Don’t Be Ashamed. . . Seems like everyone’s doing it

Lack of jobs, divorce, injury and death of a loved one often forces hard working folks into default on their home loans.  Without help, foreclosure looms.  Don’t be ashamed to save your home and the opportunities for homeownership in the future.   There is hope. 

Three options that a homeowner in or nearing default has are 1) Deed in lieu of foreclosure, 2) Loan Modification, and 3) Short Sale.  From experience, the first two options have had a low success rate with the third having the highest.  It’s a mystery as to why this is the case yet feel the banks are a step behind and lack the work force to service those in need within a timely manner. 

You will need the services of an experienced short sale specialist upon deciding that a short sale is needed.  I specialize helping homeowners in need of alternatives to foreclosure.  Call me for no obligation consultation at anytime—869-3469.

1)  A Deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.

The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him/her from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he/she would in a formal foreclosure. Another benefit to the borrower is that it hurts their credit less than a foreclosure does. Advantages to a lender include a reduction in the time and cost of a repossession, lower risk of borrower revenge (metal theft and vandalism of the property before sheriff eviction), and additional advantages if the borrower subsequently files for bankruptcy.

Neither the borrower nor the lender is obliged to proceeed with the deed in lieu of foreclosure until a final agreement is reached. 

2)  Loan or Mortgage modification is a process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower (i.e mortgagor and mortgagee). In general, any loan can be modified.

In the normal progression of a mortgage, payments of interest and principal are made until the mortgage is paid in full (or paid-off). Typically, until the mortgage is paid, the lender holds a lien on the property and if the borrower sells the property before the mortgage is paid-off, the unpaid balance of the mortgage is remitted to the lender to release the lien. Generally speaking, any change to the mortgage terms is a modification, but as the term is used it refers to a change in terms based upon either the specific inability of the borrower to remain current on payments as stated in the mortgage, or more generally government mandate to lenders

Mortgages are modified to the benefit of the borrower in one or more of the following ways:   1)Reduction in interest rate, or a change from a floating to a fixed rate, or in how the floating rate is computed, 2)  Reduction in principal, 3)  Reduction in late fees or other penalties, 4)  Lengthening of the loan term, 5)  Capping the monthly payment to a percentage of household income./

The borrower can be current, late, in default, in bankruptcy, or in foreclosure at the time the application for modification is made. The programs available will vary accordingly.

3) 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 borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. 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 borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency

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 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 or BOV).

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 an 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.

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