First and foremost, this article is not in any way considered to be, or offered as, legal advice. I am not an attorney and all agents and homeowners with specific questions about the foreclosure process should consult with an attorney. With that being said, let's get started! An agent gets a call for a hot new listing. They show up paperwork in hand, sit down with the seller of this wonderfully marketable listing and the seller proceeds to tell them they are behind on their mortgage and the foreclosure process has begun. Questions flash through your mind: How much time do we have, is it a short sale, are we too late to do anything?
There's no need to panic, whether you are an agent or the homeowner. The first step in dealing with a home in a foreclosure process is to understand just where the homeowner is in the timeline. Most homeowners in this situation are concerned about ending up on the street, maybe saving their equity and moving on to a rental until they can get back on their feet. Unless they have waited until weeks before the scheduled Sheriff sale, odds are there is ample time to find a solution. Either way, whether selling or staying, the seller's full disclosure and cooperation is absolutely critical to making this whole thing work.
The first thing to understand about selling during the foreclosure process is that the process itself is very fluid and changeable. Depending on how the homeowner has proceeded thus far, if they take advantage of all the opportunities to appeal the process or file responses to the lenders paperwork in the courts, if all possible extensions are granted, the process could extend out for significantly longer than the timeline below, sometimes as long as 18 to 24 months from the time they stop making payments. Here is a brief example timeline from the Pennsylvania Housing Finance Agency (PHFA) website, pretty much the "shortest" (about 9 months) possible, worst case scenario:
1. 1/2/2008 January payment becomes past due.
2. 2/2/2008 February payment becomes past due account is now due for 2 payments.
3. 3/2/2008 March payment becomes past due account is now due for 3 payments.
4. 3/5/2008 Lender sends the Notice of Intent to Foreclose (Act 6 Notice) to the mortgagor. If applicable, the lender will also send an Act 91 Notice that makes the mortgagor aware of the Homeowners' Emergency Mortgage Assistance Program (HEMAP)*.
5. 4/8/2008 Act 6 and Act 91 Notices have expired - Lender refers account to Foreclosure attorney.
6. 5/8/2008 Foreclosure attorney begins the legal process by filing a "Complaint" at the county courthouse.
7. 6/23/2008 Mortgagor does not respond to the complaint a "Default Judgement" is entered.
8. 6/25/2008 Sheriff's office schedules a "Sheriff Sale" date.
9. 7/25/2008 Notice of "Sheriff Sale" is sent to each mortgagor on the loan.
10. 8/25/2008 "Sheriff Sale" is held.
11. 8/27/2008 Sheriff prepares and records a deed conveying title to the purchaser. If a third party does not purchase the property, the deed will convey title back to the lender.
12. 8/27/2008 Eviction process begins if the mortgagor still resides in the property.
An important consideration is that there are many solutions (not many of them easy) from workout arrangements to loan modifications to temporary HEMAP loans to bring things back on track if the owner wants to stay. I know we are Realtors and we make money by selling homes, but the fact remains that the client does not have to sell to avoid foreclosure. I like to think that if we help them STAY in their home the rewards in referred business will far outweigh the money you make from forcing a quick sale. Encourage your client to talk to the lender and attempt a solution if they want to stay. Prepare them for the simple fact that this process will not be easy and the lenders, in many cases, are unnecessarily obstinate and uncooperative, with lots of red tape and process you must navigate to get any answers. Patience is the key.
Okay, now back to the sale. Step one is to determine where you are in the timeline, then step two is finding out just how much they owe. Here is the simplest solution most people forget. No matter where you are in the process or how uncooperative the lender has been so far, the lender cannot refuse payment in full (loan balance, interest, fees, etc). If you get a buyer who is paying a price high enough to cover the seller's costs, other than time adding fees to your process there is no need to worry about the lender at all, no need to deal with all the red tape.
Depending on where they are in the process, they may have an additional $5,000 to $20,000 in fees and expenses ON TOP of their loan balance. By all accounts, once you get to step 5 in the timeline above, you can count a minimum of $3,500 to $5,000 in fees tacking on, almost overnight. Every day that passes is another opportunity to incur more legal fees. This process can take an easy sale with a little seller equity into the nightmare world of short sale negotiation, where months can pass waiting on the lender to respond to your offer, all the while with your client incurring more fees and going farther down the hole.
You (and your client) must act quickly to sell the home and minimize any further damage to their credit or finances. I have been able to have a lender put a "hold" on the foreclosure process for 30 days or more to allow the client time to get the home under agreement once we listed. It took some wrangling to do, but it avoided a short sale situation because we were able to hold off those additional legal fees. If the lender will do it, then get them to do it quickly and get your seller to put the house on the market NOW.
Although time and the "process" are on your side as far as keeping your clients from being homeless and working out a repayment plan if they are staying, it is NOT on your side from the standpoint of selling. If you want a simple solution to selling during a foreclosure, encourage your client to price the home properly and get it into market ready condition. Encourage them to take the quickest offer that has them walking away with the least amount of damage (notice I did not say most profit, which is not always the same thing). Every other path is complicated, time consuming and quite honestly not very profitable for you or your client. Remember, the longer the process takes the harder it gets.
*According to the PHFA website: HEMAP is a loan program designed to protect Pennsylvanians who, through no fault of their own, are financially unable to make their mortgage payments and are in danger of losing their homes to foreclosure. HEMAP funds loaned to prevent foreclosure are not a grant. The funds are a loan and must be repaid. When approved for HEMAP assistance, a loan is created (secured by a mortgage on the property being threatened by foreclosure) to bring the delinquent payments current. See the www.phfa.org for further details.
As always, you can call me Direct at 717-371-0557 or at the Office 717-490-8999, email me at Jason@JasonsHomes.com or send me a text message for any questions you may have!
Your Friend in Real Estate,
Jason
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