In addition to coping with the emotional encumbrances of this recession, homeowners are confronted with losing their homes to foreclosures. But, is foreclosure the best option even when there is loss of employment? Should a Short Sale or Loan modification be considered instead?
The traditional myth where the home was considered a prized asset is dispelled. It can be quite devastating for those who realize that their abode is a huge liability. Instead of ‘rising to the occasion’ people simply cop out. Statistics show that foreclosure rates soared by 30% in January 2008, from the previous year. The result of subprime lending; where temporarily affordable/balloon loans were made available to ‘unqualified’ individuals. This gr
aph depicts the foreclosure rate from 2007 to 2008 with an increase of 81% by 2007.The U.S. is indeed in a recession as evidence by the plummet in stock prices, sharp unemployment increases, the steadily declining dollar and the consecutive decreases in the value of all goods and services produced (GDP). The percentage of bank-owned/REO properties from 1930 – 1933 during the great recession was 10%. According to the Business Journal serving the greater triad area, the percentage of REO properties as of August 2009 was 8.3%. This means that 8.3% of homeowners succumbed to foreclosure and probably did not exercise rational choice.
Recession does not mean Depression. Many people acted out of fear and hopelessness and delivered their keys to the lender. Foreclosure should not be viewed as a first resort, but a last resort after other alternatives is exhausted. Knowledge about your rights as a homeowner can enable you to avoid foreclosure altogether. Essentially, time is not on your side when facing the possibility of losing your home, but doing nothing is the worst thing you can do. Homeowners must be proactive and determined to take control of their financial future by research and learning about available retention programs.
After a third or fourth month of missed payments, you are likely to enter into foreclosure process. If there are no modification negotiations, or you are unable to pay the loan in full, the lender contracts a third party vendor (usually a law firm) to commence foreclosure. Although the stipulated time may vary by state, foreclosure becomes your default status if you fail to respond to the mailed notification. In the event of job loss or other significant loss of income, your lender is usually quite willing to modify your loan if you contact them immediately. However, there is still hope if you do not meet the criteria for an instant loan modification. You can submit a loan modification to qualify for a flat 2% APR for the life of your loan under the Obama plan, opt for a Short Sale or Deed in lieu of foreclosure.
What is a Short Sale?
A Short Sale is simply the sale of real estate for less than what is owed. This can be a viable prospect for the seller and the buyer. The lender agrees to accept less than what is owed and pardon the balance. If the pay-off amount is significantly less than the appraised value, the lender may make a special arrangement with the seller after the sale, for an additional sum. This sum is usually about one third of the sale price and may be paid over an extended period, free of interest. If the seller has an FHA loan (Federally insured against default), the lender receives payment for the full amount owed in the event of a Short Sale via the insurance.
How to Obtain a Short Sale?
To obtain a Short Sale, you have to prove that you are financially incapable of making the required mortgage payments. The lender assesses your debt to income ratio to determine eligibility. Please email me at carolinefelix7@gmail.com for a manual that contains the necessary templates, requirements and guidelines that provide a step by step approach to obtain a Short Sale or Loan Modification. The manual is designed to enable ‘almost anyone’ to prepare and submit a successful proposal. While a loan modification can be submitted and negotiated solely by the borrower, a Short Sale requires the services of a realtor. The Real Estate Agent can produce the required HUD 1 form through an attorney and list the property for sale as required.
Should I do a Short Sale or a Loan Modification?
A Loan Modification is engineered to allow a homeowner to retain ownership at an affordable rate. If you are interested in reducing your current interest rate and cannot refinance due to the appraised value of your home; or you would like to extend the term of your loan to 40 years etc or reduce the loan principal. The following conditions are considered acceptable hardships conditions to qualify for a loan modification: Adjustable rate mortgage rest- payment shock, death of spouse or co-borrower, divorce or separation, failed business, injury/illness/medical bills, job relocation, military duty, loss of job, reduced income and incarceration.
A Short Sale is advised if you are interested in eliminating your mortgage debt. By short selling the ‘property’ you get rid of the debt or reduce it to a nominal sum without a mortgage. Proof of ‘hard times’ as outlined above, including bankruptcy and miscellaneous debt increase can qualify you for a Short Sale. Fannie Mae law prohibits purchase of another property within two years of a Short Sale, however, there is minimal damage to your credit as a result.
Updates:
December 3:
The Short Sale process has been slashed to 10 days. A new federal guideline now requires Mortgage servicers to accept or reject a Short Sale proposal in a turnaround time of 10 days. Click here for details.
FHA tightens loans restrictions as reserves plummet to 0.53%, below the minimum 2%.
To better understand FHA new guidelines, click here.
