Professional Documents
Culture Documents
These are often referred to as workout programs. You may negotiate with
your lender directly or use Free Public Services. You may use an Attorney or
Loss Mitigation Company that charge for the service. (See Resources Below)
There are no fully guaranteed results but Professional Representation far out
performs the novice homeowner and/or the free options. To understand
exactly what it is that these companies are offering to do you must
understand the following terms:
A. Loan Workout
In some cases of a loan workout, the lender waives fees and fines. In others,
past due payments are moved to later in the mortgage. This is designed to
give you time to either improve their financial position or sell the home. This
is a workout program that requires you to immediately pay at least 20% or
more of the total delinquencies including foreclosure fees, plus the balance
of the delinquency that will be added to their regular monthly payments over
a period of 6 to 48 months. Forbearance plans do not remove a foreclosure
action, but simply stop it in place until the loan is current. Usually the
monthly payment will raise 30%-60% during this workout program.
B. Loan Modification
This is a permanent change in one or more of the terms of a loan agreement
in an effort to get the loan reinstated, or current, and to arrange payments
the borrower can afford. In some cases the interest rate may be reduced
permanently, in other cases, the principal balance is reduced. In either case,
the result is lower monthly payments.
C. Forbearance Agreement
The most common means of delaying foreclosure is to take the delinquent
payments and foreclosure fees and add them onto the back end of the loan.
Historically, those individuals who are successful with getting the late
balance placed at the end of their note are those who can prove a suffered
hardship, have a long standing relationship of good payments with the bank
and have equity in their home. Banks are usually willing to do this only when
their risk of non-payment is very low.
This option is one of the first things that most homeowners attempt when
they have fallen behind on their payments. If you remember, a couple of
years ago refinancing a house was easy. If seemed as if all you needed were
a pulse and an address for a broker to lend you money. Obviously times have
changed. If you are currently in foreclosure, it is almost impossible to
refinance. The only refinance happening right now if someone is in
foreclosure is on the rare occasion where the homeowner has 40% or more
equity in their property and in most cases the new payments will be higher
than you currently pay.
***Homeowner Tip!***
The best way to get out of a hole is to STOP DIGGING! Instead of looking at ways
to borrow MORE money that you can’t afford to pay back, it is better to look at
options to get out of large debt quickly, avoid further damage to your credit, and
start over with what you can AFFORD!
If you truly want out of the home, selling it is another option to consider. In
selling the home, you need to remember that there are costs in getting the
home in salable condition. The market has slowed t a standstill and there is a
stipulated period of time that you must get your home ready, list it, find a
buyer and close escrow. In today’s market, selling a home in a short period of
time can be a difficult challenge and the time frame is crucial. A good tip for
homeowners exploring this option is for them to get a Broker Price Opinion,
where a Real Estate Broker will come out and evaluate the sales value of the
home, and give them a realistic time frame of how long other comparable
homes in the area are taking to sell. Next, there are closing costs to consider.
Did you know that it costs a lot of money to sell your home? If you see a
property in your neighborhood listed for $200,000 did you know that the
seller will probably net around $167,000. Where does the money go? Take a
look at the following chart below and see the true cost to sell your home.
Realtor Commission 6% $12000
Sales Price Discount 5% $10000
Cost of Closing 3% $6000
Loan Payments During Sales Average home sale takes 6
$6000
Period months (6x$1000)
Utilities Cost During Sales Average home sale takes 6
$1500
Period months (6x$250)
Average home sale takes 6
Property Insurance Cost $600
months
Average home sale takes 6
Yard Maintenance $300
months
Typically the buyer will re-
quire a home inspection and
Repairs Requested by Buyer $2000
then request repairs to be
made.
Home warranty requested Typically the buyer will re-
$500
by Buyer quest a home warranty.
Termite Letter Typically the
Termite Letter buyer will Request a termite $200
letter
Total Cost to Sell Your Home: $33,100
This can be a deal breaker for those homeowners who are at 84% Loan-to-
Value (LTV) or higher and do not have enough equity in the home to go to
closing without paying money at closing.
C. Short Sale
This option is usually for homeowners who have little or no equity in their
homes. This option allows Investors to purchase the property from you for
less than what you owe, and, more importantly to you, forgives the
remaining balance in most cases. The significance of this option is simple. A
vast majority of the homeowners currently in foreclosure have either no
equity, or are actually upside down on their home. In most cases this is the
best option for you with no equity.
** When analyzing the Investor Cash & Short Sale Options, it is best
to fully concentrate on understanding the rest of the options before
determining if selling to an investor is the best choice. We will guide
you with this option if that is the case. Short Sales are a
sophisticated means of resolving foreclosure and require in depth
education and coaching.
This is the option that is the least common. The main reason for this is
“PRIDE.” You have to be embarrassed about your situation and don’t want
your friends or family to know about it. Most folks would rather call us, a
complete stranger, and tell us their entire life story than go to someone you
have known your entire life and ask for help. It is important to understand
that pride is a large factor when dealing with this unfortunate situation.
You can pay the back payments, plus any fees and foreclosure costs. This will
get you out of the foreclosure and back to their normal payments. Most likely
you cannot do this. If you had the money to reinstate the loan you would
have been making your loan payments on time in the first place.
When the house goes to auction, you will receive whatever monies are left
over after closing. However, it is important to note that it is extremely
uncommon for a home to auction for more than market value. The lien
holders get paid in order of recording after all fees have been paid, including
foreclosure costs, taxes and judgments. If there is any money left over, it
goes to you. In the past if the offering bid at the foreclosed auction was lower
than the mortgage balance, the lender might consider it a bad debt and
pursue you with a deficiency judgment. Now, after recent changes in federal
law, a deficiency judgment (or debt obligation), that used to be approved and
recorded by a court of law can be no longer pursuable (there are
exclusionary laws regarding refinance, however) in order to obligate you to
pay any outstanding balances after auction. The foreclosure is a negative
mark on your credit history, and can affect your ability to secure another
mortgage loan in the future as it stays on credit reports for seven years on
average.
If we don’t know your true motivation, then you will find it very difficult to
negotiate a resolve. You may also find out that your first option is not always your
best option. By discussing the options completely, we will be able to show you why
our option is the best for you and why the others are not.
RESOURCES:
1. Loan modifications come in all shapes and sizes. Most of the news media, government agencies and non-profit
organizations have little or no understanding of this. Many still believe a loan modification comes in one size fits all.
Lenders are clearly aware of this perception and use it to their advantage when working directly with a borrower.
Some Lenders use the term FREE to mask sub-par (higher interest and/or less principal reductions) loan modifica-
tions.
2. Lenders have a fiduciary and contractual obligation to protect their stockholders, not you. Your lender does not
represent your interests; they represent their investor’s interests.
3. Given you are already contractually bound to your lender with your existing mortgage, working directly with you
without you having professional representation is a clear conflict of interest.
4. Blanket wholesale loan modifications can put you, as a distressed home owner, in a worse situation by actually in-
creasing your mortgage payment, or giving you a false sense of security with an initial lower payment, only to recast
your mortgage a few months later with higher payments and now you are in a worse position, not being able to modi-
fy your loan for another 12 months.
5. Many lenders are seeking to mitigate their losses by getting borrowers to take a higher interest loan modification
than what could have been structured with professional representation. In fact some Lenders have internal com-
pensation structures that pay more to their representatives for keeping a loan modification's interest and remaining
principal balance higher. There is nothing inherently wrong with this - their stockholders and investors expect this.
6. Many borrowers have no or very little understanding of exactly what the loan modification structure actually was
they accepted, but are simply happy that it was FREE. In many cases this exuberance is shorted lived.
7. If a non-profit organization connects you to your lender, make sure that organization is also a fiduciary represent-
ing you. Many non-profit organizations may not understand that they may be walking you into the wolves' den.
8. If your Lender is offering a FREE loan modification, they will usually require your current financial scenario. In
some cases whether the loan modification is FREE or not, borrowers can literally lose the opportunity because they
were either unable to put together an a complete scenario; gave the their Lender an inaccurate scenario; or did not
know how to legally maximize their scenario to take advantage of a Lender modification program.
9. Other things you can get for FREE, or can do directly without representation:
Your home is the greatest investment you will most likely make. Make sure to consider all options when determining
the best solution to assist you with any hardship you may be experiencing.
What motivates a seller to have to sell his home? Financial distress for one. Maybe
he is behind on payments. Maybe he is facing foreclosure. Maybe even bankruptcy.
Maybe he is facing a huge medical bill. Or a divorce settlement is looming on the
horizon. job relocation Getting married and having no need for two houses
The road to wealth has changed in this nation - perhaps forever. Counting on government, corpora-
tions or even a college education is no longer a predictor of financial security. Instead, it is now ne-
cessary to build your own safety net both today and into the future. Real estate is local, tangible
and performs well as a hedge during periods of rapid inflation and monetary easing. Listen, learn
and look out for your financial future.