5 Important Tips When Considering a Short Sale

[tweetmeme]If you’re thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won’t cover your total mortgage obligation and closing costs, and you don’t have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.

1. Consider loan modification first.

If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as: Refinancing your loan at a lower interest rate; providing a different payment plan to help you get caught up; or providing a forbearance period if your situation is temporary. When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your best option if:

* Your property is worth less than the total mortgage you owe on it.
* You have a financial hardship, such as a job loss or major medical bills.
* You have contacted your lender and it is willing to entertain a short sale.

2. Hire a qualified team.

The first step to a short sale is to hire a qualified real estate professional and a real estate attorney who specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won’t try to take advantage of your situation or pressure you to do something that isn’t in your best interest. A qualified real estate professional can:

* Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
* Help you set an appropriate listing price for your home, market the home, and get it sold.
* Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
* Ease the process of working with your lender or lenders.
* Negotiate the contract with the buyers.
* Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.

For additional resources and assistance on short sales, contact your local Real Estate Resource Center.

3. Begin gathering documentation before any offers come in.

Your lender will give you a list of documents it requires to consider a short sale. The short-sale “package” that accompanies any offer typically must include:

* A hardship letter detailing your financial situation and why you need the short sale
* A copy of the purchase contract and listing agreement
* Proof of your income and assets
* Copies of your federal income tax returns for the past two years

4. Prepare buyers for a lengthy waiting period.

Even if you’re well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to months. Some experts say:

* If you have only one mortgage, the review can take about two months.
* With a first and second mortgage with the same lender, the review can take about three months.
* With two or more mortgages with different lenders, it can take four months or longer.

When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one. (Your real estate attorney and real estate professional, with your authorization, can work your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.)

5. Don’t expect a short sale to solve your financial problems.

Even if your lender does approve the short sale, it may not be the end of all your financial woes. Here are some things to keep in mind:

* You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.
* Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount. Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify.
* Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score less than foreclosure and bankruptcy.

For additional resources and assistance on short sales, contact your local Real Estate Resource Center.  You may have other options available to you.  Find out what they are to make better financial decisions.


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Top 5 Answers for Homeowners about Strategic Mortgage Default

1. Should I intentionally default on my home mortgage?

Today, many people are ‘intentionally’ or ‘strategically’ defaulting because cash is more valuable than credit. Because many of the banks were unethical, some borrowers don’t feel the ‘moral obligation’ to pay, especially when the banks are being less than cooperative as buyers try to work things out. Rather than defaulting, the best thing to do is use the Section 702 program of the Obama act, which allows a qualified third-party buyer to take possession and make a ‘bona fide’ offer to the bank. This helps show the debt ‘settled’ on your credit and can eliminate the second mortgages completely. Walking away and allowing the bank to foreclose still allows the second lender to render a judgment—and possibly garnish your wages. You may also have to file for bankruptcy to recover from the credit nightmare.

In addition, it is always best to gain the most knowledge to make the best decision for yourself and your family.  There are great workshops and seminars that reveal the different programs the are available to homeowners and discuss the pitfalls people may encounter.  For specialized assistance in saving your home, consult a specialist and discover real options that fit your scenario.

2. As a borrower, what are some ways I can gain leverage with my mortgage holder?

One way to gain leverage with a lender is to establish a ‘substitute mortgage’—a security pledge that is offered to the seller’s lender, with a third party (lawyer or Escrow company) for a lesser amount of the current payment. Over time, this will result in a significant amount of collected funds that can be used as negotiating leverage to release the borrower from the debt, or dictate terms for a loan modification in the borrower’s advantage.

3. Why have loan modifications and foreclosures become the predominant answer for so many in distressed property situations, and why can this be problematic?

The reason why loan modifications and foreclosures have become the answer for so many is because many real estate professionals erroneously consider the short sale process to be too complex. Not knowing how to orchestrate the transaction and not having the correct forms and contact information with all the different parties is overwhelming for many Realtors, so they forego an option that would otherwise be in the owner’s best interest. The result is unnecessary spending of tax payer’s funds that are being used for the alternative solutions, when capital contributions from the ‘street level’ can be used to offset the losses and payoff the delinquencies without requiring such taxpayer contribution.

For specialized assistance in the short sale process, consider discussing your options and the entire process with a specialized short sale consultant.

4. Why is a short sale strategy more advantageous than a loan modification or foreclosure approach?

The reduced payoff in a short sale can release you from the debt obligation. This allows you to re-establish your credit faster and re-enter the market much wiser. A loan modification actually builds a debt trap around the borrower who is emotionally attached to a property, milking the borrower for every last nickel. A foreclosure ruins a homeowner’s credit and takes a much longer time period to recover from.

If you find out you need more work to fix your credit, consult with a credit repair specialist to discuss your options and find out what is right for you.

5. I’ve heard borrowers in default need a ‘General Public Disclosure?’ Why

Many people are not aware of the ‘alternatives’ when facing foreclosure. The state and the federal agencies do not provide any literature to default borrowers as a ‘preventative’ measure. Knowing your options, as detailed on a General Public Disclosure document, can make all the difference in establishing a deal that’s in the homeowners’ best interest.

Source:   Marian Anthony (RISMedia): Real estate finance expert, author and speaker, Marian Anthony is the President of Anthony Realty Group (ARG)–a San Diego-based consumer advocacy agency that helps educate real estate professionals throughout Southern California to better assist home buyers and investors. Anthony is also founder of the California Default Mortgage Hotline—a non-profit public interest group availing financially-stressed homeowners in mortgage default with validated information and industry resources.

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Is Now a Good Time to Refinance?

Recently, the mortgage rates have been the lowest since the mid-1950s.  Does this mean that it’s a good time to refinance your home loan?

That depends mainly on what rate you have now—and whether you’re planning to move anytime soon. Experts advise weighing your options carefully.
Mortgage rates fell this week to their lowest point on records that mortgage company Freddie Mac has kept since 1971. The average for a 30-year fixed-rate loan sank to 4.69 percent. The previous record of 4.71 percent was set in December. Rates for 15-year and five-year mortgages also hit lows.

The last time long-term rates were lower was in the mid-1950s, when they averaged around 4.6 percent. Those loans typically lasted 20 or 25 years, unlike today’s standard 30-year fixed mortgage.

Here are some answers to common questions about refinancing mortgages:

Q: How much does refinancing cost?
A: It can cost several thousand dollars. Typically, there’s a fee that goes to the mortgage broker or lender, plus fees for title insurance, a new appraisal, document processing and other charges.
But brokers or lenders have ways to make upfront charges invisible to borrowers. They can, for example, create the appearance of a “no fee” mortgage by adding the costs to the total loan amount or by charging a slightly higher interest rate.

Q: So will refinancing my mortgage save me money?
A: That depends on how soon you want to sell. Let’s say you have a $200,000 loan. If you’re able to cut your rate from 5.5 percent to 4.69 percent, your monthly principal and interest payment will drop by about $100—from about $1,135 to about $1,035.
But if your lender charges fees of $4,000, it would take more than three years to break even. The deal would make sense only if you planned to stay longer than three years .

Q: What kinds of loans are available?
A: Since the subprime lending bust, most lenders have eliminated the riskiest loans. These included loans that let borrowers make only interest payments for the first few years. Other risky loans required no down payments or proof of income. The Federal Housing Administration lets buyers get loans with down payments of at least 3.5 percent. That’s how most first-time buyers are able to get mortgages these days.

Q: What’s the difference between a loan modification and a refinanced loan?
A: Loan modifications are for borrowers who are behind on their mortgage or on the verge of falling behind. They involve a reduction in the interest rate or a temporary break on payments. By contrast, a refinanced loan is an entirely new mortgage, often made with a different lender.

Find out which option is best for your situation.


Source:  Associated Press (HouseLogic.com)


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New Policy: Fannie Mae will Penalize Borrowers who Walk Away

Seven-Year Lockout Policy for Strategic Defaulter

Fannie Mae  announced today policy changes designed to encourage borrowers to work with their servicers and pursue alternatives to foreclosure. Defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Borrowers who have extenuating circumstances may be eligible for new loan in a shorter timeframe.

Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.

Troubled borrowers who work with their servicers, and provide information to help the servicer assess their situation, can be considered for foreclosure alternatives, such as a loan modification, a short sale, or a deed-in-lieu of foreclosure. A borrower with extenuating circumstances who works out one of these options with their servicer could be eligible for a new mortgage loan in three years and in as little as two years depending on the circumstances. These policy changes were announced in April, in Fannie Mae’s Selling Guide Announcement SEL-2010-05.

Source: Fannie Mae

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Bank of America is 1st to service 2nd Lien Modifications

Bank of America announced Tuesday (01/26) that it is the first mortgage servicer to sign an agreement formally committing to participate in the second-lien component of the Home Affordable Modification Program (HAMP).

The news follows a “verbal commitment” to the program made by CEO, Brian Moynihan made during a meeting with Treasury Secretary, Timothy F. Geithner earlier this month, the company said in a statement.

The Charlotte, North Carolina-based bank says it has systems in place to begin implementing the administration’s Second Lien Modification Program as soon as the Treasury releases final program policies and guidelines. Federal officials first introduced 2MP last April, but since then most market observers have labeled the program as “on hold.”

The Treasury has estimated that up to 50 percent of at-risk mortgages have second liens. The 2MP piece of the administration’s multi-pronged mortgage relief program will require modifications that reduce the monthly payments on qualifying home equity loans and lines of credit when a HAMP modification on the first mortgage is carried out.

The federal government is encouraging lenders and servicers to sign up for the second-lien program, William Apgar, HUD’s senior adviser for mortgage finance, said Tuesday at a housing conference in Washington, according to Bloomberg News. Second liens are “not an easy problem to solve,” Apgar said.

“For many homeowners facing severe financial difficulty, decreasing the payment on the first mortgage without a reduction in the payment on the second lien may not produce an affordable combined mortgage payment,” said Barbara Desoer, president of Bank of America Home Loans.

Desoer said inking the contract before the final program guidelines are released demonstrates “Bank of America’s strong overall commitment to homeownership retention and to the Making Home Affordable program.”

Bank of America is the nation’s largest mortgage servicer, with a servicing portfolio of nearly 11 million first mortgages and 3 million second liens. Through its participation in 2MP, BofA says it will modify eligible second liens regardless of whether the first lien is serviced by Bank of America or another participating servicer.

“2MP will become a valuable addition to Bank of America’s broad toolkit of potential solutions for customers facing financial difficulty and will increase our ability to help even more homeowners,” Desoer said.

Using non-government programs, Bank of America says it modified more than 57,000 second liens to assist financially strapped homeowners over the last two years.

Source:  Carrie Bay (DSNews.com)

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Loan Modification – A Summary Tidbit (Video)

What is a Loan Modification?

Will it destroy my credit?

How will it affect my credit?

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A Nationwide Campaign Kick-Off starts today to help more struggling homeowners

OBAMA ADMINISTRATION KICKS OFF MORTGAGE MODIFICATION CONVERSION DRIVE

The U.S. Department of the Treasury and Department of Housing and Urban Development (HUD) today kick off a nationwide campaign to help borrowers who are currently in the trial phase of their modified mortgages under the Obama Administration’s Home Affordable Modification Program (HAMP) convert to permanent modifications.

The modification program, which has helped over 650,000 borrowers, is part of the Administration’s broader commitment to stabilize housing markets and to provide relief to struggling homeowners and is a primary focus of financial stability efforts moving forward.

Roughly 375,000 of the borrowers who have begun trial modifications since the start of the program are scheduled to convert to permanent modifications by the end of the year. Through the efforts being announced today, Treasury and HUD will implement new outreach tools and borrower resources to help convert as many trial modifications as possible to permanent ones.

“We are encouraged by the pace at which trial modifications are now being made to provide immediate savings to struggling homeowners,” said the new Chief of Treasury’s Homeownership Preservation Office (HPO), Phyllis Caldwell. “We now must refocus our efforts on the conversion phase to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones.”

In her new role, Caldwell will lead HPO’s conversion drive efforts. “Encouraging borrowers to move through the process of converting trial modifications to permanent modifications remains a top priority for HUD,” said HUD Assistant Secretary for Housing and FHA Commissioner David Stevens. “As a part of our continuing efforts to improve the execution of the HAMP program, HUD is committed to working with servicers, borrowers, housing counselors and others dedicated to homeownership preservation to improve the transition of distressed homeowners into affordable and sustainable mortgages.”

With tens of thousands of trial modifications being made each week, the Administration is now working to ensure that eligible borrowers have the information and the assistance needed to move from the trial to the permanent modification phase. (All mortgage modifications begin with a trial phase to allow borrowers to submit the necessary documentation and determine whether the modified monthly payment is sustainable for them.)

As the first round of modifications convert from the trial to permanent phase, the Administration has identified several strategies for addressing the challenges that borrowers confront in receiving permanent modifications.

In addition to the conversion drive that kicks off today, the Obama Administration has already taken several steps to make the transition from trial to permanent modification easier and more transparent by:

* Extending the period for trial modifications started on or before September 1st to give homeowners more time to submit required information;

*Streamlining the application process to minimize paperwork and simplify the submission process; meeting regularly with servicers to identify necessary improvement to borrower outreach and responsiveness;

* Developing operational metrics to hold servicers accountable for their performance, which will soon be reported publicly;

* Enhancing borrower resources on the MakingHomeAffordable.gov website and the Homeowner’s HOPE Hotline (888-995-HOPE) to provide direct access to tools and housing counselors.

Find out more about The Mortgage Modification Conversion Drive.

Source: MakingHomeAffordable.gov


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The Top 10 Questions About Loan Modification

The loan modification process can be overwhelming and confusing for many distressed homeowners.  Programs and guidelines are changing and it is getting much easier for homeowners to get the help they need.

To help you understand how the process works and what you can expect, here are the Top 10 Frequently Asked Questions and their Answers:

1. What exactly is a loan modification?
A loan modification is a permanent change in one or more terms of a borrower’s home loan, allows the loan to be reinstated, and results in a payment the homeowner can afford

2. Can the lender include late charges in the Loan Modification?
The federal plan mandates that the bank waive any administrative charges, late fees and penalties when offering a loan workout.

3. How will the new government programs help me get a loan modification?
The Federal government has allocated $75 billion dollars to subsidize lenders and servicers who offer a loan workout to their clients. Now, the banks will have a monetary incentive to offer help to qualified borrowers. In addition, homeowners who pay their new modified payments on time will be eligible up to $5000 credit to their loan balance.

4. How do I know if I will qualify for a loan modification?
The number 1 criteria your lender is looking at is your ability to make the new modified payment now and in the future. You need to supply the lender with proof of your income, along with a complete and accurate financial statement detailing your income and expenses to show them that if granted the modification, you will be able to afford the new, lower payment. You must also be able to demonstrate that you are facing a financial hardship-lower income or higher expenses for example.

5. Do I have to be currently delinquent on my payments to get a loan modification?
President Obama has included a special incentive under the Home Affordable Modification Plan that will pay lenders an extra bonus for reaching out to homeowners not yet delinquent but at risk in the future. The goal is to help borrowers before they fall into default.

6. What is an acceptable Hardship situation?
Each homeowner has a unique set of circumstances that caused them to fall behind on their home loan, but generally the lenders consider divorce/separation, loss of income, death of spouse, co borrower or family member, illness, job relocation, military service to be acceptable reasons to consider a loan modification. A compelling hardship letter included in your application is a very important part of a successful application.

7. Will a loan modification help me stop foreclosure?
Yes, that is the goal-by working with your lender to find a loan workout solution, your loan is brought current and the foreclosure process is halted.

8. Can my missed payments be added back into my new loan modification?
Yes, the arrears can be added to the new loan balance and spread out over the term to allow the loan to be brought current.

9. Can I do a loan modification myself or should I pay someone to represent me?
That is entirely up to you and your comfort level with dealing with your lender. The Treasury Department is strongly discouraging the payment of any fee to a third party to represent you in a loan workout. Regardless of what you decide, the first thing you should do is learn all you can about the process, your legal rights, and what it takes to get your application approved. An informed homeowner is harder to take advantage of and will have a much greater chance of success.

10. So how do I get started to modify my loan?

Before contacting your bank’s loss mitigation department or a loan mod company, do your homework-learn as much as you can about the loan modification process so you can make informed decisions.

 

For additional assistance and information, visit www.BackyardHomeHelpCenter.com for a complete list of resources and to get in touch with a representative.

 

Source:  Susan Gregory

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What is Loss Mitigation?

Loss mitigation comes about when a homeowner is in danger of losing his property to foreclosure. When this happens, the bank or financial institute with whom the homeowner has the loan will sometimes bring in loss mitigation in order to modify the loan in such a way that both parties can continue working together and avoid foreclosure. Lending institutions are typically more willing to engage in loss mitigation the sooner the homeowner lets them know he is in danger of being unable to pay the mortgage.

Function
In engaging in loss mitigation, the lender is attempting to salvage the terms of the loan, in the hope that the homeowner will be able to return to the original terms of the deal in the near future. In the meantime, the loan may be modified in a variety of ways, including lowering the interest rates on the loan, reducing the balance or forgiving past fees and defaults.

Types
Loss mitigation does not always include simple readjustments of the terms of the loan agreement. Sometimes the lender and homeowner will agree to a short sale. This means the lender will accept a full payoff of the loan, even though it is not what the balance of the loan is truly worth. This way, the homeowner can turn around and sell the home for its full value. The bank may also engage in short refinance, where they knock a few thousand dollars off the balance so the homeowner can refinance with another institution.

Benefits
Loss mitigation typically benefits both the homeowner and the lending institution. The homeowner is able to avoid foreclosure and possibly bankruptcy, sparing himself an enormous black mark on his credit, as well as putting him in a difficult situation with his homestead. It benefits the lender by reducing the hit they would take if they went through with foreclosure, which can put a great deal of financial stress on a lending institution.

History
Loss mitigation is nothing new, but it’s only since 2006 that the field has experienced such growth. This, of course, is a product of the housing market decline, which saw many families being forced to the point of foreclosure when they lost their jobs, or simply because they misunderstood the terms of the original (often predatory) loan. Before that time, loss mitigation was used sparingly, and accounted for only a small section of a lending institution’s total workforce department.

Considerations
Loss mitigation is preferable to foreclosure (especially for the homeowner) in almost every situation, particularly in the housing crisis. With homes declining in value, and an uncertain future when it comes to a rebounding market, homeowners stand to lose tremendous amounts of equity in their mortgages. Without this equity, straight refinance is difficult to achieve, and negative equity can result. When this happens, we will see (and have seen) a situation where homeowners are willing to skip loss mitigation and allow the home to go into foreclosure.

Original article by Shawn Bryan.


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Loan Modifications – The Top 5 Myths

Loan modification is quickly becoming a household word, commonly used and understood by almost everyone. And yet there are many misconceptions and myths about home loan modification that are still commonly held.

Home loan modifications have always been around, but most people don’t even know they existed until recently.

Here are Top 5 Myths that we consistently hear from our clients and various seminars:

Myth #1: You have to be late on your payments to get a loan modification.

You do not have to be defaulted on your mortgage in order to be granted a modification. You need to prove to your lender that you are in imminent danger of defaulting because of your financial situation.

Myth #2: Lenders would rather foreclose than modify your loan.

Not true! Lenders lose a lot of money whenever a house is foreclosed, especially in today’s wilting housing market. They have so many foreclosures on their hands right now that they definitely would rather adjust your loan terms and see successful payments. In fact, this is probably one of the best times to get a loan modification, especially after the passing of the President’s Making Home Affordable plan.

Myth #3: Loan modification will hurt my credit.

It really depends on the type of loan modification you get, but in general modification will not hurt your credit. Furthermore, you aren’t required to have good credit in order to obtain a loan modification. Just a steady job and proof of economic hardship should be sufficient.

Myth #4: You can easily get a loan modification by contacting your lender.

While you’re free to try it, going it alone is not advisable. Use a financial counselor to be your advocate. Choose a counseling company with legal representatives who will work for you and know the laws better than you do. Letting them work it out with your lender will get you the best solution.

Go to www.BackyardHomeHelpCenter.com for Loan Modification services.  Click the large button that says, “Click here to save your home now!”  Complete the contact form so that a financial counselor can determine if a Loan Modification is right for you.  And there is no obligation whatsoever when you submit the contact form.

Myth #5: If you already received a foreclosure notice, it’s too late.

Again, foreclosure is not a profitable option for lenders. They send these foreclosure notices out not because they want to foreclose on your house, but because they want to impress on you the importance of paying up. While waiting until you’re extremely delinquent limits your options for modification, it certainly doesn’t preclude modification.

Stopping the foreclosure process on your home can be done with loan modification. There are a lot of myths about home loan modification swirling around homeowners right now, but knowing the facts can help you to stop foreclosure and keep your home.

Feel free to peruse the Backyard Home Help Center for more information and/or to request for a no obligation consultation and see if a Loan Modification is right for you.

Original article from Lindsey Emery.

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