Many homeowners, under stress from mounting debts and facing possible foreclosure opt for Bankruptcy as a strategy to handle their debts. Popular wisdom is this is the way to wipe the slate clean and start all over.
One of the problems with this scenario is the lien on the property can remain post Bankruptcy.
So for example; you decide to take bankruptcy. The actual debt of the loan is discharged – you are no longer personally liable for the balance of the mortgage debt. However, the bank has retained their position on the property by means of not removing the lien they hold on the property. Now the bank – usually a second mortgage holder – is a player in the probable short sale you are trying to do. This can impede the short sale process and complicate things further.
Many sellers who have completed bankruptcy are surprised to find out that this can be true. But it is. In this flyer from our friends at Orange Coast Title you will find out how to try and avoid this problem.
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If you are late on your payments, facing short sale or foreclosure and need information we are happy to help. Call us at 760-408-5300 or email us at email@example.com. Our help is always free and without obligation. Don’t make things work by getting scammed by someone promising that they can make it all better if you just pay them up front fees.
Mention the word foreclosure and most people can conjure up the mental image of someone forced out of their home for not paying the mortgage. Of course this is the broadest and truest sense of what Foreclosure really means and in the last few years it has become distressingly common to hear about in our daily lives.
As a Real Estate Agent I deal with it on a daily basis. The primary way it comes up in my life is a homeowner expressing fear about the inevitability of being foreclosed on. The mental image most of my clients seem to have is the ultimate end point of foreclosure where the sheriff shows up, guns drawn forcing you to the street.
That point is very far down the road. The banks are slow to act (more on that below) and the process is much more predictable than most people realize. First you have to understand the process in your particular state. Part of the US has a process that is called judicial foreclosure where the lenders actually have to go to the court system to take the house back. The New York Times recently wrote that in New York State the lenders would need 62 years to process all the 213,000 homes currently in some stage of default.
A little more than half the US states do not use the judicial foreclosure process and things can move a little quicker than that. However, there is still a process, a set time frame in which the foreclosure takes place – do not allow fear to take over. The same article in the New York Times says that all the defaults in California could be processed in three years. This is still a considerable mess and a huge expenditure of time effort and energy on the lending industry to attempt to get back on course.
So what is the point? Well even if you only read the headlines you have probably noticed that they are saying that the rate of foreclosures is slowing. There are many factors here. Banks are slowing down the actual foreclosures and going for more loan modifications and short sales. Then you have a higher percentage of homeowners who are trying to fight to stay in their homes. The people who had 100% financing and “no skin in the game” as it were have pretty much moved through the system. Those loans were the first to turn sour and get foreclosed on. More of the people in default now have, or had, an equity stake in their property. Finally there is intense regulatory pressure on the banks by the government. Talk to anyone in the mortgage industry and it quickly becomes clear that the ever changing but increasing pressure from the Government is helping in someways and hurting in others but the end result is a slowdown in the process.
If you or someone you know is in default on your mortgage. Talk with a trusted professional about the process in your state. Start your conversation by first understanding the process then apply it to your situation. A Realtor, CPA or legal counsel are a good places to start. Scam artists and people who want up front payments to help you save your home should be avoided at all costs. They will only make your situation worse and do no good. Your home is too important an asset to operate in the dark – you must understand the process and come up with a plan of action that is fact based not fear based.
So you have gathered all your paperwork and are ready to send it in. Typically you have to fax all this stuff in with your account number written on every page. You usually have to update the things like bank statements and pay stubs as you get new ones.
Don’t be surprised but the first answer is usually – NO! (If the bank says yes please read section 4)
3) After The Bank Says NO: Don’t let this deter you. Ask for the specific reasons in writing. Ask for supervisors to explain what your options are. Ask what the review process is and tell them you want to be reconsidered. Unless they can tell you specifically that you do not qualify based on your income I would not accept no from this level at the bank. I would keep pushing until they refuse to consider your paperwork anymore. Sometimes they will cite the type of loan you got originally. Ask for this in writing so you can show it anyone else you may seek help from. You should assume that you will have to push and you will have to raise the stakes. Don’t lose your cool but be persistent in letting them know you want a solution.
If you get that final “no we won’t look at your file or try to help you any more” answer you should then try to get outside help. There is a non-profit organization that will help you with this process. NACA.com. Go to their website and see how the system works. Basically they negotiate with the banks to try and get you modified loans and reduced payments and interest rates. Since you will have all the paperwork together you can start their system right away. Again, this is not loads of fun but it can be done –I personally know multiple people who have received help, with great success, from NACA. You could start with NACA and skip trying to do it yourself but I do not think you should. As the banks customer you should trying asking for help from them directly first. Document your efforts – keep a small notebook with dates and times of calls made, faxes sent, answer received.
Lastly, if the Bank won’t help, if NACA says they can’t help you you can try two other routes. One is called a forensic Audit of your loan. There are firms out there who do this for about $3,000 – many are attorneys. They will examine your original loan for inconsistencies and help you go back against the bank to reset the terms based on faulty original paperwork. This is a very aggressive approach and you must be careful to avoid scam artists. Check out anyone you are thinking of hiring with the Better business Bureau and the Attorney Generals office in your state. The other option is an attorney. There are many attorneys now specializing in debt reduction –debt relief and bankruptcy. These would be a good place to start. Find one who will help you try to negotiate with the bank and any other creditor you may have to try and keep you in your home.
4) The Bank Said Yes! Hopefully you will get to a yes long before you consider a forensic audit or a attorney. So if the bank says yes read their terms very carefully. There are basically two types of yes answers. One is a temporary reduction of payment and/or interest rate that sets your monthly payment at a rate you can afford. The total amount of principal that you are not paying is often wrapped to the end of the loan – in other words you are not getting out of paying any amount due you are just putting it off. This is often called forbearance. A better version of this is a permanent reduction of interest rate (if your problem iis that your rate is too high) The second type, and less common one is the mortgage modification or principal reduction where your note is lowered by a cancellation of some of the debt. They are reducing the total amount due on the loan.
Staying in your home is well worth the effort you will have to make for most people. Don’t be discouraged and don’t fall for scam artists who say they will do all the work for you. No matter which route you take you will have to gather organize and prepare all the paperwork listed above that will be used to make the decision about your mortgage payments.
The programs available to help you and the banks willingness to help change constantly so keep asking questions. I believe that we are in a 10-15 month window of time where these programs and options are at their peak. After this window passes I think we will start back towards a market where many of these options for you as a homeowner will be phased out and no longer available. The time to act is now before they start disappearing.
If you know you cannot afford your home now or in the near future a short sale may be the answer for you. You can read more about short sales at PSagent.com
If you are at risk of losing your home in a foreclosure you may think there is nothing you can do and that it is too late. Not so. The tables have turned and the programs to help you and the regulatory pressures on the banks to make sure they have exhausted every effort to help you keep your home are pretty strong. This first part of a two part entry will help give you some basic guidelines of how you might be able to save your home.
As the foreclosure crisis continues to unfold across America we are learning that everyone is not foreclosed on for the same reason. Homeowners who can simply not make their payment are the easiest story to understand. Be it a medical situation, a job loss or other debts that just grew too large. This is the classic story of people losing their homes. They can’t pay and there is no hope or circumstance on the immediate horizon that will change that picture.
However, in the realities of today’s market there are situations that are not so cut and dried.
How about the person who is still working and capable of making a payment – but got bad advice about withholding payments to get a loan modification? How about the person who had just a temporary job loss and is now back to work earning comparable pay? How about the lady who was pushed into a loan she could not afford or understand due to a language barrier and an unscrupulous loan officer?
Two important things to know before you read any further:
- Understand you have to set aside any anger, shame or irrational thoughts about the reduced value of your home or the situation that got you to this point. None of that will get you anywhere and in fact might cause you to make bad decisions.
- Every state has a “foreclosure time line” in other words how many days will it be from your missed payment to foreclosure action being started. Be sure you know what this is. Know where you are in the process at all times.
1) KNOW YOUR BUDGET! Your first step, and the key to this whole process, is to figure out your budget and expenses. What can you truly spend per month on your home? Don’t forget taxes and insurance as you figure this out. Typically it should total no more than 28-30% of your total take home pay. Know this number by HEART – no guessing allowed. Because to win this fight with a bank you are going to have to have real numbers that can be substantiated – and you are going to have to know them well.
2) YOUR FIRST CALL: to the bank will be to request a mortgage modification. This is not easy – the bank wants endless paperwork – but you do not need to pay anyone to do this for you. It is not rocket science it is not very much fun – but even if you pay someone else to help you you still have to do this! Usually the list consists of the last two Tax returns, pay stubs, bank statements, mortgage coupons (yes they want copies of their own mortgage coupons!) sometimes home owners associations statements and property tax bills. Then they want an itemized household budget. Be careful with this one. You want to tell the truth and you don’t want to forget anything. The cats’ medicine or the once a year tree-trimming bill just make sure it is all in there. Then there needs to be a well written – 3 paragraphs or so letter – explaining why you are behind on the mortgage and why you think that you can now make a modified payment.
PART II: What to do when the bank says no, what to expect and what to watch out for – coming up in part two
In the exuberance to proclaim the economy “healed” “recovered” “rebounding” or “looking up” some in the media are not revealing the whole story when it comes to Foreclosures. Stories can always be told two ways. For example if this month 40 house sold and last month only 20 had sold it could be truthfully reported that HOME SALES Doubled! The reality behind that may be that 40 is the average and 20 was just a terrible month.
When it comes to foreclosures the reporting that they are down is not totally untrue. Realty Trac (a real estate data company) reported that January 2011 Foreclosures where down 17% over January 2010. Sounds good, you might think that we are seeing major improvement. The other part of that data is that this is still a 1% increase in foreclosures over December 2010 nation wide and locally it is 3%. That is up not down.
So to dig a little deeper it is important to note what is happening behind the scenes. That is that the banks are mired in additional government restrictions and internal policy changes that they have implemented in light of some high profile problems. In other words, many of the foreclosures are simply being stalled and pushed back on the calendar. Policies from the administration are causing banks to give more consideration to modifying loans and making sure everything is in order before they actually do foreclose. Also, because home prices are not rebounding the number of homeowner who are upside down in their homes remains high. The longer that this remains the case the more problematic it becomes. Peoples lives changes, homes need to be sold, people have to move, downsize or up-size their living situations. Underwater homes can’t be sold except in a short sale situation.
Are things improving? Yes, there are some signs that things are getting a little better. There is reason to hope. Even the slowdown in foreclosure actions is a good thing in its own way. In a fragile economy, the last thing we want to do is put someone out of their home who could, with a little help, hold on to it. At the same time we don’t want to get too exuberant over statistics that are not fully understood or explained in context. See the whole story at CNN money.
night sky. Certain types of properties, certain price ranges will be hot for a few months and then fade. Some of that is dictated by prevailing loan programs and seller incentives.
In my market place, just a few months ago, any property priced under $150,000, would immediately receive multiple all cash offers. In that price range at least it seemed like the heady days of 2005-2006. Bidding wars and buyers falling out of trees. That has quietly faded probably because many buyers have spent their cash and also the inventory in this price category is drastically reduced from what it was. Investors who bought most of these seem to be rehabbing them and entering them into the rental pool – which is quite competitive in its’ own right.
Currently the best deals are starting to be seen in the higher end up to and including the luxury homes. There are some truly stunning deals out there. Some of the homes have been reduced as much as 50%. While you may not be in the market for a luxury property the near luxury properties in the $700, 000- one million dollar range are also seeing dramatic price reductions.
The Banks have been slow to foreclose on these larger properties but there are foreclosures and more coming. Most industry insiders are reporting that the next two years will see a much larger percentage of luxury real estate and commercial real estate go on the market at very competitive prices. The number of lower priced homes will slow and the inventory start to dwindle. In my market place we are seeing the under $250,000 homes actually go up slightly in value.
With all of the focus on the foreclosure and short sale market most people assume that the main reason for excess home inventory people losing their homes.
While this of course contributes to the problem recent statistics released by the Census bureau show another trend. There has been a significant drop in the number of new households that are being created. The study showed that during the five year period of 2002- 2007 almost 1.3 million new households were being formed each year. Starting in 2008 the number dropped to just under 400,000 and decreased even more in 2009 to just over 350,000. That is an astounding drop of 900,000 fewer households started.
In tough economic times people tend to downsize, move in together, delay home purchases and younger people will stay at home longer. In the worst case scenario of course some poeple actually become homeless. Other factors contributing to the downward trend is a reduction in immigration and marriage rates. In fact some studies cite immigrants that have actually moved back out of the United States.
These are interesting statistics and show a much broader cause and effect cycle to the housing situation. As always real estate is local and in the Palm Springs market we are not seeing an oversupply of homes. Our inventory is at a two year low and sales remain very respectable. Further, as so much of the market here is second and vacation home based our numbers and statistics won’t line up with more year round markets.
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The low levels of inventory is really starting to be felt across the valley. I have several buyers now and we are having a hard time finding properties to consider. The number of properties going into escrow is growing. If you are seriously looking or considering purchasing property now is the time to get your cards on the table. We went through something like this back in 04/05 as things started to climb all of a sudden everyone wanted homes in the under 300K category and there was nothing left. Shifts in the market are usually six months in the making. By the time the media reports this it will already be too late.
Additionally the short sale market is changing. These homes are going to start selling faster as the banks get fully up to speed on how to process them. Already they are asking for more money on these properties and the banks have a plan to raise the value of the foreclosed homes as well. I will write more on that in the coming week.
If you are not ready to buy there is nothing here for you. However, if you are close to a decision now is the time to get in the game as the inventory keeps dropping and it is going to be much harder to get homes in the lower price ranges soon.
It has been widely talked about in the Real Estate industry for weeks now that the push for the new year from Washington will be to get the banks to offer as many options as possible to borrowers to avoid foreclosures. In that light today – Saturday the 28th of 2009 it was announced that new guidelines and initiatives will be announced Monday the 30th. Keep in mind that these guidelines are limited to loans underwritten by Fannie and Freddie and other lenders participate at their discretion. See the whole document with all the guidelines by clicking this link