Pre-Foreclosure Options:
What is a loan modification?
A loan modification is a written agreement enter into with the Borrower that permanently changes one or more of the original terms of the Note, such as a/an:
1. Reduction in rate 2. Reduction in monthly payment 3. Extension of the maturity date 4. Increase in the amount of the unpaid principal balance caused by capitalization of interest, Escrow amounts and/or other advances. Such an increase may lead to an increase in the monthly payment. There are associated fees with loan modification.
Reinstatement
With a reinstatement, the homeowner brings the mortgage current by making up for all missed payments and paying any late fees and penalties.
Forbearance
Typically, when foreclosure is a result of a temporary loss of income, the lender may agree to a forbearance wherein they will allow the homeowner to delay payments for a short period or negotiate a payment plan to make up for missed payments over the course of several months. The lender may also agree to some combination between reinstatement and forbearance, enabling the homeowner to delay payment for a short period and then bring payments current by a specific date.
Repayment
A repayment plan enables the homeowner to submit payment of a portion of the past-due amount and penalties with future payments until the past-due amount and penalties are paid-off.
Deed-in-lieu
Also known as voluntary conveyance, with a deed-in-lieu of foreclosure the borrower voluntarily transfers title back to the lender to avoid foreclosure. The lender then releases the borrower from the mortgage and repossesses the property.
Short Sale
Also known as a real estate short pay-off or a pre-foreclosure workout, a short sale is an agreement with a lender to accept less than the amount owed by a borrower via a sale of the property to a third party. With this agreement, the lender releases the borrower from the mortgage, thereby preventing foreclosure
What are the advantages of a short sale?
Minimize damaging impact to credit: Foreclosure can remain on your credit for up to seven years while a short sale usually gets reported as a “settled debt” and is significantly less damaging. Foreclosures are extremely damaging to your credit, and may impact your credit rating for as long as seven years. A foreclosure can make it difficult to get a loan for a future home purchase, for college expenses, or to even get a major credit card. If you are able to get credit, your interest rates will likely be higher. For most people, it is well worth the time and effort to solve the problem before the foreclosure is done.
Minimize financial exposure/liability: In many foreclosure situations, the lender will ultimately sell the property at a significant discount once they foreclose and repossess the property. The homeowner can then be financially liable to the lender. While the same may be true with a short sale, the difference is with a short sale the homeowner is still involved in the process and can therefore contribute their input and have more control over the sale price of the property and the potential associated liabilities. In a foreclosure, however, once the lender repossesses the property, the homeowner is typically defenseless with respect to what follows next.
How do I qualify for a short sale? What criteria must I meet to be considered in a “hardship” situation?
In order to be eligible for a short sale, a homeowner must be able to prove to the lender that they are a victim to a “hardship” and are therefore unable to continue making payments on their mortgage.
A hardship situation is one that is the result of some extenuating circumstance that forced the borrower into a position where they can no longer afford their mortgage payments. While every situation is unique, some common examples of hardship include:
• Unemployment or loss of primary income source
• Inability to work due to health crisis
• Mounting medical expenses
• Employment relocation
• Failure of business
• Bankruptcy
• Death of spouse or significant other
• Divorce or separation
How much will a short sale cost me?
Absolutely nothing, our fees are never paid by the homeowner, and we are only compensated if we successfully negotiate a short sale.
How long does a short sale take?
Every short sale situation is unique and follows its own timeline. Typically a short sale is completed within one to four months from the time we have a complete short sale package ready to present to the lender.
What effect will a short sale vs. a foreclosure have on my credit?
Foreclosure can remain on your credit for up to seven years while a short sale usually gets reported as a “settled debt” and is significantly less damaging. With a short sale, your FICO score will not be as negatively impacted as it would be with a foreclosure, and you will be able to get into a new home much sooner as well.
What is a deficiency judgment?
A court order stating that the borrower still owes money when the Security for a loan does not entirely satisfy a defaulted debt.
Example: Upon Default by the Mortgagor a lender Forecloses on the mortgage. The unpaid balance of the loan is $102,000. The property is sold at public Auction and brings $80,000. The lender then seeks a deficiency judgment against the mortgagor to recover the $22,000 shortage, plus foreclosure expenses.
Can the deficiency judgement be forgiven in a short sale?
Yes!
Can I still do a short sale if I filed for bankruptcy?
Bankruptcy is usually employed only as a last resort in a foreclosure situation. Typically, filing for bankruptcy only temporarily delays the foreclosure process (or in legal terminology, it provides a “stay”). Eventually the property is sold to satisfy debts to creditors. We strongly urge you to seek the advice of a bankruptcy attorney if you are considering this option.
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