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Saturday, October 1, 2011
Foreclosure: What It Really Means & How To Avoid It
9 Ways to Avoid Foreclosure:
1. REINSTATEMENT: Bring the loan current
2. FOREBEARANCE: Temporary repayment plan
3. REFINANCE: New loan with reduction in monthly payments
4. LOAN MODIFICATION: Modify original loan terms
5. SELL THE PROPERTY: Use equity to payoff or pay difference
6. RENT THE PROPERTY: Must make loan current
7. SHORT SALE: Negotiate with bank to accept sale under loan amount
8. DEED IN LIEU OF FORECLOSURE: “friendly foreclosure”
9. BANKRUPTCY: Will stall foreclosure but not prevent it
The facts are these, if you are currently experiencing a financial hardship and are considering walking away (foreclosing) or bankruptcy, there is a better, more dignified way to exit gracefully - short selling your home.
The benefts to short selling your home are recovering sooner from any "late payment" marks against your credit (with foreclosure, the judgement remains on your credit report for up to 7 years and there is NO guarantee that you can get a loan to purchase again within two to three years contrary to popular belief), and in some instances, some lenders are allowing short sales without being in default. I personally have closed a handful of those. In that instance, the seller could feasibly purchase again right away.
Additional benefits to a short sale are the Debt Forgiveness Act which protects you from tax implications up to $250,000 (if you're single) and $500,000 (if you're married); and SB 458 (California only) which protects you from the deficiency once the short sale closes, neither the Sr nor the Jr lienholder can pursue for the difference once the sale is complete.
Unlike SB 458, once you "walk away", the deficiency will walk right behind you. Then it will take another derogatory action to make that go away -- bankruptcy. Not only is bankruptcy yet another blow and judgment against your credit, but it's also expensive. Whereas with a short sale, your lender will cover the costs of the transaction (commission, escrow/title fees, buyer closing costs, etc). If you have a definitive hardship, it is assumed you have no funds to contribute to the transaction.
As you can see, an expert in this area is required as this is not an easy process; nor is every real estate professional trained in short sales.
So, reconsider "walking away", count the costs, do your homework, get with a qualified real estate professional, and soon you will be on track to recovering sooner.
1. REINSTATEMENT: Bring the loan current
2. FOREBEARANCE: Temporary repayment plan
3. REFINANCE: New loan with reduction in monthly payments
4. LOAN MODIFICATION: Modify original loan terms
5. SELL THE PROPERTY: Use equity to payoff or pay difference
6. RENT THE PROPERTY: Must make loan current
7. SHORT SALE: Negotiate with bank to accept sale under loan amount
8. DEED IN LIEU OF FORECLOSURE: “friendly foreclosure”
9. BANKRUPTCY: Will stall foreclosure but not prevent it
The facts are these, if you are currently experiencing a financial hardship and are considering walking away (foreclosing) or bankruptcy, there is a better, more dignified way to exit gracefully - short selling your home.
The benefts to short selling your home are recovering sooner from any "late payment" marks against your credit (with foreclosure, the judgement remains on your credit report for up to 7 years and there is NO guarantee that you can get a loan to purchase again within two to three years contrary to popular belief), and in some instances, some lenders are allowing short sales without being in default. I personally have closed a handful of those. In that instance, the seller could feasibly purchase again right away.
Additional benefits to a short sale are the Debt Forgiveness Act which protects you from tax implications up to $250,000 (if you're single) and $500,000 (if you're married); and SB 458 (California only) which protects you from the deficiency once the short sale closes, neither the Sr nor the Jr lienholder can pursue for the difference once the sale is complete.
Unlike SB 458, once you "walk away", the deficiency will walk right behind you. Then it will take another derogatory action to make that go away -- bankruptcy. Not only is bankruptcy yet another blow and judgment against your credit, but it's also expensive. Whereas with a short sale, your lender will cover the costs of the transaction (commission, escrow/title fees, buyer closing costs, etc). If you have a definitive hardship, it is assumed you have no funds to contribute to the transaction.
As you can see, an expert in this area is required as this is not an easy process; nor is every real estate professional trained in short sales.
So, reconsider "walking away", count the costs, do your homework, get with a qualified real estate professional, and soon you will be on track to recovering sooner.
Tuesday, September 13, 2011
HAFA Problematic? Oh Yes!
The purpose of the government sponsored HAFA (Home Affordable Foreclosure Alternative) program is to simplify and streamline the short sale and DIL (Deed-in-lieu) process by providing a standard process flow, minimum performance timeframes and standard documentation.
However, in my recent experience with HAFA, simplify and streamline have been benched and their opposing teammates complicate and inefficient are on the field instead.
Here's what's occuring (adapted from an article written by Kevin Kravcak)
1. THE GOOD INTENTION: Servicers, in accordance with investor guidelines, determine if a short sale or DIL (deed in lieu of foreclosure) is in the best interest of the investor, guarantor and/or mortgage insurer.
THE NEGATIVE RESULT: It matters not what is in your sellers best interest but what is in the best interest of the investor/lender/insurance companies.
2. THE GOOD INTENTION: By signing the SSA, you are agreeing not only to a short sale but also to a deed‐in‐lieu of foreclosure if a short sale is not successful.
THE NEGATIVE RESULT: By signing the SSA, you are agreeing not only to a short sale but also to a deed‐in‐lieu of foreclosure if a short sale is not successful... keep reading...
3. THE GOOD INTENTION: You have up to 120 days to sell the property.
THE NEGATIVE RESULT: After the 120 days, the servicer may or may not agree to extend it for up to a year.
4. THE GOOD INTENTION: You can get a preapproved short sale when you list your home, no waiting for an approval.
THE NEGATIVE RESULT: When the seller signs the SSA (HAFA short sale agreement) they are agreeing up front to a DIL (see #2 above). The investor is obligated to accept a DIL in accordance with the terms of the SSA if the term of the SSA expires without resulting in a sale of the property - This means come day 120 the lender can exercise and enforce a DIL because the seller already agreed to it in writing. For those of you who don't know, a DIL is nothing more than a volunteered foreclosure. It will show on your credit as a foreclosure. This is not a benefit to you but it is to the lender because they get the property back in their possession faster thereby saving them money compared to making them go through a judicial foreclosure process.
5. THE GOOD INTENTION: Servicer Disclaimer – Servicer may provide a disclaimer related to any limitations of the information provided in the matrix as it relates to individual investor or mortgage insurance restrictions or additional program requirements.
THE NEGATIVE RESULT: Lay man's terms, this means Servicers may amend the terms of the SSA in accordance with investor requirements, or they can do whatever they please, and in most cases they do just that.
6. THE GOOD INTENTION: Your home is appraised up front!
THE NEGATIVE RESULT: The offer price will be dictated by the lender using the 90 day "as-is" BPO value. The servicer does not have to agree to additional valuation methods. Sellers better pray they get an experienced BPO agent because if they over value your property and it does not sell within 120 days because it is overpriced, you're stuck with a house that won't sell (price not negotiable) and so you just gave your property to the bank (see DIL #2 and #4 above).
Don't fret though as there is ONE good thing about HAFA. You can opt out of this program at any time! If the borrower fails to contact the servicer within the timeframe or at any time indicates that he or she is not interested in these options, the servicer has no further obligation to extend a HAFA offer. This means you can elect to perform what is now being referred to as a "proprietary" or "traditional" short sale (or a non HAFA short sale).
If you have help from a qualified experienced short sale professional, they will know all you have to do is put in your short sale package cover letter the words, "THIS IS TO BE A NON HAFA SHORT SALE." They will also have many ways to help you avoid having a foreclosure on your record, avoid agreeing to a DIL, avoid agreeing to deficiency judgements and avoid signing promissory notes.
Bottom line, HAFA is great for the lender/servicers but not so much for you, the homeowner/seller. This program will be a good fit for very few homeowners, if any at all.
However, in my recent experience with HAFA, simplify and streamline have been benched and their opposing teammates complicate and inefficient are on the field instead.
Here's what's occuring (adapted from an article written by Kevin Kravcak)
1. THE GOOD INTENTION: Servicers, in accordance with investor guidelines, determine if a short sale or DIL (deed in lieu of foreclosure) is in the best interest of the investor, guarantor and/or mortgage insurer.
THE NEGATIVE RESULT: It matters not what is in your sellers best interest but what is in the best interest of the investor/lender/insurance companies.
2. THE GOOD INTENTION: By signing the SSA, you are agreeing not only to a short sale but also to a deed‐in‐lieu of foreclosure if a short sale is not successful.
THE NEGATIVE RESULT: By signing the SSA, you are agreeing not only to a short sale but also to a deed‐in‐lieu of foreclosure if a short sale is not successful... keep reading...
3. THE GOOD INTENTION: You have up to 120 days to sell the property.
THE NEGATIVE RESULT: After the 120 days, the servicer may or may not agree to extend it for up to a year.
4. THE GOOD INTENTION: You can get a preapproved short sale when you list your home, no waiting for an approval.
THE NEGATIVE RESULT: When the seller signs the SSA (HAFA short sale agreement) they are agreeing up front to a DIL (see #2 above). The investor is obligated to accept a DIL in accordance with the terms of the SSA if the term of the SSA expires without resulting in a sale of the property - This means come day 120 the lender can exercise and enforce a DIL because the seller already agreed to it in writing. For those of you who don't know, a DIL is nothing more than a volunteered foreclosure. It will show on your credit as a foreclosure. This is not a benefit to you but it is to the lender because they get the property back in their possession faster thereby saving them money compared to making them go through a judicial foreclosure process.
5. THE GOOD INTENTION: Servicer Disclaimer – Servicer may provide a disclaimer related to any limitations of the information provided in the matrix as it relates to individual investor or mortgage insurance restrictions or additional program requirements.
THE NEGATIVE RESULT: Lay man's terms, this means Servicers may amend the terms of the SSA in accordance with investor requirements, or they can do whatever they please, and in most cases they do just that.
6. THE GOOD INTENTION: Your home is appraised up front!
THE NEGATIVE RESULT: The offer price will be dictated by the lender using the 90 day "as-is" BPO value. The servicer does not have to agree to additional valuation methods. Sellers better pray they get an experienced BPO agent because if they over value your property and it does not sell within 120 days because it is overpriced, you're stuck with a house that won't sell (price not negotiable) and so you just gave your property to the bank (see DIL #2 and #4 above).
Don't fret though as there is ONE good thing about HAFA. You can opt out of this program at any time! If the borrower fails to contact the servicer within the timeframe or at any time indicates that he or she is not interested in these options, the servicer has no further obligation to extend a HAFA offer. This means you can elect to perform what is now being referred to as a "proprietary" or "traditional" short sale (or a non HAFA short sale).
If you have help from a qualified experienced short sale professional, they will know all you have to do is put in your short sale package cover letter the words, "THIS IS TO BE A NON HAFA SHORT SALE." They will also have many ways to help you avoid having a foreclosure on your record, avoid agreeing to a DIL, avoid agreeing to deficiency judgements and avoid signing promissory notes.
Bottom line, HAFA is great for the lender/servicers but not so much for you, the homeowner/seller. This program will be a good fit for very few homeowners, if any at all.
Monday, September 12, 2011
Know What You Owe - Ready, Set, Get Outta Debt!
(This article courtesy of Feed the Pig. Copyright 2011 American Institute of Certified Public Accountants.)
Get Out of Debt
There's no time like the present to start on the path to get out of debt. Set aside some time to create an attack plan for lessening and eliminating your debt. Here are some tips to get you started.
Know what you owe. A major downfall in managing debt is not knowing exactly how much you owe. You may have a vague idea, and know approximately when your bills are due, but without knowing specifics you are more likely to run into trouble. Make a list or chart of all your current debt balances—all credit cards, loans, etc.—and note the date each payment is due every month. Keep it somewhere you will see it on a regular basis. Set up reminders for each bill due date on your phone or email to help ensure you make each payment on time.
Consider consolidating. Like many Americans, you may be carrying more than one form of debt, which can make it hard to manage, especially with multiple payment due dates. Consider debt consolidation, which allows you to combine your smaller loans into one larger loan, usually with a longer term and lower interest rate, resulting in one monthly payment. Consolidation has advantages and disadvantages depending on your individual situation, so talk to a financial professional, like a CPA, to see if consolidating your debt is right for you.
Reduce, reduce, reduce. A key strategy to managing and lessening your debt is to always reduce, never increase. It can be tempting to open another credit card when one is maxed out, but doing so will only make debt management more difficult. Instead, look for ways to adjust your spending habits to pay down the debt you already have. Make a goal to always pay more than the minimum payment due.
Don't hide. If you feel like your debt is spinning out of control and you don't know what to do, talk to a financial professional who can help get you back on track. You may also want to contact your creditors. Creditors will often work with you to come up with an alternate payment plan if you take the time to explain your situation.
Do you have a success story of how you managed your debt? Share it with us on the Feed the Pig Discussion Board. For more information on managing debt, click here.
Visit www.feedthepig.org for more money-saving tips.
Get Out of Debt
There's no time like the present to start on the path to get out of debt. Set aside some time to create an attack plan for lessening and eliminating your debt. Here are some tips to get you started.
Know what you owe. A major downfall in managing debt is not knowing exactly how much you owe. You may have a vague idea, and know approximately when your bills are due, but without knowing specifics you are more likely to run into trouble. Make a list or chart of all your current debt balances—all credit cards, loans, etc.—and note the date each payment is due every month. Keep it somewhere you will see it on a regular basis. Set up reminders for each bill due date on your phone or email to help ensure you make each payment on time.
Consider consolidating. Like many Americans, you may be carrying more than one form of debt, which can make it hard to manage, especially with multiple payment due dates. Consider debt consolidation, which allows you to combine your smaller loans into one larger loan, usually with a longer term and lower interest rate, resulting in one monthly payment. Consolidation has advantages and disadvantages depending on your individual situation, so talk to a financial professional, like a CPA, to see if consolidating your debt is right for you.
Reduce, reduce, reduce. A key strategy to managing and lessening your debt is to always reduce, never increase. It can be tempting to open another credit card when one is maxed out, but doing so will only make debt management more difficult. Instead, look for ways to adjust your spending habits to pay down the debt you already have. Make a goal to always pay more than the minimum payment due.
Don't hide. If you feel like your debt is spinning out of control and you don't know what to do, talk to a financial professional who can help get you back on track. You may also want to contact your creditors. Creditors will often work with you to come up with an alternate payment plan if you take the time to explain your situation.
Do you have a success story of how you managed your debt? Share it with us on the Feed the Pig Discussion Board. For more information on managing debt, click here.
Visit www.feedthepig.org for more money-saving tips.
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