Let’s face it, it’s extremely scary being faced with
possible foreclosure. There is nothing worse than the dread of going to the
mailbox and seeing another letter addressed from your mortgage company
regarding your missed payments. If you are behind on your mortgage payments you
have a few options at this point:
1.) Put your head in the sand and pretend the bank forgets about you.
This is probably one of the worst options you can choose. Ignoring calls and letters from your bank or loan servicer will not make them go away. In fact, they will continue to proceed with the foreclosure process, and you will lose any opportunity to reduce the negative impact on your credit report.
2.) File for bankruptcy to stall the foreclosure, tank your credit score, and put your life and dreams on hold for years.
There are many foreclosure rescue companies that tell their customers to use this tactic to stop the foreclosure or eviction proceedings against you. Although it does pause any legal action, it is only a temporary remedy (Less than 3-4 months typically) and the foreclosure or eviction will proceed after the delay (or in legal jargon ‘stay’) is over. Then you will be right back where you started, but now with the big black mark of a bankruptcy on your credit report that could stay there for up to 7 years. Sometimes, bankruptcy is inevitable and can be a viable option for many individuals. However, you should only consult with a reputable bankruptcy attorney who can properly advise and guide you through the process. We are happy to pass along a list of reputable bankruptcy attorneys should this be the avenue that you need to take.
3.) If you don’t want to lose your home and feel that you could afford a slightly lower payment than what you’re currently paying now, then the bank may work something out with you. This is known as a loan modification.
The bank will work with you to adjust the terms of your loan to temporarily or permanently reduce the monthly payment by adjusting the interest rate or moving monies owed to the back of the loan so you can have some relief right now. But it’s important to be realistic. Don’t work out a deal solely to buy more time when you know you cannot afford the current payment or the modified payment. Missing more payments will further impact your credit score and place additional burdens on you.
4.) If you have some type of legitimate hardship in your life such as: COVID-19, job loss, death in the family, cancer, health problems, etc. and you know that you will not be able to keep making your monthly payments on time, then one of the options is to sell the home prior to the foreclosure by negotiating a short sale or lender coordinated sale. This requires hiring a default real estate expert to negotiate with your lender.
A default real estate broker has relationships with loan servicers and banks that manage mortgage loans. This is to your advantage because they can contact your loan servicer/bank directly and get the process started without delay. This is important because time is truly of the essence. Not only do you have to compete with the foreclosure timeline, but negotiating with a bank or loan servicer also requires strict adherences to timelines for submitting documents, contracts, etc.
We have worked with banks for over 15 years and understand how they operate. If a bank must foreclose on a defaulted borrower, it is a very expensive process. Many people don’t understand how lending money on a home works. The money borrowed to purchase your home was not the ‘bank’s’ actual money. It is an investor’s money that put it with the bank in hopes to turn a profit on their investment. If you do not pay your mortgage payment, the bank servicing your loan still must pay that investor their monthly interest dividends because of their contractual commitments to that investor. Additionally, if a loan goes into default, Dodd Frank law requires the lender to place an additional 20% of reserve funds into holdings. These are additional funds that become tied up that they can no longer utilize or lend out.
What if countless people all stopped making their mortgage payments (like during COVID-19)? Eventually, the loan servicers are going to have a tough time finding the money to pay their investors’ monthly returns. Because of this, banks are sometimes willing to get creative to avoid having to foreclose on your home so their investors can get their money back sooner rather than later and avoid further losses. Foreclosure is an expensive proposition for a bank. And you are liable to pay for their legal fees if your home goes to foreclosure.
During a short sale, we help to negotiate with your bank. They agree to allow you to sell your home so they can recoup monies owed to them and you do not have to get foreclosed upon. We create an open communication process with the bank so they can pause all the foreclosure proceedings and allow our team to help find a buyer to purchase your home. Our fee to provide this service is either paid by your lender or taken out of your equity proceeds (if you have any equity at this time).
This process is called a “short sale” because many times the amounts owed to your mortgage lien holder(s) is a higher amount than what the property is currently worth. This requires our team of professionals to negotiate on your behalf so that your lenders will accept less money that what they are owed. The remaining balance is then negotiated as debt forgiveness so the lenders will not pursue legal action against you to try and collect the deficit. If you have multiple liens on your property, we will have to negotiate separately with each lien holder.
If you are short, then we will negotiate with your lender to provide you with relocation assistance and cover all costs associated with selling your home. Many times, this is something the lender will consider because these cost are lesser than a foreclosure action.
What happens if you aren’t upside down? If your home’s value is equal to, or exceeds, the value of your debts (meaning you have equity in the home) then the distressed sale process is referred to as a “lender coordinated sale”. We still have to communicate with your lender(s) to stall the foreclosure date to allow you enough time to sell the property and get them paid off. But keep in mind, you may owe more than what you think. Once the delinquency process starts, you are responsible to pay for any accruing late fees, interest, and the lender’s mounting legal fees. The longer you wait to take action, the more money you will owe to your lender(s).
Whether you fall under a short sale or a lender coordinated sale, you must have a game plan in place so your home will not only sell quickly but also sell for the highest price possible. Lenders are not dumb. After you go into default, they will hire their own appraisers or obtain multiple third party valuation instruments such as a broker price opinion (BPO). They know how much your home is currently worth and will be more inclined to work with defaulted borrowers who are acting in good faith and putting forth a sincere effort to pay back their debts. Trying to pull a fast one and sell the home at a steeply discounted rate to your third cousin so he can lease purchase it back to you is not going to fly. In fact, straw buying is illegal and can have serious repercussions.
Deciding to move forward with a short sale or lender
coordinated sale is a good option because it provides the following benefits:
1.) It takes the stress off you because the bank pauses the foreclosure process. We will communicate regularly with the bank and submit all required documentation in a timely manner.
2.) A short sale has a much lower impact on your credit score. Some of our past clients were able to short sell their homes under this program, get ‘lean and mean’, rent a smaller place for two years, work with one of our trusted credit repair companies, and purchase a home again in as soon as 24 months.
Avoid foreclosure prevention scams!
During the Great Recession, foreclosure prevention scams
became a cottage industry. While we haven’t seen any recently, if the crisis
continues, they may pop up again.
Many of these scam companies chose names and phone numbers
that were quite similar to those of government programs. They charged high
up-front fees while promising to pay off the borrower’s delinquent mortgage.
Additionally, there are foreclosure prevention companies that will also tell homeowners that they can “stop” their foreclosure by helping them file for bankruptcy or a forbearance. Please do not be fooled by these companies. If you are behind on your mortgage payments, your bank has the legal right to foreclose on you. In fact, you agreed to such in writing on the day you closed on your home. The only way to stop this process is to go through the proper channels. And these channels will always involve your lender being formerly notified and/or involved in the actual process.
Lastly, if a real estate market becomes ‘cold’, you will see many Realtors suddenly become ‘all knowing’ experts in fields that they do not specialize in. Just because you have a real estate license does not mean you are an expert in every real estate specialty. A retail real estate agent is not a default expert. Neither is a commercial broker. Please be careful who you take advise from. There will be countless retail Realtors assuring their past clients that they can assist them in their short sale process because their retail business has dried up. They will use your hardship situation to ‘cut their teeth’ on to try and learn how the process works. This could end up causing you significant damage or harm. One of the fiduciary duties a real estate licensee owes to their clients is “reasonable skill and care”. This means they must not work outside of their expertise. Bottom line– retail or commercial Realtors are not default real estate experts and should not be rendering default real estate advise nor listing short sale or lender coordinated homes unless they have experience or specialize in such.
If you have any questions or suspicions about offers you receive, call a HUD housing counselor (800-569-4287)