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I am behind in my mortgage payments - what are my options?
If you have become delinquent in your mortgage(s) you will receive information - some not so subtle suggestions, from many people who want to take advantage of your situation and temporary misfortune! They may propose you solve your problem by suggesting you sell or deed your property to them.
Beware: Don't do anything until you understand your options:
Every homeowner's situation is unique and each lender has their own policies regarding the use of these programs to stop foreclosure. Here are some of your options...
SELL YOUR HOME
You can sell your property if you have enough equity to cover all the costs associated with the sale or are able to bring cash to the closing table to cover any shortfalls. As full service real estate professionals, we can assist you with the sale of your property. Call for more details on how to get started.
A SHORT SALE
If you owe more than your home is worth, you can look at negotiating a discounted payoff with your mortgage company. We can negotiate with your mortgage company(s) on your behalf to get an approval for a "Short Sale." Keep in mind the lender(s) almost always pays all the sales costs, including title and escrow fees, commissions and delinquent taxes.
REFINANCE
Refinance the property and pay off the existing loans. However, you must have sufficient equity in the property. We deal with lenders that can assist you with refinancing your property. Give us a call for further details.
LOAN MODIFICATION
In an effort to help distressed homeowners keep their homes, lenders are more willing to consider loan modifications. A loan modification or "workout" is a permanent change in one or all of the terms of an existing mortgage(s). These changes may include extending one or more of the terms of a mortgagor's loan, a lower interest rate, an adjustable to a fixed rate loan and longer amortization period. The past amounts owed, including penalties and attorney fees, can be added to the balance of the modified loan. Give us a call for further details.
DEED IN LIEU
In a Deed in Lieu of foreclosure, the borrower conveys all interest in the property to the lender to satisfy the loan that is in default in order to avoid foreclosure proceedings. This is not a popular option for lenders given the depressed value of properties in many markets. The lender may also want you to agree to pay a certain amount in addition to giving up the property.
FORBEARANCE AGREEMENT
For those borrowers who experienced a very temporary event that caused them to fall behind on their mortgage, a Forbearance Agreement with the lender is a good option. According to this agreement, the lender delays his right to exercise foreclosure if the borrower could catch-up his payment schedule. In most cases, the lenders are looking for two things to consider a forbearance agreement.
1) Why the loan became delinquent in the first place. 2) The borrower's financial difficulties have been corrected. The mortgage company wants to know that the borrower is now on a solid footing and can be counted on to make regular loan payments as agreed. The new payment will probably include a set amount that will count towards the delinquent amount.
DO NOTHING
This is an option, but not recommended. Sadly many go this route because the situation seems overwhelming or simply, they do not know what to do. We understand that you can become overwhelmed and intimidated by your situation; however, the consequences of a foreclosure are serious. At the very least, you owe it to yourself to consider all of the potential options that can help you avoid foreclosure.
Please call me should you have more questions or simply wish to discuss your options in detail.
What is a Short Sale?
A Short Sale, also known as a Short Payoff or Pre-Foreclosure Workout, is an agreement with a lender to accept less than the amount owed by a borrower via the sale of the property to a third party. With this agreement, the lender releases the borrower from the mortgage, thereby preventing foreclosure.
Short Sales provide an excellent, win-win solution for the distressed homeowner and their bank. The homeowner avoids a foreclosure on their record and the bank avoids the effort and expense of the foreclosure process.
Benefits of a Short Sale?
A Short Sale can be one of the best options for many homeowners facing foreclosure. A Short Sale allows the homeowner to sell the property and remove the secured debt associated with the home. The seller can walk away from the sale with significantly less damage than a foreclosure.
A homeowner who decides to Short Sale their property typically experiences less impact to his/her credit. There are no upfront fees or costs associated with the Short Sale. Your lender pays for all fees including, closing costs, escrow fees and realtor commissions.
A Short Sale is sometimes the best course of action when homeowners who do not have equity in their homes are delinquent in their monthly payments or in default of the terms of their loan. Short Sales offer struggling homeowners an opportunity to wipe the slate clean and get a fresh start.
Is a Short Sale right for me?
For various reasons, some homeowners may not be able to fulfill their mortgage obligations. These reasons commonly include financial hardship due to increased mortgage payments, job loss and other family emergencies.
If you are no longer in a position to make mortgage payments, are facing foreclosure, and the current market value of the property ( including closing costs to sell your property) is less than the loan(s) on the property, you should consider a Short Sale.
A Short Sale saves you from having a foreclosure on your credit history and releases you from an obligation you can no longer afford.
Why would a lender agree to accept a Short Sale?
Mortgage lenders are increasingly willing to work with borrowers facing financial hardship to accept a discounted payoff on a mortgage. If you are faced with a hardship that makes it likely you will be unable to meet your obligation on your mortgage, your lender would prefer a Short Sale. Short Sales are more beneficial to a lender than a foreclosure. Lenders are not in the business of managing and owning property and Short Sales are less expensive than completing the foreclosure process.
Bottom line, your lender wants to work with you.
How do I qualify for a short sale?
In order to be eligible for a Short Sale, a homeowner must be able to prove to the lender that they are a victim to a "hardship" and as a result are therefore unable to continue making payments on their mortgage.
A hardship situation is one that is the result of some extenuating circumstances that forced the borrower into a position where they can no longer afford their mortgage payments. Every situation is unique and must be evaluated individually.
There are several common factors a lender will consider when approving a Short Sale. Again, each situation is different and must be evaluated on an individual basis. Ask yourself the following:- Owe more on your property than the current value?
- Not enough money to cover the difference of what you could sell your property for and what you owe the bank?
- No money to cover real estate commissions, closing costs, late payments, etc.?
- Having difficult covering your monthly expenses?
- Property in foreclosure or default? Sale Date Approaching?
If you answered yes, to these questions, and can provide a financial hardship, you will likely qualify for a Short Sale. Ultimately, the decision is up to your lender.
What type of hardship will the lender accept?
To some extent, that will depend upon the mortgage company. Generally, as long as the hardship is real and the lender believes the loan is likely to become, or is currently delinquent, the Short Sale request will be approved by the lender's loss mitigation department. A key to obtaining an approval is strong letter explaining the hardship situation of the borrower.
Below is a list of some "hardships" that are frequently accepted by lenders:- Adjustment in Mortgage Rate
- Unemployment or Loss of Primary Income Source
- Employment Relocation
- Divorce or Separation
- Business Failure
- Mounting Medical Expenses /Illness
- Death of a Spouse or Significant Other
- Damage to Property or too Many Repairs
- Increasing Credit Card Debt
- Unable to Refinance
- Any other unforeseen circumstance that cause financial hardship
If I Do A Short Sale, How Much Will I Have To Pay?
Nothing. Your lender will pay all real estate commissions, title and escrow, closing costs, and any approved home repairs.
The reason your lender will do this is because they are trying to avoid the even larger losses and expenses associated with the foreclosure process.
What Type of Paperwork Will I need to Provide?
Your lender will require a specific set of supporting financial documents to consider a Short Sale. Each lender has different requirements. All lenders typically require a Short Sale package containing the following documents:- Recent Bank Statements
- Recent Pay Stubs
- Last 2 Years Tax Returns
- Financial Statement
- Hardship Letter
- Other Related Items
Your lender will want an explanation of the circumstances that are preventing you from continuing with your ownership of the property. This is known as the hardship letter.
How Do I Get Started On A Short Sale?
It's easy. Call us directly at (661) 295-2400 or TOLL FREE at 800-549-3900 for a consultation. It’s that simple. Call us and we will begin the process immediately.
Why a Realtor?
Most lenders require that your home be listed with a Realtor before they even consider a Short Sale. Lenders want to make sure that the home is exposed to buyers and that the house is priced right.
Negotiating a Short Sale between the borrower and the lender takes skill, patience and expertise. Everyone involved in the transaction needs to know what to expect. In a Short Sale, all Realtor commissions are paid by the lender.
My Mortgage is Current; Will My Lender Consider A Short Sale?
The answer is, maybe. There are lenders that will accept a Short Sale file for approval on loans that are not yet delinquent. Other lenders will not accept the file until the loan is in fact delinquent. We can put your Short Sale file together and submit it for approval. This is the best way to determine if your lender(s) will accept a file for approval on a loan that is not delinquent.
I Have Two Loans, Can I Still Do A Short Sale?
Yes. Many homeowners have two mortgages on their properties. This is common. We can work with both lenders (many times the same lender holds the 1st and 2nd loans) to put together a Short Sale transaction. Even if the value of your home is below the balance of the 1st mortgage, we can normally get the two lenders to cooperate.
In the end, neither lender benefits from having the property go through foreclosure.
Do You Handle Investment Property (Duplex, Triplex, Fourplex, Commercial)?
Yes. We handle all residential properties in all price ranges, including residential commercial apartment buildings.
My Property Needs Work; Can I Still Do A Short Sale?
Absolutely. In fact, lenders are more motivated to do a Short Sale on a property that needs work than on a property that doesn't. Lenders know the risk of loss increases when they foreclose on a property in need of substantial repairs.
Lenders are in the loan business, not the home improvement business. They would prefer to dispose of the property through a Short Sale, rather than foreclosing and becoming responsible for repairing it.
What About My Credit?
One of the primary benefits of a successful Short Sale is avoiding the credit damage of a foreclosure. A big key here is to avoid foreclosure. Short Sales have a far less damaging affect on your credit report than a foreclosure.
Note: There may be drawbacks to financial decisions you make. We are not CPA's, Tax Experts or Attorneys. This is for informational purposes only. A Short Sale may have credit, legal or tax consequences. For your protection, it is strongly advised Seller seek the advise from an attorney, CPA or other expert prior to proceeding with a 'Short Sale.'
If I Have Other Liens On My Property; Can I Still Do A Short Sale?
Yes, however, it does get much more complicated and may take longer to complete a Short Sale. Each lien holder will have to be negotiated with individually.
What Are the Tax Ramifications Of A Short Sale?
When a lender agrees to a Short Sale and sells a property for less than the outstanding mortgage debt, the amount of the debt that the lender writes off is treated as ordinary income. Despite the fact the owner is in default or facing foreclosure, this amount is treated as forgiveness of debt, and the taxpayer will typically receive a 1099 for the amount of the cancellation of debt.
The amount of the debt or the ordinary income may or may not be subject to taxation depending upon different circumstances.
Under the Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) signed by the President in 2007, IRS code § 108(a)(1)E), provides that a taxpayer will not be taxed upon cancellation of debt income if certain conditions are met.
For further details click the link below:
http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html
Note: This is for informational purposes only. For the most current tax implications on a Short Sale and how those implications may affect you, it is highly recommended that Sellers consult with a tax advisor, CPA or seek the services of an attorney for legal counsel before proceeding with a Short Sale on the best solution for your specific situation. We are not licensed to give financial or legal advise pertaining to tax ramifications of your decision.
My House Is Already Listed "For Sale" But Not Selling; Can I Do A Short Sale?
Yes, you can and it is relatively common. Some lenders require that a house be listed for sale before approving a Short Sale in order to show that a discount is necessary.
I Have Filed Bankruptcy; Can I Still Do A Short Sale?
Yes, but it is more difficult and a longer process.
If you are considering bankruptcy as a way to stop foreclosure, be sure to consult an attorney for legal advice, since it is possible that a bankruptcy may not completely stop a foreclosure.
Do You Charge A Fee Or Other Compensation For Services?
There is no fee to the homeowner for our Short Sale services. In a Short Sale, all commissions, title and escrow fees, and even some repair expenses are paid by the lender as part of the Short Sale approval. Lenders approve Short Sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure.
Do You Represent Homeowners Wishing To Sell Their Homes In The Traditional Manner (i.e. without lender concessions)?
Yes! We are happy to work with you on the sale of your home. We have over 25+ years experience working with Sellers. Many of the techniques we use in effectively pricing and marketing homes for our Short Sale clients translate exceptionally well to more traditional homes sales and can help us deliver results in line with your personal goals regarding your home sale. Please contact us today and we will be happy to schedule a listing appointment.
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Sometimes we forget that the real heroes are the individuals who live and/or work right here in our community every day to improve the quality of our lives. If you work in education, public safety, health care, or in the military - you are a COMMUNITY HERO. The Paseo Financial Group has set up a program especially for you called The Community Hero Program that offers discounts or rebates in purchasing or selling a home; obtaining mortgage financing on either a purchase or refinance; as well as discounts in escrow, appraisal, home inspection, carpet cleaning, and many more discounts pertaining to home ownership.
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