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Facing Foreclosure or Just Upside Down in My Home...what are my options?

By Attilio Leonardi

Real Estate Agent with RE/MAX Honolulu

December 09, 2008 06:24 PM

I have helped many home owners in Hawaii avoid foreclosure or get out of upside down mortgages. This is what I have learned. If you are facing foreclosure there are four questions you need to be asking or researching.

1. How will this affect my credit?

There is a ton of information on the Internet but the best analogy I have come up with is that a short sale is like a smash in your car door and a foreclosure is like totaling your car.

Since I am getting corrections on corrections (as reponses) I have decided to leave my comment above as is and let individuals search the Internet for all the many different answers. My ambiguous analogy is as detailed as I want to get on that topic.

2. What are the tax consequences?

You will be issued a 1099C statement on the difference and will have to treat it as phantom income. However, the new Mortgage Forgiveness Debt Relief Act of 2007 provides a way to for you to exclude the income. Go to this link for more details from the IRS...

http://www.irs.gov/individuals/article/0,,id=179414,00.html

3. What happens to the difference I owe the bank?

A couple of different things can happen. The lender may agree to short pay of and a full release of any underlying debt. They may ask that you sign a promissory note for the difference. They may ask that you pay part of the difference. They may reserve the right to come after you for the difference. Hawaii law allows the lender to pursue you for up to two years.

4. What are all my options when facing foreclosure or upside down in my home or both?

Deed in Lieu of Foreclosure: You basically give title back to the bank.

Forbearance: Temporarily freezing the monthly payment due on your mortgage.

Loan Modification: The bank changes the terms of the loan.

12-31-08 New Information about Loan Modifications:

From the Office of the Comptroller of the Currency and the Office of Thrift Supervision...

More then half of all mortgage modifications go into default within 6 months.

Short Sale: You sell the home at a market price and the bank agrees to the sale with conditions.

Check out my website... http://www.weloveshortsales.com/At the bottom of the page in the copywrite line click on "Agents" to see all our Short Sale Listings.

Foreclosure: You stop making the your mortgage payments and the bank auctions off your home.

Refianance: No explaination needed.

Reinstate Your Loan: Pay all your back mortage payments, plus late fees and legal fees.

I hope this was helpful for you if you are facing the difficult and stressful situation of a foreclosure or are upside down (owe more then it is worth) in your home.

"I am never to busy for your Short Sale referrals"

I am not an Attorney or Tax Professional. Any information I provide is based on my experience when representing clients in Short Sale Real Estate transactions. If you need Legal or Tax advice please seek the appropriate licensed professional. I make no guarantees or promises of the outcome of any Foreclosure or Short Sale. All information provided by me to any all parties is to the best of my knowledge and is deemed reliable but not guaranteed.

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James Burns, Esq.

Law Office of James Burns - Aliso Viejo, CA

Aloha Bruddah:

Lived in Hawaii for long time and miss da kine.

Here is another thing you can learn and add to the list above.

The best way to go is to ensure people actually qualify for a loan and have enough income to pay off the loan at some point. Modifications cannot save everyone, especially the option arms because they were stated, sold on minimum payment with NO hope of ever making the fully amortized rate. Buy what you can afford is the best way to avoid foreclosure.

Also, many of these people will need a law firm to submit the modifications because they've participated in the fraud on the over embellished stated income and some prosecutors are going after borrowers while banks have six years or more from the point of discovery to go after a fraud claim and now you've just handed them the smoking gun; unless you have the attorney/client privilege over the submission.

Dec 10, 2008 11:57 AM

Thom Abbott

MyMidtownMojo.com |770.713.1505 | Intown Atlanta GA Condo Living - Atlanta, GA

Midtown Atlanta GA Condos For Sale

Ditto and welcome to Active Rain! Wish you would of had a better topic to start off with, but it seems to be one of the big real estate topics we are talking about these days!

You're going to love it in The Rain!

Dec 10, 2008 12:42 PM

Melissa Meers

Schinzel Enterprise - Las Vegas, NV

Thank you.. Thats great info outlined beautifully. I have a few friends trying to make decisions-- so will email this them! Melissa

Dec 10, 2008 01:52 PM

Morris Childs

PEP source - Spartanburg, SC

Welcome to Active Rain. It just gets easier after your first blog. Just write about what interests you.

Dec 10, 2008 01:59 PM

Anonymous

Andy Jolls

Great post. re: your comment about credit, I love the analogy, but I have a correction. A short sale impacts your credit the same way a foreclosure does, as long as it's reported by the lender to the credit reporting agencies.

How Much Will A Foreclosure Impact My FICO Credit Score? - Episode #49

Dec 10, 2008 02:53 PM

#12

Kirk Westervelt

Van West Realty - Greenville, SC Realtor -Short Sale Expert! - Greenville, SC

Kirk Westervelt, Broker In Charge, Van West Realty - CDPE - Short Sale Agent - Home for Sale - Greenville, Simpsonvil...

Hello and welcome to Active Rain! I encourage you to learn from others, share your knowledge and experiences with all of us, enjoy yourself, and try to log in and join us in the Active Rain community as frequently as possible. I look forward to your future blogs and comments! Take care, --Kirk.

Dec 10, 2008 02:59 PM

Lorena Westervelt

Van West Realty - Greenville, SC

Co-Founder/Co-Owner

Hello, welcome to Active Rain! This seems like a wonderful environment to network as well as learn from others. I hope you enjoy yourself and participate often in the Active Rain environment!

Dec 10, 2008 03:21 PM

Ronnie Margolis

KW Kauai - Kapaa, HI

Kauai Realtor - CDPE, ABR, RA - On Top of the Aloh

Welcome to AR from Kauai. Have you been participating in many successful short sales yourself?

Dec 10, 2008 03:32 PM

Anonymous

Cindy Logan

Great information, succinct. Not everyone knows they have other options, and this is very relevant information.

Mele Kalikimaka

Cindy

Dec 10, 2008 03:52 PM

#16

Attilio Leonardi

RE/MAX Honolulu - Kapolei, HI

Thanks for all the comments on my blog. I have added suggestions.

Dec 10, 2008 09:38 PM

Noreen Fennell

Better Homes and Gardens Rand Realty - Tuxedo, NY

Professional Service, Serious Results

Excellent information! Thank you so much---

Best,

Noreen

Dec 10, 2008 10:21 PM

Liane Jamason

Smith & Associates Real Estate - Saint Petersburg, FL

Top 1% Real Estate Broker - St. Petersburg, FL

What I would like to know is what solutions are out there for someone who's paying their mortgage on time and doesn't want to screw up their credit, but is going into credit card debt because they can't afford their loan anymore in this economy? I've checked into Hope Now for clients and it only works if you are behind. Will a bank let you do a forebearance in this situation for a short time or is that only if you are late and behind also?

Dec 10, 2008 11:43 PM

Attilio Leonardi

RE/MAX Honolulu - Kapolei, HI

I would never tell a client to stop making their mortgage payments but if they are using credit cards to make up the difference on their mortgage they are only prolonging the inevitable - foreclosure. They will eventually reach the end of their credit limit and end up missing a payment and start the foreclosure process. I have had lenders approve a short sale even if the client is not behind, but a delinquent loan does get the lenders attention. Anything is possible with the lender. There are many solutions but the bottom line is that the lender has to approve them. I would have your client contact their lender to find out what they will do for them. Hope this helps.

Dec 10, 2008 11:54 PM

Anonymous

David A Weaver

As you know there are over 12 Million property owners nationwide who owe more than their homes are worth, who don't qualify for a loan modification.

I am one of these home owners and I'm not in financial difficulty. For me and millions like me there is no modification unless I choose to ruin my credit and fall months behind on my payments. Then and only then can I apply for some relief. I can't sell or refinance without writing a check until 2026. That is when my normal payment schedule will pay down my balance to current market value. I'm that far underwater in my home. Maybe I should I ask Barney Frank for some tax payer money, everybody else is?

I came across this group, The American People's Fix, who have a very simple solution to the mortgage mess. They are looking for members to join with them. I've tried with no success to obtain some relief but I refuse to ruin the credit it's taken me years to establish to do so. There is no program for me, I'm expected to just suck up the loss and keep making my payments.

I purchased in September of 2006 for $320K, put 20% down and now my home is worth $165K. I've lost my investment of $64K plus another $91K thru no fault of my own. Money I earned and accumulated over my lifetime of working and investing in the American Dream.

The Mortgage mess we are in was created by FNMA/FHLMC/FHA and the Sub Prime lenders, when they relaxed and eliminated certain underwriting guidelines. A change which was encouraged by our Governments push for home ownership by all Citizens and supported by Wall Streets greed.

As more and more buyers, who could not have qualified under traditional guidelines, came into the market, they drove up demand for housing to unprecedented levels. Each of their transactions became the comparable for the next and so the appreciation spiral in home prices took off, fueled by demand from Wall Street for MBS and sustained by the greed of all the players.

In my current situation I have become a defacto Renter, as I can't get out of this house without a foreclosure or short sale. Nor can I refinance to take advantage of today's low fixed rates because my home will appraise for $91K less than I owe on it. This only happens on a bad car loan when the trade in is worth less than the balance doesn't it?

They are the only group that doesn't care if you are the primary home owner, vacation home owner or investor. Their plan will provide permanent mortgage relief for any property owner who bought or refinanced during the bubble by accelerating the mortgage pay down with reduced principal only payments tied to a 240 month term.

They aren't a loan modification company who charges $2,000 plus for a temporary adjustment to rate and term, nor do they sell a software package for thousands to manage your money. They are an alliance of home owners and investors with the intention of representing us as a group, for it is only in large numbers that our voices will be heard.

I would encourage you all to visit www.AmericanPeoplesFix.com and pass the word.

Thank you for your time,

Dave "Underwater in Buckeye, AZ" Weaver

Dec 11, 2008 01:19 AM

#21

Daniel Poulos

The Elite Lending Team at Milestone Mortgage - Jupiter, FL

Paving the Way to Home Ownership for 30 Years

"Great post. re: your comment about credit, I love the analogy, but I have a correction. A short sale impacts your credit the same way a foreclosure does, as long as it's reported by the lender to the credit reporting agencies."

I have a correction to your correction. The short sale is generally reported as a "settled account". I know because we pull credit reprts after we successfully execute our short sales. A "settled account" is nowhere near as damaging as a foreclosure with a deficiency judgement.

I have recently interviewed a client who was advised that the foreclosure would be no worse than a short sale. She allowed the home to go into foreclosure, a deficiency judgement was awarded. her bank accounts have been frozen and her wages have been garnished.

Nothing is worse than foreclosure from a credit or financial standpoint.

Daniel Poulos

www.EliteLending.biz

Dec 11, 2008 01:38 AM

Vicente A. Martinez

Prudential Douglas Elliman Licensed Real Estate Salesperson - Woodhaven, NY

Realtor, Brooklyn - Long Island - Queens Homes

Hi and welcome to active|rain. There are thousands of tips, tools, and tricks of the trade here. Be sure to check them out. Best of luck and see you around.

Dec 11, 2008 03:33 PM

Anonymous

Jeannie

About Daves "AmericanPeoplesFix" website - I went there, but you need to join for $20 before you can find out what can be done for you. What's up with that?

Dec 13, 2008 02:29 AM

#24

Anonymous

First of all, a Short Sale is less damaging to the credit score than foreclosure or bankruptcy. If homeownership is a future goal, FHA financing is a great mortgage to consider. If the homeowner completes a Short Sale based on a hardship that is unavoidable, involuntary and beyond their control with documentation and recovers showing a secure job, sufficient income, on-time credit history for 12 months they may qualify for an FHA loan to purchase again less than 2 years. Since homeownership is a national priority and affects our ecomony, we should always focus on helping the homeowner exit if necessary and a plan to return them to purchasing in the future.

You do not have to be past due to be considered for a workout plan today, if you are stuggling due to a hardship. Homeowners need to be encouraged to call their mortgage servicers ASAP to learn which of the many options that they may qualify for. A great book to have "A Road Map To Saving Your Home", 110 pages of trusted resources, 90 loss mitigation contacts, details on all workout options, where to file complaints, forms, checklist, sample letters plus initiatives to sustain homeowership through community solutions etc. Send me an email CathyMcDaniel@AmericanREU.com for a copy. The American dream is not foreclosure. I hope this is helpful.

Dec 14, 2008 09:09 AM

#25

Anonymous

David A Weaver

Hi Jeannie,

I might suggest that you go back to the www.AmericanPeoplesFix.com website and look around some more. The benefit to you is still on the home page by following the link to the calculator.

Come on Jeannie, these guys are not a commercial enterprise. They have no advertising and have a really viable solution. What do you think it would cost to represent successfully several thousands of homeowners at once for an across the board loan modification. $20 bucks is nothing, they have eliminated that now as well and are asking for contributions instead.

Dave "Underwater in Buckeye, AZ" Weaver

Dec 31, 2008 04:11 AM

#26

Attilio Leonardi

RE/MAX Honolulu - Kapolei, HI

Our Team does Loss Mitigation for FREE Nationwide. What we do is colist with a local agent on the ground. Local agent handles marketing. We handle the Loss Mitigation. We have closed 21, have 3 in Escrow, have 38 active local listings plus 3 nonlocal listings. Let us know if we can help.

http://www.weloveshortsales.com/

Dec 31, 2008 04:32 AM