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Avoid ForeclosureForeclosure Avoidance OptionsForeclosure is one of the most devastating financial challenges that a family can face and one that many times can be avoided. The options available to residents for foreclosure are many, including but not limited to short sales. Following is a brief explanation of these solutions: A reinstatement is the simplest solution for a foreclosure, however it is often the most difficult. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender''s approval and will ''reinstate'' a mortgage up to the day before the final foreclosure sale. A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe. A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. These typically result in a lower payment to the homeowner and a more affordable mortgage. A homeowner who has a mortgage payment low enough that market rent will allow it to be paid, can convert their property to a rental and use the rental income to pay the mortgage. Also known as a "friendly foreclosure," a deed-in-lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option, and the homeowner must also vacate the property. Many have considered and marketed bankruptcy as a "foreclosure solution," but this is only true in some states and situations. If the homeowner has non-mortgage debts that cause a shortfall of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution. If a homeowner has sufficient equity in their property and their credit is still in good standing, they may be able to refinance their mortgage. If a member of the military is experiencing financial distress due to deployment, and that person can show that their debt was entered into prior to deployment, they may qualify for relief under the Servicemembers Civil Relief Act. The American Bar Association has a network of attorneys that will work with servicemembers in relation to qualifying for this relief. Homeowners with sufficient equity can list their property with a qualified agent that understands the foreclosure process in their area. If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify. Hardship can be simply defined as a material change in the financial stability of the homeowner between the date of the home purchase and the date of the short sale negotiation. Acceptable hardships include but are not limited to: mortgage payment increase, job loss, divorce, excessive debt, forced or unplanned relocation, and more. Short Sale BenefitsHere are a few benefits for doing a short sale that may not have occurred to you:
Buying Again After a Short SaleIf your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. Finding a lender who will fund that kind of loan is very difficult. If you are current on your mortgage, you can qualify for an FHA loan immediately as well, but lender requirements can be weird such as you have to move more than 600 miles away. If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence. The wait for FHA is 3 years. Buying Again After a ForeclosureWith certain restrictions, you may be eligible to buy another home in 5 years if the home was your primary residence. Without restrictions, the wait is 7 years. If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years. Affects on Credit After a Short SaleA short sale may be considered to be a derogatory mark on your credit even though credit bureaus do not show the word "short sale" on your credit report. It may say "paid in full for less than agreed" or "settled for less," among other categories. Some clients have reported negative FICO score drops from 50 points to 130 points. Major point drops are typically due to being in default, meaning you have fallen behind on your payments. Affects on Credit After a ForeclosureDepending on your credit history and other guidlines, Myfico.com shows 2 examples in which a credit score could fall 105 points to 160 points after a foreclosure. Generally, a foreclosure will remain on your credit report in the tradelines section for 7 years. Credit Reports After a Short SaleAll lenders report short sales differently, with many reporting "paid in full for less than agreed," and some report the short sale as a charge off. Negative credit, however, stays on your report for 7 years. Credit Reports After a ForeclosureIf a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record. Deficiency Judgments After a Short SaleJudgments are often negotiated between the seller and the short sale bank. In some cases, such as California, if the home is your personal residence and was financed through purchase money, there is no deficiency judgment. Deficiency Judgments After a ForeclosureBanks are generally unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. In California, for example, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee''''s sale. Loan Application Questions After a Short SaleLoan applications do not ask questions about a short sale. You may report that you sold your home. Loan Application Questions After a ForeclosureYou are required to answer the question: "Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years." If the bank sees you have had a foreclosure, your loan most likely will be denied. If you lie, you may be subject to investigation by the FBI for mortgage fraud. Length of Time to Move After a Short SaleIf you''''ve had a foreclosure notice filed, you may be able to postpone that action while the bank considers your short sale. The wait for short sale approval can be from 2 to 3 months, or longer. Length of Time to Move After a ForeclosureUnless prior arrangements have been made, the bank may want you to immediately vacate the property and can commence eviction proceedings. Taxation After a Short SaleA personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. Some states will still tax you unless you qualify for an exemption. An investor is not exempt from mortgage debt relief, subject to certain conditions. Taxation After a ForeclosureSame as with a short sale. Except some lenders immediately send out 1099s, even if the owner is exempt. In closing, always obtain legal and tax advice before making a decision between a short sale or a foreclosure. Call Nick Steffes at (312)994-6280 for more Information or email at nicksteffes@remax.net
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| Nick C. Steffes, RE/MAX Vision 212 | 1500 W. Chicago Ave, Chicago, IL 60642 | 312.994-6300 | Contact by E-mail |
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