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.

         Click anywhere on the photo for help with avoiding foreclosure

Short Sales

You must have a good and provable reason why you are not able to keep your home any longer.  Ask yourself these questions to see you truly have a hardship.

• Since you bought the house, have you lost your job ?
• Are you not able to work due to an illness or injury that has occurred recently?
• Do have large medical bills that you incurred after you purchased the home? 
•  Are you being relocated to another city or state because of your job?
• Has your interest rate gone up so much that you can no longer afford your payments?
• Do you have to sell your home because you are getting divorced?

If the lender thinks it can get more money from foreclosing on your home than from a short sale, the lender may not allow a short sale.  Additionally, if anyone has co-signed on your loan, the lender may want to hold that person responsible for payment rather than doing a short sale.

What is included in the Short Sale Package

This is a list of items  that you will most likely need - required items may vary depending upon the lender

Cover Letter
Authorization to Release Information
Seller's Hardship Letter  (more about that below)
Seller's Financial information
2 years w2's
2 months pay stubs
2 months bank statements
Supporting Hardship Info - HOA liens, medical/disability statements etc.
Repair Estimate for the property
Comparable sales for the property
Contract
FHA and VA may have their own forms and special requirements as well

If you have mortgage insurance on your loan then the mortgage insurance company will also need to approve the short sale. If there is mortgage insurance, the mortgage insurance company will pay the lender the difference in the loss. Please be aware that many times the mortgage insurance company will ask the homeowner to sign a promissory note for some of the loss and pay some of that loss back to the mortgage insurance company.  

The lender who you are sending your house payment to every month may own the note on your house or they may just be a servicer for the lender - which is most often the case. If they are  only the servicer for the loan then the short sale can take even longer to process because there is yet one more entity who will have to approve the short sale.  In this situation, the bank who owns the note, referred to as the investor, must approve the short sale as well.

Do You Have a First and A Second Mortgage?

If you have a first mortgage and a second mortgage with different lenders, getting your short sale approved will be more complicated.  The second note holder will want some money to accept the short sale and usually the first note holder offers only a small amount to the second note holder.  Approval by both lenders is a must in order to close and pass a clean title to a buyer. Sometimes the second note holder will accept the sale if the seller agrees to owe a promissory note to them and pay for some of the loss.  

Did you commit fraud when you applied for the loan for this property? 

Fraud is when you lie in the process of getting a loan.  Did you lie about where you work, how much money you make or the amount of your assets?  We will not list your property as a Short Sale in Riverside County if you committed fraud because you will be required to turn in a short sale package which may expose any fraud you committed which can serious legal ramifications for you.   

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. Once you determine that the bank is willing to consider a short sale, it is time to find a good Realtor who is experienced with short sales.  More imporatantly, you should consult an attorney, and/or tax professional to determine what if any financial and/or tax ramifications may affect you. You may be thinking that there is no way you can afford to pay for these high-priced professional services at this time in your life, but you don’t want to find yourself in even bigger financial trouble.

You may be facing a tax bill from the IRS with a short sale or foreclosure.  There may be significant tax consequences. It is possible that the forgiven debt could be considered as income and there are no guarantees that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. This is commonly known as a deficiency. A lawyer or your tax accountant can determine whether your loan qualifies for a deficiency judgment or claim.

The Hardship Letter and Short Sale Package

You will have to provide the lender a hardship letter telling your situation and what you have done so far to remedy your situation.  This statement of facts needs to be fairly brief and to the point.  It must describe how you got into this financial bind and makes a plea to the lender to accept less than full payment. You will be required to prove income and assets. Be truthful and honest about your financial situation and disclose your assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value.

You will have to provide copies of your bank statements.  If they show unaccountable deposits, large cash withdrawals or an unusual number of checks, you should explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.

Appraisal

Your lender will want to know what your home is worth in the market today.  Your Realtor will provide information on recent comparable sales to the lender.  The offer from a buyer that you accept along with a copy of your listing agreement is required by the lender. There will be other items that the lender requires but this gives you an idea about what is needed for the lender.  The lender will have an a appraisal or what is called a BPO (broker's price opinion) done to more completely determine the value of the home. 

Be Patient 

Short sales almost always take longer than regular home sales and sometimes the houses end up going through foreclosure anyway.  Sometimes buyers find another property while waiting for an answer from the bank.  Also, you should know that a short sale will damage your credit but will be less damaging than foreclosure

Again, we can't stress enough - get professional advice from a lawyer or your tax advisor before you attempt to do a short sale.  

Should you do a short sale?

Find out if you might qualify for one of several government programs to  help homeowners avoid foreclosure.  Click here. 

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?

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.