Know Your Options – Get Educated
You need to know your options when it comes to your home. If you want to keep your house, but can’t make the payments and you owe more than your home is worth, you may look into filing bankruptcy. This will stay the foreclosure process (not forever) and may allow you to stay in your home and repay your lender under different terms. However, keep in mind that bankruptcy or foreclosure will hurt your credit for many years.
Below are your options to consider: If you are unable to get your lender to work with you on Options 1 – 4 and you don’t have time to sell your home because of late payments, the SHORT SALE option truly is your best solution.
1. Forbearance
Lender may be able to arrange a repayment plan based on the homeowner’s financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements. Both loan modifications and special forbearance agreements are legal contracts so be sure you can meet the revised obligation or you can put yourself in jeopardy of renewed mortgage default proceedings.
2. Refinance
If your credit is not too badly damaged and loan to value ratios on your property are low enough, you might qualify to refinance your current mortgage loans. Recent tightened restrictions on home loan refinance programs have caused increased difficulties for mortgagors. With this option, there should be equity in the home.
3. Reinstatement
A lump sum payment by remitting the entire default amount plus interest, attorney fees, late fees and taxes. You can request an updated statement of total amount due to bring the loan current by contacting your lender.
4. Loan Modification
Utilizing the existing mortgage company to change the interest rate, add missed payments to the balance or extend the terms of the loan. This option can be successful for homeowners who are just recently back on financial track due to say, re-employment. The lender will require a substantial down payment toward the total arrearage and then divide the remaining balance over 12 to 18 months. These payments will be required in addition to the original payments on the note.
5. Sell your home
Homeowner may sell the home without lender approval for a conventional home sale. If the property has equity (money) left over after all loans and monetary encumbrances are paid), the homeowner will get cash from the sale. At the other end of the spectrum, a short sale, also known as a pre-foreclosure sale, can be negotiated with your lender by your real estate professional if what is owed on your home is more than the property’s value.
6. Deed in Lieu of Foreclosure
If you owe more than the home is worth, this is not an option for you. Deed in Lieu is when you give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payments and taxes must be current. Your lender will fully analyze whether your current title is burdened by subsequent interests…I.E. Is the title clean? If not, a formal foreclosure will extinguish those other encumbrances and the lender may see this as their best option.
7. Short Sale
Short selling your home my be your only hope. It is often a difficult and long process. If you are successful, the difference between what you sell the house for and what you owe on the house is forgiven. If you owe more than your home is worth, and don’t want to declare bankruptcy or face foreclosure, then a short sale of your home is the best option. A short sale does have potential tax implications.
8. Bankruptcy
This option can liquidate debt and/or allow more time. Bankruptcy law changes of 2005 now require more stringent filing rules. Debtors must qualify by meeting an “income means test” and complete pre and post petition trustee approved credit and financial counseling courses. Certain debts such as student loans and some taxes cannot be liquidated. Chapter 7 (Liquidation) Complete settlement of personal debt Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3 – 5 years.
9. Foreclosure
If a homeowner does nothing, they most likely will lose their home at foreclosure auction. Loan applications generally ask if the applicant has ever been foreclosed upon. Credit reports also disclose this damaging information. Most homeowners prefer to preserve their personal integrity by attempting some form of resolution.
Get Some Help
If you have tried many of the options mentioned here and weren’t successful then a SHORT SALE MAY YOUR BEST OPTION. You will want to find an experienced real estate agent who has done a Short Sale before. The agent will be able to deal and negotiate with the mortgage company(ies) on your behalf. And most often, the lender will want to know that the house is being marketed on MLS. An experienced short sale agent will give you a much better chance of successfully short selling your home.
Because there is often so many different entities involved in a mortgage (1st mortgage, 2nd mortgage, the investor on the loan, etc) you really don’t want to do this on your own, with no experience. Yes, you’ll have to pay commission to the agent, but you’ll have a much better chance at getting your debt forgiven with a successful short sale.
WARNING! Just because an agent says they specialize in “short sales” does not mean they have actually successfully done one! There are many classes agents attend regarding short sales, but nothing compares to real world experience.
Get Started Now
The longer you wait to get started with the short sale process the less chance you have of success. Every state is different with their foreclosure process. You need to decide quickly to start the short sale process if you’re getting behind on your payments and especially if have already received a notice of default. Your Short Sale agent should know the foreclosure process in your state to better serve you.
Follow Instructions Exactly
An experienced short sale agent will tell you what you need to do to get the house ready to sell. Don’t get too hung up about the price. If the agent wants to set a low price on the house, there is a reason behind that. Don’t get hung up about the price, all you need to care about is getting the place sold.
The goal is to get a contract offer on your home very quickly. You will need a buyer that is willing to stick around for a potentially long period for the closing to take place. It can take up to 4 months and sometimes longer from the time of contract acceptance to the time of closing to take place.
Know The Tax Implications
Congress recently passed and the president signed a law last December 2007 that likely releases you from any tax implications of a short sale.
Talk to a Qualified Tax Attorney or CPA about this for your particular situation. Your real estate agent should know about this! A good agent will have a quality referral for you to handle the tax implications of your short sale.
Prepare to move quickly
Because your closing date may not be set in stone, you need to be prepared to leave your home quickly if needed.
A minimalist lifestyle is nothing to be ashamed of; in fact it should be venerated. Your possessions are just inanimate things; it’s the relationships in your life that really matter. OK, enough life advice! Sell anything you don’t need or haven’t used in the last 6 months on craigslist! The less you have to deal with on moving day the better.
Prepare yourself emotionally
If you are already in default, or have a foreclosure pending, this whole scenario and process of trying to short sell your home can be very emotionally draining.
You will receive many solicitations from Investors. You may even have people stop by your home while you are still there. It can be a very difficult process.
Make sure you have people in your life to talk to about your situation. You will need a support network to help through this time in your life. It will pass. And you are being proactive in seeking a short sale of your home. You are taking the right steps, and in time, everything will work out. I can’t promise it will be easy, but you will make it!
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