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Mortgage Problems- Understanding Your 15 Options (Part 4)

By
Real Estate Agent with RE/MAX United
(continued from Monday, January 2, 2012)
  1. Short Sale With one of our Experts - Assuming you have no equity and have to sell, you can list your home with a Realtor who has been trained how to do short sales. Almost always your best option.
Without a doubt, if you know you can no longer afford mortgage payments or you do not want to keep the property, this is the best option. The major benefit of this is that you have a trained experienced professional on your side. Also most of your other options are still available while your home is listed with a Short Sale Realtor. This option offers a dramatic reduction in damage to your credit, at ZERO cost to you! Your lender will pay the costs of the short sale, and in most cases, postpone foreclosure to give your agent time to sell the home.  
  • In the course of getting your short sale approved, any mortgage payments you miss will show on your credit.
  • By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly.
  • Your credit will recover much quicker from the credit dings of a few late mortgage payments, if you keep your other accounts current. Always stay on top of your consumer credit. So, consider allocating your funds to meet basic necessities (food, utilities, household needs, auto expenses and such) first. Beyond paying for necessities plan to pay other bill to keep as many accounts current as possible.
  • Keep 'necessary' Accounts Current when deciding which credit bills to pay. If you are using a credit card to temporarily pay for necessities, you want to be sure to not jeopardize the availability of that account.
  • A Short Sale may be just one part of a larger effort to get through a tough period. We want to help make it possible for your credit to recover quickly.
  • A Short Sale may prevent you from purchasing another home for 2-3 years; however a foreclosure may prevent you from purchasing another home for 7-10 years.
  • Following our complimentary credit repair program can position you to purchase a property again in as little as 2 years after your Short Sale!

FANNIE MAE GUIDELINES (MARCH, 2008)

Short Sale Borrower must wait 2 Years before applying for a Mortgage Loan
Foreclosure Borrower must wait 5 Years before applying for a Mortgage Loan
Bankruptcy Borrower must wait 7 Years before applying for a Mortgage Loan
Lets be clear about this next point. There are definite advantages to a short sale but it has little to do with how many points a short sale will drop a FICO (in the short term) versus a foreclosure. Unfortunately, in most communities, houses are over valued and markets will no longer support asking prices. There was a study released recently that reported that at least 50% of all homes in the US were ‘upside down’ or at least have no equity. Another report showed that there are only three communities in the US that have rising appreciation, strong sales and few if any foreclosures. Did you read that…ONLY 3. In many cases the homeowner is unable to structure a workout or a forbearance agreement with the foreclosing lender. A short sale is the next best option. Clear benefits of the short sale: Fannie Mae recently established a 2-year elapsed time period for reestablishing credit for homeowners who sell their homes through a short sale. Two years may seem like a long time to wait before being able to get a new loan, but compare this to what happens if the homeowner goes through the foreclosure process. According to the Fannie Mae guidelines, effective May 31, 2008, a homeowner who has filed a foreclosure will be “ineligible” for a loan for five years. Again..this is a crucial point. Someone goes through foreclosure…no Fannie Mae backed mortgage for FIVE YEARS…in all reality that means that they will be renters for at least 5 years. To put his into perspective if someone has a bankruptcy they can’t buy for 7 years. This should tell you how much Fannie Mae prefers homeowners short selling over foreclosure and bankruptcy. Consider the fact that property values will most likely fall for the next 12-24 months anyway so, not being able to buy a home for 24 months really isn’t all that bad. The other huge benefit of doing a short sale involves something called a deficiency judgment. When a house is sold at auction (foreclosure), the chances of the foreclosing lender filing a deficiency judgment increases dramatically. How does this work?… , a deficiency judgment is obtained when a property is foreclosed and sold (usually at the courthouse by the clerk of the court) to the highest bidder. In most states a deficiency judgment can be obtained for the difference between the high bid and the higher foreclosure judgment amount. Usually the court determines which value is higher, the high bid or the appraised value of the property on the date of the public sale. The higher of the two is taken to determine the difference from the judgment amount, and this difference is the deficiency judgment (what was owed subtracted by the final sale price). Deficiency judgments are just that: judgments. In other words, a debt that has to be paid. They are an albatross around the neck of the debtor and can only be removed by paying it off or by bankruptcy. Furthermore, deficiency judgments usually earn interest until paid. If a homeowner has deficiency judgment, guess what? They won’t be able to buy anything using credit. New house? Forget it. New car? Nope! In the past few deficiency judgments have been filed against foreclosing homeowners, that may change. Banks seldom enforce deficiency judgments, they sell the judgments for 5 to 10 cents on the dollar. Here’s the deal that the bank has to consider . . .for a $100,000 deficiency judgment they invest $500 in attorney fees and get $10,000 in return just for pushing paper. In other words, they get the judgement…then sell it to a 3rd party for 10% of the amount. We know that we can negotiate an unsecured promissory note. Sometimes when the second lien holder won’t release their lien in order for the short sale to close we know how to structure an unsecured load for 10% or less of the amount. Usually at no or very low interest. The banks do the same thing –– getting 5 cents on the dollar. Another point of consider, if the house goes into foreclosure and is taken back by the bank to be listed as an REO, the meter keeps running on the costs incurred by the bank until the REO dept. sells the house. This can make the deficiency huge. In other words, the former homeowner is on the hook for all the banks costs…not just the loss from the negative equity. Realtors who know how to do short sales offer homeowners a way out. Whatever effect a short sale has versus a foreclosure on one’s FICO score pales in comparison to the long term harm of a deficiency judgment and the inability to be approved for a loan for years to come.

YOU need to avoid foreclosure and we can assist you!

  Continued on Monday, January 9, 2012

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