What is foreclosure and how do I stop it?
FORECLOSURE AND HOW TO STOP IT... Fact 1: Money Costs Money The average lender loses 30-60 thousand dollars due to the foreclosure process. Attorney’s fees, lost interest, Realtor commissions, all account for this staggering amount of loss. This is why lenders are eager and willing to work out and discuss their options. Remember the lender is not in business to sell houses, they are in business to lend money and yield a sizable return. When foreclosure arises, they simply want to minimize losses and lend a new mortgage to someone who can meet the loan obligations. Fact 2: Help No Matter What The Situation: Now there are many reasons why homeowners fail to meet their intended obligation. Unexpected situations such as the following: - Bankruptcy - Divorce - An ARM loan adjustment (adjustable rate mortgage) - A death in the family (inherited property) - Health problems - Work injury or lost job - A bad investment decision - A job status change - Moving out of state/Relocation Or like most people they are not informed on how to manage the debt and money they have or as I like to say, the money they really don’t have. Whatever the reason you may be behind on payments; tell yourself foreclosure is not an option. It’s not a good option for you, and its not a good option for the bank. A foreclosure will typically remain on your credit for seven to ten years. In some cases it will affect your ability to attain any type of new loan and can be worse than a bankruptcy since bankruptcies can be discharged allowing for a fresh start. The last thing you want is a double whammy of bankruptcy and foreclosure. Fact 3: Lenders accept short sales If you’re wondering why and how a bank would be willing to short sale your property or any property for that matter, here is an in depth answer to that question. At any time during the loan when a borrower(s) misses the third consecutive payment and goes 90 days past due, the lender orders what is known as a BPO or broker’s pricing opinion. In other words they contact a local real estate broker to identify the current full market value of the property. They do this to find our how much the property is worth so that they can subrogate the potential loss from a foreclosure. They also begin to gather up all the necessary paperwork to begin the foreclosure process so that it may be sent to their trustee in the state the property is located. If the lender is publicly traded on the stock market, owning and managing too many non-performing loans can have adverse effects on stock values.
Another thing that happens the day a payment is missed, is the bank will lock up 3-5 times the outstanding loan amount in what is known as reserves. This reserve can no longer be lent out until they sell the property or the loan is brought current. So not only are they losing interest on one loan but thousands in potential interest on other new loans that can't be made. So they borrow more money from the Federal Reserve or other banking institutions.
Next they might pay legal fees to an attorney that began processing the paperwork on the pre-foreclosure. If an agreement isn't met with the borrower and payments aren’t brought current then the lender is forced to take the property back as collateral. A lender will typically place the property up for a public auction. Since this is public information, anyone can show up on the date of auction and place a bid on the subject property. These properties typically will not be sold and the bank purchases it for them selves.
Now, because the property usually does not sell at auction it becomes known as an REO or Real Estate Owned property. This will have a negative impact for the bank's so-called books or investment portfolio. State banking regulators tend to frown when they see these "bad loans" on the books because it might hint to foul and malicious lending practices. Finally they bank lists the property with a real estate agent, usually the brokerage that handled the BPO and hopes to gain at least what they already have lost. The final blow to the lender is the realtor’s commission and closing costs concessions to the new borrower. Fact 4: You're not alone The rate of foreclosures rose over the last several years due to a number of reasons. One of those reasons was the origination and practice of "Sub-Prime" lending. These loans consisted of borrowers who wouldn't typically get approved for a loan because they couldn't fit into the cookie-cutter requirements of a conventional loan. Therefore they were considered high risk loans. They later were coined titles such as “liar loans” due to the lack of income verification needed approve and underwrite the risk. In September of 2001 the Federal Reserve lowered the borrowing rate between banks. This allowed new borrowers to lock in a low rate and attain new types of "exotic loans" that just became available. It also allowed current home owners to refinance and tap into equity loans like negam or negative amortization, arm loans or adjustable rate mortgages, 100% financing, and finally no-money-down. Suddenly buying real estate with 20% down was a thing of the past. Yeah funny to think how quickly things change. The Federal Reserve rate slowly crept back up in the years and months following the attack. Many of these “exotic” loans started to adjust according to the original terms and agreements. Some homeowners, who did not clean up their "sub prime" credit, were now faced with newly tightened loan guidelines. Lenders began filing for bankruptcy due to insolvency and CEO’s walked away with some of the biggest bonuses in corporate history. So Here Are Your FREE Options:
Option 1: Sell
Common sense tells you to try to sell your home either on your own or by hiring a licensed real estate agent. This might be difficult in a slow market when the property may not sell in time to avoid foreclosure. It can also be costly as far as paying for the advertisements and/or the realtor's commissions. Option 2: Rent/Lease You can also try renting out the property. This is a good choice in a slow market so that you can sell when things turn around. Typically you can have a tenant sign a rental agreement for 1, 2, or even 5 years. You may also rent or lease with the option to purchase. That way there is an incentive for the tenant to keeping the property spic and span.
Option 3: Refinance Have a new lender approve you for a loan to pay off your current lender. Obviously you would have to be able to afford the new payment so be ready to have your credit looked at closely. Financing can also take a month or two depending on the complexity of your loan so if your foreclosure auction is soon this may not be the option for you.
Option 4: Repayment Plan A contracted plan to make up past due amounts is known as a repayment plan. The lender may take the payment amounts that are past due and spread them out over a period of time so that it is easier to pay back. This may not be the best option if the hardship your facing will not be resolved once your brought current, then you’re in the same situation again. Option 5: Short Sale A short sale (sometimes called a short-pay or lender discount) is really a fancy term for when a lender is willing to take less than what is owed on a debt instead of foreclosing. They don’t call it a discount. They call it a short sale and there was recent legislation past that may prevent you from having to claim the deficiency as 1099 taxable income. The "deficiency" in the above mentioned; is the difference between the amount owed and the amount the bank collects in order to satisfy the foreclosure judgment. This process completely prevents a foreclosure and can even be done if you owe more on the loan than what it is the property is worth. In fact, it is usually done just for that reason. Yes you can do your own short sale but I would NOT recommend it. I hope you have found this Blog helpful. Feel free to leave questions or comments. Thanks for reading. Randy D. CEO/Owner WWW.RANDYHELPSHOMEOWNERS.COM [email protected]
Another thing that happens the day a payment is missed, is the bank will lock up 3-5 times the outstanding loan amount in what is known as reserves. This reserve can no longer be lent out until they sell the property or the loan is brought current. So not only are they losing interest on one loan but thousands in potential interest on other new loans that can't be made. So they borrow more money from the Federal Reserve or other banking institutions.
Next they might pay legal fees to an attorney that began processing the paperwork on the pre-foreclosure. If an agreement isn't met with the borrower and payments aren’t brought current then the lender is forced to take the property back as collateral. A lender will typically place the property up for a public auction. Since this is public information, anyone can show up on the date of auction and place a bid on the subject property. These properties typically will not be sold and the bank purchases it for them selves.
Now, because the property usually does not sell at auction it becomes known as an REO or Real Estate Owned property. This will have a negative impact for the bank's so-called books or investment portfolio. State banking regulators tend to frown when they see these "bad loans" on the books because it might hint to foul and malicious lending practices. Finally they bank lists the property with a real estate agent, usually the brokerage that handled the BPO and hopes to gain at least what they already have lost. The final blow to the lender is the realtor’s commission and closing costs concessions to the new borrower. Fact 4: You're not alone The rate of foreclosures rose over the last several years due to a number of reasons. One of those reasons was the origination and practice of "Sub-Prime" lending. These loans consisted of borrowers who wouldn't typically get approved for a loan because they couldn't fit into the cookie-cutter requirements of a conventional loan. Therefore they were considered high risk loans. They later were coined titles such as “liar loans” due to the lack of income verification needed approve and underwrite the risk. In September of 2001 the Federal Reserve lowered the borrowing rate between banks. This allowed new borrowers to lock in a low rate and attain new types of "exotic loans" that just became available. It also allowed current home owners to refinance and tap into equity loans like negam or negative amortization, arm loans or adjustable rate mortgages, 100% financing, and finally no-money-down. Suddenly buying real estate with 20% down was a thing of the past. Yeah funny to think how quickly things change. The Federal Reserve rate slowly crept back up in the years and months following the attack. Many of these “exotic” loans started to adjust according to the original terms and agreements. Some homeowners, who did not clean up their "sub prime" credit, were now faced with newly tightened loan guidelines. Lenders began filing for bankruptcy due to insolvency and CEO’s walked away with some of the biggest bonuses in corporate history. So Here Are Your FREE Options:
Option 1: Sell
Common sense tells you to try to sell your home either on your own or by hiring a licensed real estate agent. This might be difficult in a slow market when the property may not sell in time to avoid foreclosure. It can also be costly as far as paying for the advertisements and/or the realtor's commissions. Option 2: Rent/Lease You can also try renting out the property. This is a good choice in a slow market so that you can sell when things turn around. Typically you can have a tenant sign a rental agreement for 1, 2, or even 5 years. You may also rent or lease with the option to purchase. That way there is an incentive for the tenant to keeping the property spic and span.
Option 3: Refinance Have a new lender approve you for a loan to pay off your current lender. Obviously you would have to be able to afford the new payment so be ready to have your credit looked at closely. Financing can also take a month or two depending on the complexity of your loan so if your foreclosure auction is soon this may not be the option for you.
Option 4: Repayment Plan A contracted plan to make up past due amounts is known as a repayment plan. The lender may take the payment amounts that are past due and spread them out over a period of time so that it is easier to pay back. This may not be the best option if the hardship your facing will not be resolved once your brought current, then you’re in the same situation again. Option 5: Short Sale A short sale (sometimes called a short-pay or lender discount) is really a fancy term for when a lender is willing to take less than what is owed on a debt instead of foreclosing. They don’t call it a discount. They call it a short sale and there was recent legislation past that may prevent you from having to claim the deficiency as 1099 taxable income. The "deficiency" in the above mentioned; is the difference between the amount owed and the amount the bank collects in order to satisfy the foreclosure judgment. This process completely prevents a foreclosure and can even be done if you owe more on the loan than what it is the property is worth. In fact, it is usually done just for that reason. Yes you can do your own short sale but I would NOT recommend it. I hope you have found this Blog helpful. Feel free to leave questions or comments. Thanks for reading. Randy D. CEO/Owner WWW.RANDYHELPSHOMEOWNERS.COM [email protected]
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