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Facing Foreclosure (4)
Tips for Avoiding Foreclosure Scams
Unfortunately there are lots of scam artists preying upon people who are in financial hardships. Here are some tips to help you spot and/or avoid such scams.
1. Work only with a nonprofit, HUD-approved counselor. If you are looking for help to prevent foreclosure, be sure the counseling agency is on the Department of Housing and Urban Development's list of approved agencies. Visit HUD's website for an easily searchable list of HUD-approved housing counseling agencies, or call 877-HUD-1515 (877-483-1515) for more information. If you are approached by foreclosure counselors--by mail, phone, or in person--make sure the counseling agency is HUD-approved before you do business with them.
2. Don't pay an arm and a leg. You should not have to pay hundreds--or thousands--of dollars. Most HUD-approved housing counselors provide no-cost counseling services and many more provide low-cost counseling. Do not agree to work with a counselor who collects a fee before providing you with any services or who accepts payment only by cashier's check or wire transfer. In general, do not pay money to anyone unless you know exactly what services you will receive.
3. Be wary of "guarantees." A reputable counselor will not guarantee to stop the foreclosure process, no matter what your circumstances. Working with a legitimate counselor can certainly increase your chances of keeping your home--but be wary of people who promise a sure thing. Get the details of your transaction, along with any promises, in writing first.
4. Know what you are signing--and be sure you sign it. Don't let a counselor pressure you to sign paperwork you haven't had a chance to read through carefully or that you don't understand. Don't sign any blank forms or let "the counselor" fill out forms for you. VERY IMPORTANT: Be sure to talk with an attorney before signing anything that transfers the title of your home to another party.
5. If it sounds too good to be true, it probably is. If you feel you may be the target or victim of foreclosure fraud, trust your instincts and seek help. For tips on spotting scam artists, visit the Federal Trade Commission's webpage on foreclosure rescue scams. Report suspicious schemes to your state and local consumer protection agencies, which you can find on the Federal Citizen Information Center's Consumer Action Website.
Affects of Foreclosure
If you are behind or are about to get behind on your mortgage payments, don’t wait – call your lender now. By trying to resolve this issue early, you increase the chances of avoiding losing your home through foreclosure and the negative impacts.
Some Possible Impacts of Foreclosure
- Someone who has had a foreclosure will need to rebuild their credit or they will not be able to get credit/loans at good interest rates or may not even be approved for any type of credit.
- Poor credit may even affect your ability to get a job as many employers now check credit on their potential new hires. This is particularly true with many government, law enforcement agencies and military positions.
- If your current employer runs a credit check, it is possible that a foreclosure may put your current job in jeopardy.
- In order to recuperate money they lost when they sold your house in the foreclosure sale, your lender may seek a deficiency judgment against you for the difference between what you owe and what they were able to make when selling your home.
- Foreclosure can affect your credit score by about 200 to 300 points.
- A foreclosure will stay on your credit report for 7 years.
How Long Will a Foreclosure Affect Your Credit?
Repeat - a foreclosure will stay on your credit report for 7 years but it affects your credit score mostly for the first 2 years. As you start rebuilding your credit, it gets better with time. A homeowner's default on their mortgage payments will generally show up on their credit as soon as they are 90 days late (and even 30 days in some states). You will have to report a foreclosure on any future application for a mortgage, which will greatly impact the interest rates you will be offered.
A foreclosure won’t ruin your credit rating forever. It will lower your credit score and remain on your credit report until you’re able to re-establish good credit — which takes time and careful planning.
Are you facing a possible foreclosure?
Home owners who are facing foreclosure are in a very difficult situation and many people are embarrased and devastated at being in this position and often don’t know where to turn.
Reasons for Pending Foreclosure
Here are a few of those reasons why homeowners may find themselves facing foreclosure:
- Job loss / unexpected unemployment
- Sudden illness or medical emergency
- Death in the family
- Divorce/ loss of second income
- Excessive debt obligations
- Job demotion or job relocation
- An interest rate on their mortgage that resets and results in higher payments than the homeowner can keep up with
Ways to Avoid Foreclosure
After you have missed some payments, the lender files a Notice of Default. That is when the countdown to foreclosure really kicks in. In California, the lenders have 90 days after filing Notice of Default before they can post a Notice of Trustee Sale – which must give the homeowner 20 days notice of the pending sale. If you realize that you will not be able to meet your mortgage obligation, the first thing you should do is call your lender. Don’t ignore attempts to contact you from your lender. Contact your lender before you fall behind in your payments. Don't wait until it is too late.
Here are some possible options your lender might propose to you in dealing with your financial hardship:
Time to make up your payments or forbearance.Lenders might agree to wait before taking legal action against you and let you work out a repayment plan that is affordable for you.
Forgiving a payment. If you can agree on a way that you will be current after missing a payment or two, the lender might give you a break and waive your obligation. This rarely happens.
Spread out the missed payments or repayment plan. For example, if your payment is, say, $1,200 a month, the lender might let you add $100 a month to each payment for a year until you are caught up.
Changing the terms of your loan. If you have an adjustable loan, the lender might freeze the interest rate before it increases or lower the interest rate.Add the back payments to your loan balance.The lender may increase your loan balance to include the missed payments and re-amortize the loan.
Ways to Stop Foreclosure
It is important that you contact the lender before the Notice of Default is filed – even before you fall behind in your payments. Once the Notice has been filed, you have fewer options. You will be given a certain time period to bring the payments current, pay the costs of filing the foreclosure and stop the foreclosure. This is called reinstatement of your loan. If you cannot make up the missed payments and the lender will not work with you, here are a few other options to stop foreclosure:
Sell your home. If your home is worth less than you owe, consider a short sale. A short sale will have a negative impact on your credit but not as much as a foreclosure. Depending on your situation, this could be a good alternative to foreclosure.
Lenders are sometimes willing to take less than the amount owed on the home. . A Realtor experienced with short sales can help you here. The Realtors with Pedersen Real Estate have closed many short sales and would be happy to answer your questions about short sales.
For many borrowers, there is psychological satisfaction in having avoided losing their home through a foreclosure. A short sale is perceived as an honorable way to give up a home. There may be tax and/or financial implication that you should be aware of before deciding to do a short sale. We highly recommend that you consult a tax accountant and/or attorney. The time frames for purchasing a home again are generally shorter for someone who has done a short sale vs. someone who had a foreclosure.
We strongly recommend that you consult with an attorney and tax professional before deciding to do a short sale as there may be tax and financial implications for you.
A good website by Fannie Mae on avoiding foreclosure
Deed-in-Lieu of Foreclosure. A deed-in-lieu of foreclosure is where the homeowner voluntarily deeds the property back to the lender. Generally this is a last ditch effort by the homeowner to avoid the negative consequences of foreclosure. In return for the voluntary conveyance to the lender, the homeowner is often released of any personal responsibility for the mortgage. Most lenders require that there not be a second mortgage or junior liens on the property in order for the homeowner to do a deed in lieu. A deed in lieu of foreclosure may have a slightly less negative impact on the homeowner's credit score than a foreclosure.
Can I simply deed my property to someone else and avoid the hassle?
Deeding your property to someone without paying off the loan is nearly always a bad idea. In the first place, the lender still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will show on your credit.
Secondly, when you deed your property to someone else, you give up control of the property. Along with the deed goes the ability to control the property.
Do not deed your property to someone without paying off the loan unless you have consulted with an attorney.
Short Sales - Can Doing One Help Me?
Shorts sales are complicated. We hope to provide you information to help you understand more about short sales and if you should consider doing one or not. Having knowledge that will help you make decisions is important to Pedersen Real Estate. We can’t give you all the information you need here. This is just a summary. Before deciding to do a short sale, we urge you to consult with a tax accountant and/or attorney as there may be tax or financial implications. If you're having financial troubles and are having a hard time keeping up with your house payments because you've experienced a major financial setback such as a divorce or losing your job, or you need to sell for another reason but your house is worth less than you owe, you may be able to avoid foreclosure through a short sale.
What is a short sale?
A short sale is when a homewner in financial distress sells his or her property for less than the amount due. Your bank has to approve a short sale and all proceeds from the sale go to the bank. The seller cannot receive any funds in a short sale and a seller cannot sell to a family member. Sometimes sellers will be asked to sign a promissory note by the lender.
Alternative to a Short Sale
Before deciding upon a short sale, talk to your lender about the possibility of getting a loan modification. Don’t seriously look at doing a short sale without first doing everything you can to work with your bank on a loan modification. This option may allow you to stay in your home and get back on your feet.
What Will A Short Sale Cost The Seller?
- Overdue taxes
- Back association fees (in reality they don't pay these fees very often)
- Payments to other lien holders
What to Expect
If your bank won’t approve a loan modification, then a short sale may be a good choice for you. Be prepared for a lot of work and a long wait to complete a short sale. Understand that lenders are not required to do short sales but most lenders do approve short sales. They do not approval all short sales. Some short sale homes still end up going through foreclosure. The reason for your financial trouble should be a new situation for you such as unemployment or divorce. If the fact that you can’t afford your home anymore is due to something about your financial situation that you did not disclose when you originally applied for the loan, the lender will not be sympathetic to you and will not approve a short sale.
I am current on my mortgage, will my lender consider a Short Sale
The answer is, maybe. Some lenders will accept a short sale file for approval on loans that are not delinquent. Other lenders will not accept the file until the loan is delinquent. We can put your short sale file together within a couple days and submit it for approval. That is the best way to find out if your lender will consider a short sale on a loan that is current.
Moving Forward with a Short Sale
If you think you may be a good candidate for a short sale, talk to your lender’s loss mitigation department. If the bank is willing to consider a short sale, it is time to find a good Realtor, one who is experienced with short sales. More imporatantly, you should consult an attorney, and/or tax professional. You may be thinking that there is no way you can afford to pay for these services at this time in your life, but you don’t want to find yourself in even bigger financial trouble. There may be financial and/or tax consequences that you should know about before deciding about moving forward with a short sale.
What Information Will the Lender Need?
There are a number of documents that the lender will need from you to prove your financial hardship. The include bank statements, medical bills, pay stubs, a termination notice from your former job or a divorce decree and a hardship letter. The items required may vary from lender to lender. Your lender will either approve or deny your short sale based on the information you provide.
If you still have cash assets, the lender may expect you to use them to continue making mortgage payments or pay a portion of the short sale through bringing some cash to closing or signing a promissory note for a portion of the shortfall.
Don’t Hold Your Breath
Short sales almost always take longer than regular home sales. Sometimes buyers find another property while waiting for an answer from the bank. Be prepared - you could lose the buyer and have to start all over again. Also, you should know that a short sale will damage your credit but is generally less damaging to you than foreclosure.
If you are reading this then you are probably experiencing financial trouble and we understand how difficult this is. Call us if you are thinking of doing a short sale. We are experienced short sale Realtors.
Read more information about short sales
IMPORTANT NOTICE: If you stop paying your mortgage, you could lose your home and damage your credit rating.
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