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Bob Kuiper, SFR
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Avoiding Foreclosure
Are You Having Problems Paying Your Mortgage? Learn How to Avoid Foreclosure.
Some Facts about foreclosure:
- There are over 100,000 currently active foreclosures in Michigan ranking us #4 in the country.
- Once a Homeowner recieves a "Notice of Default" 99% will be unable to secure refinancing due to tighter lending guidelines
- The market is undergoing substancial value corrections due to mortgage fraud and appraisal falsification.
- 90% of troubled homeowners do not want to sell their home and are looking for a viable option to either keep their home or
- avoid a foreclosure.
YOU’RE NOT ALONE IF YOU’RE HAVING TROUBLE PAYING YOUR MORTGAGE!
The housing boom led to a record homeownership rate of nearly 70% but some homeowners now face problems
making their mortgage payments and can’t refinance their loans. Over the last few years, lenders invented new types of
mortgages to help families buy their first homes and refinance their existing mortgages. Many of these mortgages helped
families without cash for a down payment, or with less-than-perfect credit, qualify for loans known as "subprime" loans.
Subprime loans have a higher interest rate and higher costs, such as prepayment penalties. A very popular, widely available
mortgage product is the hybrid adjustable rate mortgage (ARM). Hybrid ARMs have an initial period with a lower interest
rate ("teaser rate") followed by significant increases over the remainder of the loan. The hefty payment increase is often
called "payment shock" because the borrower is surprised by the size of the increase and can’t afford the new payment.
If you are having trouble paying your mortgage for any reason, or expect problems, you should work with experts and
your lender to find a solution now. If you fall behind and don’t take action, the lender will foreclose on your home. If
that happens, you may lose your home and all of the money you have already invested in it. The sooner you act, the
better the chances you will avoid foreclosure.
The Center for Responsible Lending estimates that 2.2 million American households with subprime mortgages have lost
or will lose their homes as monthly payments rise on high-risk mortgages. These families stand to lose as much as $164
billion of equity in their homes. There brochure will help you understand your options and give you tips on how to avoid
losing your home—regardless of what kind of mortgage you have. If you’re in trouble, call 888-995-HOPE
MORTGAGES WITH "PAYMENT SHOCK"
• 2/28 and 3/27 Mortgages. A 2/28 or 3/27 adjustable rate mortgage gives the borrower a fixed payment for the
initial two- or three year period before adjusting the mortgage up as often as every six months after the initial
"teaser rate" period, your mortgage payments typically adjust up every six months.
• Interest-Only Mortgages. An interest-only mortgage lets you pay only the interest on the loan for the first 5 or
10 years and nothing to pay off the loan amount (principal). After the interest-only period, the mortgage requires
much higher payments covering both interest and principal that must be repaid over the remaining years of the loan.
• Payment Option Adjustable Rate Mortgages. Payment option mortgages let the borrower decide how much
to pay each month. You can even pay less than the interest, and add the unpaid interest to the total amount of
principal you owe. Or you can pay just the interest an amount sufficient to pay off the loan in 15 or 30 years.
These mortgages can have an especially big payment shock.
HOW REALTORS® CAN HELP
REALTORS® are in the business of helping people become homeowners and they want to do everything they can to
make sure you can afford to stay in your home.
• The best and least expensive option will often be working with the current lender.
• Sometimes the only option is selling the home. Of course, no one is better at helping a seller than a
REALTOR®. It is better to sell than to go through foreclosure because it will be easier to qualify for
credit in the future and buy another home.
• Be wary of advertisements like "Cash for Houses/Any Situation" or "We Buy Houses for Cash." Consumer
groups have learned that many of these are scams that bait homeowners with the promise of rescuing
them form imminentforeclosure. Unfortunately, the "rescue" often involves the borrower signing over the
house and the family being evicted from their home.
You can find all the brochures on NAR’s Website (go to www.REALTOR.org/subprime).
HUD Resources:
• For a list of HUD-approved counseling agencies, by state, go to www.hud.gov/counseling.
• HUD’s Internet page—"How to Avoid Foreclosure"–is aimed at borrowers with FHA-insured
mortgages, but can help other borrowers as well. Go to www.hud.gov/foreclosure.
Alternatives to Foreclosure :
- Do nothing: This is the worst possible thin a homeowner facing default can do. Their home will surely be lost to foreclosure and their credit will suffer irriputable damage for up to 15 years. A foreclosure is worse than a bankruptcy when appling for credit.
- Retire the debt: This option requires full payment of the debt including late fees, accruded interest, delinquent payments as well as a pre-payment penalty that may apply. This is generally not an option due to a lack of funds that was their original problem.
- Refinance: This option usually requires significant equity in the destressed property. 99% of homeowners receiving a notice of default will not qualify for re-financing. The 1% that can qualify will see a higher interest rate and increased payment.
- Full Loan Reinstatement: This option again requires paying the entire delinquency including late fees accruded interest, legal fees, delinquent mortgage payments and late property taxes. This option in reality is not viable for most destressed homeowners.
- Forebearance: This is a negotiated payment relief plan between the lender and homeowner in which the homeowner under goes a stringent approval process. Homeowners must provide proof that the reason for default has been cured and demonstrate financial resources will be available upon re-instatement of the loan.
- Loan Modification: In this option the lender restructures the loan and usually extends the term of the loans expiration date to accommodate a more manageable payment for the homeowner. This is usually the best option for homeowners.
- Partial Claim (FHA only): This is a workout option where the loan must be at least four months delinquent to make application. A partial claim can then be negotiated whereby FHA/HUD will pay up to 12 months of PITI payments.
- Deed in-Lieu: This option requires the homeowner to surrender a property to the lender in-lieu of foreclosure. Generally, this is the last resort to prevent the homeowner from having a foreclosure on their credit record. Lenders require verifiable proof of a hardship preventing the homeowner from making the payments and there can be no secondary liens against the property.
- Bankruptcy: This should be a homeowners last resort! It will affect ones financial status for up to 10 years.
- Sell the Property: A homeowner may sell the property without the lenders approval, however, the terms of the mortgage contract must be met with full payment of the loan balance. If there are insufficient funds from the sale, the homeowner must bring funds to the closing to cover the shortfall. One alternative if there is sufficient indication of a hardship is to patition the lender for a short sale
WHAT IF THE VALUE OF THE PROPERTY IS LESS THAN THE AMOUNT YOU OWE?
Where the value of the property is less than the mortgage amount, REALTORS® can help explain to
the lender why it makes sense to let the homeowner sell the property for the best price and then forgive
the remainder of the debt. This is what is referred to as a short sale
What is a Short Sale and how can it benefit me?
Every short sale is different! Each short sale, also known as a "short payoff" or "Pre-foreclosure Sale" must be handeled on a
case by case basis. A short sale takes place when a mortgage lender agrees to discount a loan balance due to a proven
economic hardship on the part of the mortgagor. A short sale is negotiated to substantially reduce financial losses to the lender
thus avoiding accrued legal cost , carrying cost, and marketing expenses incured in a foreclosure proceedure. The homeowner
may sell the mortgaged property for less than the outstanding balance of the loan at any time before the redemption period ends.
The full proceeds of the sale must however, be turned over to the lender in full payment of the debt. The advantages for the
homeowner include avoidance of having a harmfull foreclosure on their credit history. There are many important things to consider
when entering into a short sale. Because the lender will not receive full payment of the origional loan debt it is important to obtain
written conformation of acceptance from your lender indicating that, once closed and your lender is in reciept of the funds, the note
will be "paid in full" and the lien released.
Homeowners in default considering this option should use an agent trained in short sale proceedures. An agent experienced in
negotiating the terms of sale with the lender can facilitate a quick sale and avoid the upcomming foreclosure proceedures.
Remember, in a short sale you want to be protected from pitfalls as much as possible. This proceedure requires extensive
paperwork and should not be attempted by someone unfamiliar with the procedure. As a homeowner you will not receive any of
the proceeds from the sale so why not let an experienced agent handle the paperwork and market your property?
I am one of only a small percentage of Realtors to have been trained in the proper procedures of executing a short sale. If you or
someone you know, thinks they can benefit from this foreclosure avoidance option, contact me for a confidential discussion
about your situation. Click on the contact box below leave me your information and I will set up a confidential appointment.