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Some
background
Like many Realtors, I have been
hesitant to pursue Short Sales or Foreclosures on behalf
of my buyers because they have simply been a pain in the
a**. My experience with Short Sales suggested
that they were typically lengthy transactions, involved
complicated and often unknown paperwork and were never
stable in that everything associated with the
transaction, price, dates and terms, were subject to
change at the will of the bank.
I recently became aware of the
Certified Distressed Property Expert (CDPE) course after
associates heard Alex Charfen speak at the 2009 RE/MAX
International convention and plans got underway for the
class to be presented in Denver. Long story short, I
signed up and this was probably the most worthwhile
class that I've ever taken; and that includes my
education at the Colorado School of Mines.
Our speaker, Alex Charfen, points out
that, although we are coming off of the peak of subprime
mortgage defaults, according to Credit Suisse there is
another wave of mortgage defaults looming in the next
few years affecting 'Option-ARM' and other exotic loans.
 Fundamentally,
these are negative amorti-zation type loans with which
borrowers not only didn't pay down principal amounts
but, in fact, increased the principal balances of their
loans. They simply borrowed well beyond their realistic
means with the belief that positive real estate
appreciation would off-set the negative amorti-zation.
It didn't happen!
Historically, real estate appreciates
and has been one of the most stable investments
available to the com-mon man. However recent years have
seen unprecedented appre-ciation which fueled overly
aggressive buying and speculation. Adding fuel to the
fire, lending institutions made financing much too easy
with borrowers having little or no stake in the
purchase. Finally the bubble burst and real estate
values have crashed. Compounding the issue is our
worldwide weak economy. Job loses and unemployment are
leaving home owners totally upside down and unable to
pay their mortgages. The vast majority of troubled home
owners don't necessarily deserve the circumstances in
which they find themselves and it's time to recognize
the tools available to begin digging us out of this
hole. (Some owners who were consciously trying to game
the system absolutely deserve to be out on their ear!)
My job is to assist homeowners in
avoiding foreclosure. Additionally, my goals are to
minimize damage to the homeowners credit, to assist lenders in recovering as
much of their asset as possible while helping to restore
stability to our real estate market.
So now what?
There are choices for the
distressed home owner. None are simple and none are
without a bit of pain. All will require demonstration of
hardship and work for both the home owner and their
Realtor. The very first rule is: IF you are
experiencing difficulties for any reason in paying your
mortgage or you foresee possible problems; consult
trusted advisors including your CPA, attorney and your
Realtor.
Here are some simple explanations of
how you might be able to avoid foreclosure:
Reinstatement
You have missed payments however the situation is
temporary. You resolve the situation and bring your
payment schedule up to date including late fees
and/or legal fees that are due ina one time payment. The
bank may simply reinstate your loan.
Forbearance or Re-Payment Plan
Similar to Reinstatement, being a temporary situation,
however you are not able to make a one time payment of
all past due payments plus associated fees. The lender
may grant a period of time for the payments and fees to
be made up and the lender may require income
documentation showing that the homeowner will be able to
comply with the repayment schedule.
Refinance
If the homeowner has sufficient equity and income and
their credit has not been too badly damaged, they may be
able to refinance. To make this work the homeowner has
to be diligent and the issue that caused the problem in
the first place realistically needs to have been
resolved.
Mortgage Modification
This is a solution for responsible, working homeowners.
This resembles a lower interest refinance and will
require re-qualification of the homeowner. There are
lots of scams on the streets today so be very careful
when considering this option and consult with trusted
advisors.
Short-Refi
A relatively new product that reflects how serious
lenders are becoming about avoiding foreclosures! This
process involves the refinance of a home with reduction
in the principal balance and often the interest rate.
this would be a full document qualification process.
Deed-Lieu of Foreclosure
The homeowner simply deeds the property back to the bank
allowing the bank to avoid foreclosure. The bank may
forego their right to a deficiency judgment and waive
their right to any further recourse. Not a good option
if there is equity involved.
Bankruptcy
Bankruptcy may stop the foreclosure process and allow
the homeowner to reorganize his debt. But it may also
just stall the process and make it very difficult to
sell the property or negotiate a short sale.
Servicemembers Civil Relief Act (SCRA)
Public Law 108-189, December 19th, 2003. This law
provides certain protections for military personal that
are in foreclosure in specific situations.
Short Sale
When a homeowner owes more on a property than it is
currently worth and one of the above solutions do not
apply, a short sale may be a good option. The homeowner
considering short selling can not automatically go down
this path. It is NOT a "get out of my mortgage for free"
solution and the homeowner will need to meet certain
qualifications of hardship and circumstances to proceed
with this alternative.
Short Sales done correctly are better
for all parties involved. The homeowner may avoid
permanent damage to his credit history. The bank should
recover more of the home value than through the
foreclosure process and, if done correctly, Short Sales
become a viable alternative to the traditional re-sale
market.
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