Should I Consider A Short Sale?
Avoiding Foreclosure: Steps You Can Take To Save Your Home and/or Your Credit
Many markets are seeing a rise in delinquencies and foreclosures. If you've missed payments on your mortgage or are worried about future payments, it's easy to feel like you're all on your own. With your house on the line, you may be tempted to hide and merely hope for the best. However, if you face problems quickly and directly you're much more likely to avoid foreclosure.
It's important to remember that foreclosure is also an undesirable endgame for lenders. Many mortgage companies would rather attempt to work with a delinquent borrower before resorting to the expense and hassle of foreclosure.
Generally speaking, mortgage service companies provide one set of solutions for borrowers with short-term troubles and another set for those with long-term problems. Before you begin negotiating with the mortgage company, you should know which category your situation falls into.
For example, if you've been recently confronted by a costly auto repair, you may be in a crunch trying to meet a mortgage payment or two. Because the repair bill is a one-time expense, the mortgage issue is short-term. On the other hand, a change in employment or earning ability can be a longer-term problem, especially if your financial outlook is unknown.
: Ignoring a problem rarely makes it go away. Unfortunately, in far too many cases borrowers fail to respond to their mortgage service company (the firm that collects payments and sends notices when payments have not been received). The first step in showing good faith is responding to the calls or letters regarding your delinquency. Many service companies have a foreclosure prevention department that is trained to empathize with troubled borrowers. So make initial contact, but be careful not to agree to any new terms hastily.
The mortgage company may offer up several different solutions initially, but the last thing you want to do is to agree to something new that may put you into even more of a bind down the road. Before agreeing to any new terms, you should describe your situation to an outside expert. Seek outside help in the form of a real estate attorney, credit counselor or a housing counseling agency.
The most caring mortgage lender in the world still sees things largely in black and white, so it's important to gather as much information as possible. Begin by collecting all correspondence from the mortgage service company. Keep envelopes when possible, as sometimes the postmark of critical notices can affect a borrower's eligibility for relief. You will want to document the following:
Income: Collect as much documentation displaying your income as possible. Lenders typically want to see at least one month of income, but get together as many consecutive recent pay stubs as possible. Find your last two to three tax returns and W2 forms. Also include three to six months of bank statements.
Expenses: Assemble all bills, paid or unpaid, from the time you began to fall behind in payments until now. Include utilities, credit card bills, auto payments. It's very important to show why you may have fallen behind in the first place (i.e., unexpected repair or medical bills).
The documents will likely help tell the story of why you fell behind on your mortgage payments. Now it's up to you to fill in the blanks with the human element. Write down all of the circumstances that lead to your current situation, and you'll be better prepared to explain yourself to your lender.
Depending on the number of payments missed, the size of the loan and the financial outlook of the borrower, the mortgage company has a variety of potential solutions that it may offer:
Repayment Plans - If you haven't missed many payments, the mortgage provider may work with you to form a repayment plan that allows you to pay off the past-due amount bit by bit (in addition to your regular mortgage payments).
Reinstatement - Should you be experiencing a temporary shortfall of cash, your lender may provide an extended period of time to pay off the past-due amount. In most cases, you will still be responsible for any late fees or penalties you've already incurred.
Forbearance - If you need temporary relief, the lender may offer a forbearance plan, which suspends or reduces your payments for a set period of time, with the unpaid balance to be paid later in either pieces or one lump sum.
Loan Modification – Longer-term financial problems that affect overall income are sometimes solved by loan modification. Any term of a mortgage may be modified by a lender: the rate, the payoff date, and even the total amount owed. A lender may modify the terms of the mortgage if you cannot make payments under the current agreement, but the lender is reasonably sure that you will be able to consistently make future payments under new terms. Modifications are extreme measures and are used sparingly, but are an option for lenders who conclude that foreclosure would be more costly.
Most mortgage-service companies are essentially broken into two branches: The first tier is the collections department, whose job is to track down delinquent borrowers and recover back payments. The second division is the foreclosure-prevention department (sometimes called loss mitigation, delinquency customer service or loan resolution). This second tier is responsible for making the tough decisions.
Getting past the collections agents and to the loss-mitigation department is critical. The help of an attorney can be crucial in gaining you such access. When you do get through to a loss-mitigation agent, tell your story and answer all questions about your income and expenses, and request an application for forbearance or modification.
While the hope is that the lender will offer mitigation, you should be prepared for the worst-case scenario: that you will have to move out. However, if the lender does offer loan resolution, they likely will push you to make a quick decision. Instead, take the time to consider your options with an advisor before agreeing to anything.
Is Short Sale The Answer? If, after attempting to work with your lender, you cannot agree on a mutually-workable solution, you can request the lender to work with you on a short sale. Because it is time consuming and expensive to foreclose on a property, most lenders prefer you try to sell the home rather than force them to go through the foreclosure process. Many foreclosure properties end up vacant and neglected before the legalities are finished, thereby reducing the value of the property even further. If your lender agrees to this option, you need to speak with a reputable Realtor, preferably someone experienced in the short-sale process, who can walk you through every step of the sale from start to finish. Once you find your Realtor and sign a listing agreement, the agent will begin the process of marketing and selling your home, negotiating with your lender, and closing the deal.
Deed In Lieu of Foreclosure: If, in spite of your best efforts, you are unsuccessful in selling your home in a short sale, your final option is to offer to sign the property over to the lender to avoid foreclosure. Lenders prefer that you sell the property yourself, so don’t expect this option to be considered by a lender until you are able to prove that you have attempted to sell your home at fair market value for a number of months.
Offered by: Alexa Peronard, Realtor * ReMax Absolute * (321) 652-7269 * www.AlexaPeronard.com
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Smooth Short Sales: Tips from a Lender
Condensed from Article by Melissa Dittmann Tracey for REALTOR® magazine online
WASHINGTON — Real estate practitioners who've worked with clients on a short sale often complain about constant transaction delays, particularly in getting the deal approved from lenders. At National Association of Realtors’ 2008 Midyear Legislative Meetings in Washington, D.C., a representative from lender JPMorgan Chase & Co. shared some advice on how you can help move a short sale along as smoothly as possible.
"We’ve found a brave lender to stand in front of a room full of agents,” short-sales expert Robert Kutschbach, broker-owner of Carleton Realty in Westerville, Ohio, said in his introduction of Jim Satterwhite, vice president of prime default management at Chase. A short sale occurs when the net proceeds from the sale of a home are not enough to cover the sellers’ mortgage obligations and closing costs, and the seller is unable or unwilling to bring sufficient liquid assets to closing to cover the deficiencies.
Patience Is a Virtue
Satterwhite said that just as practitioners are being hit with a wave of short sales, they must recognize that lenders are too. “Be patient. The decision process may take several weeks,” Satterwhite said, adding that a big lender may be dealing with a quarter-million delinquent loans at any given time. It can be a challenge to obtain approvals from everyone involved in the short sale, including investors and insurers, he said. He encouraged practitioners to stay in contact with the servicer of the mortgage to keep everything moving.
Another common problem he sees: When short-sale offers are submitted days from an impending foreclosure sale, which is not an adequate amount of time for a lender to reach a decision.
Research and Followup Can Avoid Delays
Satterwhite shared these recommendations for practitioners:
- Find out if there are any liens on the property, which can become big problems for lenders and real estate professionals. Secondary lienholders may require money to minimize their losses and can balk at approving the short sale. Frequent objectors include tax lienholders and mechanic’s lienholders.
- Engage both primary and secondary lienholders at the same time because all parties will need to approve the contract.
- Ensure that all of the seller’s paperwork is completed and submitted on time. Sellers should be aware that they may be asked to reduce the lender’s loss by making a payment or by signing a promissory note. This issue can come up during the negotiation process; you and your agent will address issues as they arise.
- Encourage buyers to make reasonable offers on the property. A ridiculously low offer is a waste of everyone's time, he said. “The servicer’s primary goal is to minimize the investor’s loss on a property with a distressed borrower,” Satterwhite said. Therefore, the lender will try to obtain fair market value for the property, so offers way below fair market value just cloud the process, he said.
What Price Should I Offer?
When asked why lenders can’t provide some type of guidance on what price they'll accept, Satterwhite said that would be too good to be true: Just as you wouldn’t try to sell your car by advertising the lowest price you’ll accept, lenders won’t do that in a short sale.
“We want to do what is reasonable, but we also want to do our best to recover our indebtedness,” he said.
