Bad things happen to good people
By Thomas Nielsen
Realtors help people buy and sell homes – I hope this article may be of help to anybody about to loose it. Please dont hesitate to contact me: Email or phone: (520) 909-8757
WHAT HAPPENED ?
For decades the rule of thumb was that annual household income times 3 would equal home prices in a community. During the recent Real Estate boom home prices far outpaced salary increases creating an affordability problem. The average family now faced homeprices 4-5 times their annual gross. To the rescue came the financing industry by offering a new breed of loans: Zero down, Arms, Interest only and variable interest loans. In addition, the lenders began to accept less & less qualified clients - so called subprime mortgages. As long as the home prices kept soaring everybody was happy.
WHY ALL THE FORECLOSURES NOW?
Many of the homeowners who financed through the “new” loans are now facing hardship as these loans have a temporary component to them: 1) Arms (adjustable rate mortgages) will lock in a cheap rate for 3-5 years, then adjust to the current rate at the end of the period. 2) Interest only loans allow the borrower to skip the principal and just pay interest, but for a limited time only. 3) Variable interest loans have lower rates since the lender don’t have to guarantee the rate for 30years – But the minute the rates rise, so does the monthly payments.
I HAVE BEEN SERVED WITH NOTICE OF DEFAULT – WHAT CAN I DO?
Face the issue head on - the longer you wait the less good options you have! First thing is to contact your lender – in fact they want you to do so, here is why: Most homes that goes to the auction has little or no equity in them meaning no investors will buy them, so they go back to the lender. From then on the lender needs to put the home on the market through a Realtor. In addition to commission and closing cost the lender also pays property tax & insurance while the home sits on the market. It is estimated that these repossessed homes once all expenses are accounted for, cost the lender upwards of 25K – Lenders make their living by lending on homes, not selling them. They want that phone call !
Loan modification
When you call the lender, ask to be connected to the loss mitigation department. Request a Loan modification package. A typical Loan Modification package will call for recent years tax returns, detailed monthly budget, salary stubs and a letter of hardship, in which you explain the reason for your falling behind.
Provided that you can demonstrate that you have a real chance of pulling through and that the hardship is of temporary nature, the lender will see it as a good business decision to restructure your loan, possible put your back payments on the principal and lower the interest rate. Keep in mind that the lender at no point will accept partial payments as such acceptance would spoil the “continuity of the foreclosure proceedings” – Either pay in full, pay nothing or pay according to an agreement (loan mod.)
If the Loan Modification approach does not work and assuming that borrowing more money is not a viable solution, then you are left with 2 options:
1) Sell your home before the auction.
2) File bankruptcy
Sell your home
Even though a notice of default has been served, you are perfectly entitled to sell your home. In fact, if there is any equity in the house, you will receive a host of postcards and letters from investors wanting to buy your home with slogans like “we help people”, or “we buy homes for cash“.
Best-case scenario is that you have time to sell through a Realtor, that way you are likely to recover more money, and the transaction will be professionally handled. However, if you are within weeks (or days) of the auction you may be better off making a deal with an investor. Most investors will structure a deal where they effectively stop the foreclosure by taking care of all back payments, then rent you an apartment for a month, provide a moving truck and possible throw in a couple of 1000$ cash – in turn they get your home with its equity. It may not sound like a good deal, but alternatively your home will be sold at auction to an investor any way with no incentives for you – But worse, you will have a foreclosure on your credit report, making a comeback so much more hard an expensive.
Some investors will let you stay in the home as a tenant, with an option to buy at a later time at market value. Be aware that this usually does not work out well. Often the “your can stay in your home approach” is a strategy to have you accept the investors offer, whereas the goal of the investor remains to sell the home and realize its equity sooner rather than later.
File bankruptcy
Recent laws has made bankruptcy harder to achieve – and if declared, comes with some serious setbacks. I am in no position to advise against or for filing bankruptcy. You must consult an Attorney. Some of the setbacks associated with filing bankruptcy are the expense, not only the initial legal fee’s but even more so the accumulated expense of having a bankruptcy on your credit report for several years to come: car loans, mortgage, credit cards will all be subject to higher interest rates. A bankruptcy may only save your home for a limited time – keeping in mind that the lender has experienced Attorneys on staff who will fight hard to have your home exempted from the bankruptcy. Once a bankruptcy has been declared you must be prepared to live a (financial) life of confinement and supervision. Bottom line: Carefully evaluate the long-term effects and cost of declaring a bankruptcy.
FORECLOSURE RESOURCES
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