CERTIFIED DISTRESSED PROPERTY EXPERT
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Foreclosure Solutions for homeowners?
The current U.S. housing market and national financial crisis has caused untold stress and heartache for many American families. Foreclosure is one of the most devastating financial challenges that a family can face and one that many times can be avoided. The options available to San Fernando Valley residents for foreclosure are many. Following is a brief explanation of these solutions, including their benefits and drawbacks:
A reinstatement is the simplest solution for a foreclosure, however it is often the most difficult. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender's approval and will 'reinstate' a mortgage up to the day before the final foreclosure sale.
- Benefit: Does not require the mortgage company or lender's approval.
- Drawback: Requires that a homeowner be able to pay all back payments, fines and fees.
Forbearance or Repayment Plan
A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe.
- Benefit: Allows the homeowner to make back payments over time.
- Drawback: Requires that a homeowner be in a financial position to pay not only their current mortgage, but also a portion of the back payments owed. Some mortgage companies will require a homeowner to 'qualify' for forbearance.
- Remember in a forebearence the bank or your lender may add any difference back to your loan balance. You may be in the same situation as you are now in few years if the market does not catch up. Infact you may be owing more than the balance you now have.
A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. These typically result in a lower payment to the homeowner and a more affordable mortgage.
- Benefit: Reduces the payment a homeowner is required to make on a monthly basis and may reduce the principal balance of the loan, allows you to retin your home and live in it while you fullfill the modification term.
- Drawback: Requires that a homeowner 'qualify' for the new payment and will often require full documentation. Lender has to be actively pursuing modifications.
- Again even if you have the Modification go thru, you still may owe more at the end of that Modification term. Banks may add the difference in payments or supposedly forgiven principal balance to the back end of your current modified loan balance. It is common for the bank to put in a Balloon Payment clause at the end of term or if you ever refi, try to sell your home within that period.
- Modification too may just be like putting a band Aid to your current situation only.
- If the market does not catch up you, will still be in the same situation as today at the end of that term except that the laws protecting you today may not be there to protect you.
Rent the Property
A homeowner who has a mortgage payment low enough that market rent will allow it to be paid, is able to convert their property to a rental and use the rental income to pay the mortgage. A great option if this covers your payment. This helps you keep the home and someday in years to come cash in on equity. Hope the market keeps up and he renter maintain your home.
- Benefit: Allows homeowner to keep property indefinitely.
- Drawback: The issues that can arise with a rental property are many, and rent often does not cover the full cost of property ownership and maintenance.
Deed in Lieu of Foreclosure
Also known as a 'friendly foreclosure', a deed in lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option, and the homeowner must also vacate the property.
- Benefit: Many times in a successful deed in lieu, the lender will forego their right to a deficiency judgment.
- Drawback: Requires that a homeowner vacate the property, and a deed in lieu may be reported to credit bureaus as a foreclosure.
- It is a foreclosure on your record. Should be your last option.
Many have considered and marketed bankruptcy as a 'foreclosure solution,' but this is only true in some states and situations. If the homeowner has non-mortgage debts that cause a shortfall of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution. This should be your last option.
- Benefit: Does not require lender approval.
- Drawback: If a homeowner cannot afford their mortgage payment, a bankruptcy will only stall—not stop—the foreclosure process. Bankruptcy can be costly, is damaging to credit scores, and can only be declared once every seven years.
- Once you file Bankruptcy and you were able to relocate, it will be very difficult to find a rental place to live in.
- Once you file bankruptcy , getting a ob may be very tough.
- Once you file Bankruptcy keeping a hight security clearence job like DMV or TSA at airports will be tough because you may be considered at vunerable to duress.
If a homeowner has sufficient equity in their property and their credit is still in good standing, they may be able to refinance their mortgage.
- Benefit: In some cases, this will lower payments.
- Drawback: In today's market, a refinance will almost always raise mortgage payments, and is an expensive process.
Servicemembers Civil Relief Act (military personnel only)
If a member of the military is experiencing financial distress due to deployment, and that person can show that their debt was entered into prior to deployment, they may qualify for relief under the Servicemembers Civil Relief Act. The American Bar Association has a network of attorneys that will work with servicemembers in relation to qualifying for this relief.
- Benefit: If qualified, this will lower payments on all consumer debt in addition to mortgage payments.
- Drawback: Must be active military to qualify.
Sell the Property
Homeowners with sufficient equity can list their property with a qualified agent that understands the foreclosure process in their area.
- Benefit: Allows homeowner to avoid foreclosure and harvest some of their equity.
- Allows yu to sell the property as short sale see below.
- Drawback: In many cases today, homeowners do not have sufficient equity to sell their property without negotiating a short sale (see next solution).
If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify. Hardship can be simply defined as a material change in the financial stability of the homeowner between the date of the home purchase and the date of the short sale negotiation. Acceptable hardships include but are not limited to: mortgage payment increase, job loss, divorce, excessive debt, forced or unplanned relocation, and more.
- Benefit: A short sale allows the homeowner to avoid foreclosure and salvage some of their credit rating. This also keeps foreclosure off the individual's public record, and in many cases will allow the homeowner to avoid a deficiency judgment. Borrower may qualify for another mortgage in as little as 24 months (as opposed to five years for a foreclosure).
- The 2007 Mortgage relief act may protect you when doing a short sale.
- You have the chance to negotiate with the bank and get them fair market value to reduce your debt income.
- You have the chance to Negotiate any deficiency terms with the banks that you do not get to in a foreclosure.
- You still get to live in the property while you negotiate a Short sale.
- Drawback: Short sales can be a trying process in which a homeowner is best served by contracting with a qualified real estate agent to guide the way.
- There may be deficiency and liability involved with this transaction.
- This may impact your credit rating.
This represents only a summary of some of the solutions available to homeowners facing foreclosure. Please call me today for a free confidential evaluation of your individual situation, property value, and possible options.
Pebble Singha assumes no responsibility nor guarantees the accuracy of this information and is not engaged in the practice of law nor gives legal advice.
It is strongly recommended that you seek appropriate professional counsel regarding your rights as a homeowner.
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