Stop Foreclosure and help the seller!

Wednesday, January 9, 2008

HOW DO YOU STOP FORECLOSURE

 

There are several ways in today’s market:

v Loan Modifications or Loan Restructuring

v Pre-Foreclosure Sale

v Forgiveness Of Debt

v Deed In Lieu Of Foreclosure

v Sell The Property

v Chapter 13 Bankruptcy

v Short Sale

v Repayment Plan

v Loan Modifications or Loan Restructuring

A large number of clients will find themselves using a Loan Modification Plan to stop foreclosure.

If they can currently make their regular payment, but can’t catch up with the past-due amount, they or you can negotiate with your lender to fold any past-due amounts, including interest and escrow, into the unpaid principal balance. This new amount will be re-amortized over a new period of time, usually 40 years.

If the lender is not willing to help them, then just wait. The lender will contact them and then they can contact you.

Loan Modification is a wise move here, because the lenders get penalized by the Federal Reserve Board for every dollar they have on their REO (real estate owned) books.

Their usual operating basis of a Trust Deed Sale, (auction) with properties selling 60-75 cents on the dollar down the road, would not be very successful and they would end up with too many properties in their REO department. Also, to short sale the properties at 65 cents on the dollar, was a problem for them too. They were facing 25,000. foreclosures per week, and staring down the barrel of one million more potential foreclosures to come when the fixed interest rates came off about this time.

Now, loan modification solves this problem in the fact they can gain more interest if they extend the loan over a longer period of time, then avoid a risky Trust Deed Sale and this in turn stops the real estate market from its slippery slope of 30% reducing properties.

Fannie Mae, Freddie Mac and the mortgage people responsible for administering borrower loans have all attempted to boost loan “workouts” or “cures” and reduce the number of homes that end up in the dreaded “REO,” or “Real Estate Owned,” category.

Mortgage banks and investors aren’t just doing this out of the kindness of their hearts. Workouts look better from a public relations standpoint and usually cost thousands of dollars less than full foreclosures and home repossessions. They also keep lenders from having to slog through the foreclosure process, which in some states can drag on for a year and a half or more. Regardless of lenders’ motivations, the trend toward increased workouts means borrowers have a much better chance today of avoiding eviction than in the past.

“Put yourself in the bank’s shoes,” says Mory Brenner, a Pittsfield, Mass. attorney who works with borrowers in foreclosure. “The person has missed one payment or two payments and you know in your state that if the thing goes to foreclosure, you’re going to be looking at getting no payments for a year and a half and at the end of the year and a half, now you’re going to have to market a distressed property.

Are you going to want to help the borrower make their payments? Absolutely.”

The workout wheel starts turning once a borrower payment becomes 16 days late.

Repayment Plan

With a repayment plan, the company agrees to tack, say, half the amount of the first missed payment onto each of the next subsequent two payments. These plans provide some breathing room for borrowers with short-term financial problems, such as expensive car repairs that make it too difficult to pay the mortgage for one month.

In a more serious case, the customer may have already missed two or three payments and owes a couple thousand dollars in lender legal fees. The The loan service person will still try to arrange a repayment schedule. But the borrower will likely have to pay a third to a half of the delinquent amount upfront, and then pay off a portion of the remaining balance each month for a year or more.

“In a repayment plan, the borrower agrees to do a payment and a half, a payment and a quarter, etc., for whatever number of months is needed to make that loan current,” says Fannie Mae’s Smith.

Loan modifications go a step further and they’re designed for customers that can’t afford repayment plans. In a modification, the loan service person actually adjusts the terms of the loan to make it affordable. It may lengthen the amortization schedule or lower the interest rate to cut the monthly payments, or roll the past due amount into the loan and re-amortize the new balance so the borrower can pay the additional debt back over time.

If the customer has a more serious financial problem, such as a longer-term job loss followed by rehire at another company that pays much less, alternatives still exist.

Pre-Foreclosure Sale:

The loan service person may agree to help the borrower get rid of the house via a pre-foreclosure sale. In more dire circumstances, the loan service person will agree to a “short sale.” In such sales, the lender lets the borrower sell the house for less than the outstanding loan amount, takes the proceeds and forgives any remaining overage. Banks are willing to do so because they often lose less on these deals than they do in foreclosures.

Forgiveness Of Debt:

Some companies may consider a “short refinance,” too. With these, the lender agrees to forgive some of the debt and refinance the rest into a new loan. That way, the lender still gets more money than it would by foreclosing.

Deed In Lieu Of Foreclosure:

One last way to bail out of a home before things get really ugly is a “deed in lieu of foreclosure” agreement. The borrower surrenders the property deed to the bank and it sells it.

Sell The Property

“If he has no prospects and there’s no way he can save his property, getting with someone who can help him sell it as quickly as possible” is the best choice, says Michael Drawdy, first vice president at Countrywide Credit Industries Inc.’s mortgage division.

If all else fails …
Consumers who can’t use any of these methods still have some choices.

Chapter 13 Bankruptcy:

A debtor who can afford the normal monthly mortgage payment, but can’t afford to make up the delinquent amount and legal fees because the lender is proposing a relatively stringent repayment plan, may want to consider filing Chapter 13 bankrupcy. Doing so temporarily halts the foreclosure process and can force the mortgage lender to accept a more borrower-friendly repayment plan, such as one that grants five years to repay the amount in arrears rather than one or two.

Short Sale

Following the same logic, customers should try to negotiate the best deal they can get without feeling guilty. Someone whose property has fallen in value below the mortgage amount because of a neighborhood decline, for example, should consider pushing for a short sale or short refinance rather than a repayment plan.

States Move to Slow Foreclosures and Tighten Loan Rules

Washington may just be moving now, but states have been working on multiple fronts to dampen the effects of the sub-prime crisis for some time now — and to prevent another one.

I’m sharing my experience of what has worked for me. However, each real estate transaction is different. Therefor, this may or may not be suitable for your deal.

Click her to learn how to extend and escrow