Distressed Property - Alternatives to Foreclosure

As we all know too well, foreclosed homes have become, and will continue to be, a large part of the real estate market. Knowing this has prompted Roberto and Rusty to become as active as possible in finding out how to help homeowners prevent foreclosure. We had many reasons steering ourselves toward this issue. For one thing, we know that foreclosure can be the most emotionally, physically and financially devastating thing that can happen to a family and we believe it should be avoided in any way possible. Secondly, foreclosures are the single largest threat to home values for your entire neighborhood and we feel it is our duty to help prevent further erosion in the market place. Over the past few years, we have been to countless classes, seminars and forums trying to stay as current as possible on the trends in this ever-increasing sector of the market. After all the certifications and discussions, what we have found has not changed much: Homeowners everywhere are overwhelmed and primarily do not know what they should do. Our mission has become to inform homeowners of all of their options and allow them the opportunity to make a decision about what is best for them.

If you are facing trouble with your mortgage payments, you need to evaluate the options and see which prevention method suits your long-term goals the best. A few of the most common alternatives are listed below.

1. Some people can refinance out of a bad mortgage into one that will allow them to save their home. In other words, payoff their current mortgage loans with a new affordable mortgage. In order to qualify for a refinance, they will likely need to have some equity in the home (home will have to be worth more than their mortgage balances) and they will probably have to have decent credit and an income that supports the proposed monthly payments. It is also very important that they obtain a loan that has long-term sustainable monthly payments.

2. In many cases, a refinance is not possible; however, one might be able to negotiate a payment reduction with their current lender. The name of this process is “The Modification Process”. There a government programs as well as lender specific programs that make this possible. Unfortunately, every loan and every situation is different so many of these requests for modified terms will have different outcomes.

Just like a refinance, this option should only be used if you are able to obtain a permanent payment that is sustainable long term. You should also be committed to your home for several years to come because it is very rare that the lender will forgive a significant portion of your mortgage debt. In other words, your home may still be valued below the mortgage loans once this process is complete.

3. A lot of people may not qualify to go either of the above routes because they do not have the income to sustain even a substantially lower payment. Other factors may play into the disqualification of the refinance or modification options, but income is the most common. Whatever the case may be, there still is hope to avoid a foreclosure on your credit report. Short selling a home can simultaneously relieve you of your mortgage woes and save your credit from one of, if not the most, devastating events it can endure. If you owe more on your property than the current market value, and it has become difficult or impossible to make the mortgage payments, you may be able to sell your house at today's market price and still be able to settle your mortgage debts. Roberto and Rusty have assisted over 20 families in avoiding foreclosure in this way by negotiating with the bank for a settlement (some of whom are already back in the market to purchase a home at today's prices!). We could write a book about the benefit of working with the bank to settle through the short sale process rather than allowing the home to be foreclosed, but we would like to keep it brief. Here is a list of benefits:

1. Credit - a short sale will most likely have a negative impact on your credit report, however in most cases it is far less damaging than foreclosure. Christopher Rockey, of Mortgage Resolutions – a Fidelity National Financial company, interviewed all three credit-reporting agencies and was informed that the average difference in credit score is between 150 and 200 points.

2. Control – you control the showings, choose the offer and work it out with the bank. You know when you are due to move out, the waiting and wondering is alleviated.

3. Homeownership – by short selling, you may be able to buy back into the housing market much sooner. Imagine, unload your $600,000 mortgage today to buy a similar home in two years for $450,000.

4. Avoidance of Bankruptcy – In some cases, a bank will seek a deficiency judgment on a second mortgage after the foreclosure has been processed. This will leave the ex-homeowner with the option to pay for settlement at that time, or file bankruptcy. In many of our short sale cases, we have been able to convince the second lender to relinquish their rights to a judgment, side stepping this issue altogether.

**the three options above are not all of the options to avoid foreclosure. For example, a homeowner can bring the payments current, or possibly file for bankruptcy. The three above we feel are the most common but we encourage all homeowners to explore their options. If we have the opportunity to speak to a person in this situation, we advise them of all the options available.

***It is imperative that every homeowner that is facing foreclosure speak to an attorney and a certified tax professional about the consequences of foreclosures and short sales.

Our commitment to helping every distressed homeowner through the process led us to become certified by CDPE (The Distressed Property Institute) as well as FACS certified by Mortgage Resolutions Education Services.