Modification if they request it
Borrowers must currently have a monthly housing expense-to-income ratio greater than 31 percent of their verified gross monthly income
Mortgages for properties that are abandoned, vacant, or condemned are not eligible
Depending on the circumstances some distressed homeowners may not have a desire to keep their homes. Based on how much a homeowner may be “under water” they may choose to sell if even their current home value may be less than the loan balance. In this case they will pay the shortage of the loan by subsidizing the cash themselves or by liquidating other assets to do so. This is done to protect their credit ratings from any damage and preserve their ability to make near future purchases again that otherwise will be prevented if other mortgage exit avenues were taken.
To determine your eligibility for this program please contact us. After considering your current payoff and determine what we expect your home to sell for less all associated fees we can calculate what subsidy you will need.
Preventing loan failure is of great interest to lenders since they tend to lose much more if the borrower defaults. Sometimes forgiving some back payments and interest, rolling missed payments back into the loan amount without penalty or maybe even dropping the interest rate on the current loan might be possible. Distressed homeowners who may have had a reduction in income or other personal disaster but may still be able to make a reasonable loan payment should consult a mortgage attorney for advice to determine if lender concessions may be an option for them to pursue.
When the current mortgage balance together with all fees and other liens on a property amount to more than the owner can realize on its sale in the current market after all real estate commissions and related fees are paid, and the borrower is not able or willing to make up the deficiency to clear the debts, a short sale may be possible.
For a short sale to occur the lender (servicer) and the investor who owns the note must first be convinced that there is no other more feasible option possible and based on the current financial standing of the borrower the home will eventually go to foreclosure if no action is taken. The short sale list price is determined by realtors like us who will handle the listing but sometimes this may be adjusted due to the lenders instructions who may do their own appraisal, but the ultimate list price is usually set approximately 10 to 12% less than a normal current sale of a comparable property. The short sale process takes much longer than a normal sale because of the large amount of paperwork and negotiations that take place. Historically short sales can take anywhere from about two months to a year or more before the final approval. Depending on whether the borrower is continuing to make the monthly mortgage payments or not there is always a chance of foreclosure if the short sale approval takes too long.
Currently there is a large and increasing number of homes being sold in short sale since early 2006 and to date this number remains high. The government recognizing this has introduced various legislations to help home owners who are forced to go through this process. One significant piece of legislation exempts taxpayers from federal income taxes that would be due on any debt forgiveness lenders offer as a result of a short sale. Normally lenders would issue a Form 1099 for the extent of the part of the debt that was forgiven and taxes would be due by the borrower for the amount.
We at “TotallyYours” are professionals with special training in short sales and foreclosures and can help guide you through this porcess and prepare the short sale package, however we advise you to also consult an attorney and tax consultant for advice before and during the short sale process.
In an attempt to standardize short sale processes the government had further established a new program back in May 2009 which only became available on April 1st 2010, the Housing Affordable Foreclosure Alternative (HAFA). All Servicers who offered the HAMP are also qualified to offer the HAFA program. As a guide click here to see if your servicer is listed yet. If your mortgage is owned or guaranteed by Fannie Mae and Freddie Mac, HAFA should be available to you providing you meet the HAMP basic requirements.
Some of the main differences and in fact benefits of a HAFA short sale program are:
Lenders are forced to forgive the difference between what you owe on your mortgage and the amount that the sale of your home provided less any applicable fees
Homeowners will receive $3,000 in relocation assistance at settlement
Sellers get $1500.00 for processing the the short sale through the HAFA program
Investors (that’s your first lien holder) get up to $2,000 for allowing a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders
The program is also designed to speed up the short sale processing process and in most cases closure is achieved relatively faster than a conventional short sale resulting in a greater benefit for all concerned.
We are specially trained in the HAFA program and are here to assist you both in determining your eligibility and in representing you through this program, please contact us for more information.
DEED IN LIEU
When a distressed property owner is able to arrange with their lender to trade the ownership of the property for a wipe out of the current debt, a Deed In Lieu as achieved.
In some cases depending on various factors involved like current market conditions and others the lender may be willing to accept a Deed In Lieu. Two possible scenarios when this may be favored are, one is if the lender knows that foreclosure is unavoidable and a Deed In Lieu will save them time and money plus they will obtain the property in a much more desirable condition, and two in an appreciating market where the lender can visualize a higher selling price in the near future.
Being active realtors in this business we are able to determine an estimated market value for you and if you think that a Deed In Lieu may be a possibility we recommend that you consult an attorney that deals with real estate who can better guide you through the best approach to achieve your goal.
When a distressed property owner’s rights to their property is terminated typically by a forced sale of the property at public auction with the proceeds being applied to the mortgage debt, which is usually due to default by the borrower, a foreclosure has been executed.
Too many distressed homeowners find themselves in situation realizing the possibility of foreclosure much too late. In many of the more popular foreclosure alternatives discussed on this website the time required for success is usually much more that a lender will want to consider when a foreclosure notice has already been issued. Foreclosure is the least desirable method of exiting a distressed situation since it causes the greatest impact on the borrower credit. A foreclosure can reduce the borrower’s credit score in the magnitude of 200 points as compared to as little as 50 points resulting from some short sales. Foreclosures also impact the time span an individual’s may have to wait before they can obtain finance to purchase another property compared to other alternative, and on a lesser note it will also affect the social relationship between the foreclosed homeowner and their neighbors and friends since it reduces the value of their properties.
If all fails and foreclosure is evident, we strongly recommend that you consult an attorney.
If you have negative equity or an underwater mortgage, a short sale may not always be an option since you have to meet certain hardship requirements to qualify, you may be tempted to walk away. Rest assured that there may be major consequences if you choose to do so. Historically some individuals have chosen to file for personal bankruptcy including mortgage and all other current debts.
Again we strongly recommend that you consult an attorney to discuss your alternatives.