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The Foreclosure Solutions Manual: The Complete Guide to Saving Your Home and Credit
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Legal Notice The Publisher has strived to be as accurate and complete as possible in the creation of this report, notwithstanding the fact that he does not warrant or represent at any time that the contents within are accurate due to the rapidly changing nature of foreclosures. While all attempts have been made to verify information provided in this publication, the Publisher assumes no responsibility for errors, omissions, or contrary interpretation of the subject matter herein. Any perceived slights of specific persons, peoples, or organizations are unintentional. In practical advice books, like anything else in life, there are no guarantees of results. Readers are cautioned to rely on their own judgment about their individual circumstances to act accordingly. This book is not intended for use as a sole source of foreclosure advice. All readers are advised to seek services of competent professionals in the foreclosure field. You are encouraged to print this book for easy reading.
Copyright Š 2008-2009 by StopForeclosureBlog.net All Rights Reserved.
Reproduction or translation of any part of this work beyond that permitted by Section 107 or 108 of the 1976 United States Copyright Act without permission of the copyright owner is unlawful. Request for permission of further information should be addressed to: StopForeclosureBlog.net, 3956 Town Center Blvd, Suite 293, Orlando, Florida 32837.
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Table of Contents Introduction ...............................................................................................................................6 Useful Internet Resources ........................................................................................................7 Foreclosure ............................................................................................................................. 10 What is Foreclosure?................................................................................................... 10 Foreclosure Process.................................................................................................... 11 How Your Lender Views Foreclosure.......................................................................... 11 Avoiding Scams ...................................................................................................................... 12 Self Assessment ..................................................................................................................... 13 Your Circumstances, Temporary or Permanent? ....................................................... 13 Income ......................................................................................................................... 13 What Initial Actions Can I Take to Ward Off Foreclosure?......................................... 13 Work it Out: Lender Workout Solutions .................................................................................. 15 Forbearance Agreement or Repay ment Plan ............................................................. 16 Special Forbearance Repay ment Plan (delayed repay ment plan) ............................. 16 Loan Modification......................................................................................................... 17 Deed in Lieu / Surrender Title in Lieu of Foreclosure ................................................. 17 Bankruptcy ................................................................................................................... 18 Alternatives to Lender Workout Solutions .............................................................................. 20 No Home Equity Solutions........................................................................................... 20 Non- Profit Credit Counselors ..................................................................................................... 20 Short Sale ................................................................................................................................... 20 Private Investor Sale Leaseback ............................................................................................... 21 Sub- Prime Lenders .................................................................................................................... 22 Private Loan ............................................................................................................................... 22
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www. StopForeclosureBlog.net Borrow From Your Retirement Plan........................................................................................... 23 Home Equity Solutions ................................................................................................ 23 Government Help ....................................................................................................................... 23 HELOC ....................................................................................................................................... 24 Second Mortgages ..................................................................................................................... 24 Cash out Refinance.................................................................................................................... 25 Straight Refinance ...................................................................................................................... 25 Fractional Ow nership ................................................................................................................. 25 Vacating the Property Solutions .................................................................................. 26 Sw ap Your House ...................................................................................................................... 26 Rent Your Home......................................................................................................................... 27 Solution Considerations.......................................................................................................... 28 Contacting Your Lender.......................................................................................................... 30 Acceptable Hardships.................................................................................................. 30 Step-by-Step Directions for Creating a Lender Workout ....................................................... 32 Here Are The Steps to Follow when Working With Your Lender: .............................. 32 Do I Have Rights?........................................................................................................ 33 Don’t Pack Up and Leave!........................................................................................... 33 How will a Foreclosure, Bankruptcy, Short Sale, or Deed-In-Lieu Affect My Credit score? . 33 Contacting A Private Investor ................................................................................................. 34 Finally, The BIG Secret Revealed! ......................................................................................... 34 FAQ’s ...................................................................................................................................... 34 Appendix 1: Foreclosure Law s by State................................................................................. 39 Appendix 2: Loss Mitigation Departments ............................................................................. 41 Appendix 3: Monthly Profit & Loss Worksheet....................................................................... 42 Appendix 4: Hardship Letter Template (1) ............................................................................. 45
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www. StopForeclosureBlog.net Appendix 4a: Hardship Letter Template (2) ........................................................................... 46 Appendix 4c: Authorization..................................................................................................... 48
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Introduction Don't despair times are tough! In this mortgage crisis...It doesn't matter if you received a sub-prime mortgage, are a Hollywood celebrity, a person in politics, or someone with excellent credit who has lost income, endured illness, divorce, etc., have faith: finding yourself in this position can happen to anyone no matter what your title is, or station in life. The home foreclosure report from RealtyTrac dated June 13, 2008 states this: Foreclosure filings are UP 7% from April, and 48% from last year! 1 in every 483 households received a foreclosure filing during the month of May. The hardest states hit are: California, Nevada and Arizona. This proves that you are not alone. Understandably fear may have griped you, because you are treading in unknown waters. There is no need to worry. This book will give you the power to deliver yourself from that place of uncertainty. It will put you in control of your circumstances. Rest assured, you and your family will not be homeless or surprised by an immediate eviction by an armed Sheriff. Instead, shortly you will have a Plan of Action. This Plan of Action will be clear because: 1) You reviewed every foreclosure avoidance-tactic in this book. 2) You learned the benefits and disadvantages of each tactic. 3) You will understand the unique circumstances required for each tactic. 4) You will be familiar with the expected outcome of each tactic. You are in control of what happens next. This does not mean that you must bear the full burden of the tasks at hand. Foreclosure can be difficult to endure because it threatens your basic need for shelter and triggers emotions of fear. To ease the physiological effects of this experience rely on family and friends for support. Instead of quietly handling this yourself, contact your friends and family and tell them about the Plan of Action you are considering, and allow them to offer their insights and help. There are automatic responses to fear: fight, flight or hide. Intuitively we want to respond to foreclosure by hiding. Hiding is a great response when the threat is unknown. It gives us a moment to assess the situation. Time spent in hiding should be used to assess the threat and determine a Plan of Action where you continue to hide, run away, or stay and fight. This book is your moment in brief hiding where you consider your Plan of Action.
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Useful Internet Resources If you’ve printed out this book, then please go back to your computer and open the digital version. Each blue title is a link to the relevant website. Click on them and you’ll be taken to that resource. I want this list to be ever expanding and useful, so if you have a website you think is helpful and want to share it with others please contact me and let me know. I will be sure to include in future versions of this eBook. YoureApproved.org This site was created to help those who have bad credit find the credit they deserve. Personal loans, business loans, credit cards and mortgages are all within your reach with them. No matter how bad your credit situation is, you will not find a better resource than YoureApproved.org 37 Days to Clean Credit An effecti ve credit repair strategy that instantly deletes inquiries, charge-offs, late payments, and judgments from credit reports. The report will show you how to boost your credit score by 135 points or more in just 37 days. Landlord’s Guide To Renting Should you be considering renting your home then this book is a must read, especially if you are a first time (or reluctant) landlord. There are many costly mistakes that new landlords make that can turn your bad situation into a living nightmare. There’s nothing more frustrating than dealing with a home you cannot afford AND a terrible tenant. This book was designed to teach you how to screen, interview, and manage your tenants for stress-free property management. How To Sell Your Home Faster You’re running against the clock if you want to stop your foreclosure. You need to sell your home fast, and the best way to do that is to stage it correctly and develop a strategy to get it sold FAST. This guide is one of best on the market on how to do that. ING DIRECT This is probably the last thing you want to hear right now considering your situation, but I must emphasize it: you need a savings account! I don’t care how bad things are, you can spare a few dollars every month to place into a savings account. And don’t bother with the puny returns you get from your local bank, use a trusted online bank to get the best returns on your savings and have your money start working for you. When you get back up on your feet, please remember this advice and start saving!
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Bad Credit Loan Sources Bad Credit? No Credit? No Problem! Guaranteed Approval Loans Are Available Up To $25,000. National Foundation of Credit Counseling Each year more than one million people receive counseling and educational services from NFCC member agencies. More than one-third of all consumers who come to an NFCC agency for counseling are able to manage their debt on their own after receiving financial education and counseling. Association of Independent Consumer Credit Counseling Agencies The AICCCA is a member-supported national association representing non-profit credit counseling companies that provide consumer credit counseling, debt management, and financial education services. FreeCreditReports360.com Obtain your credit report from all three credit bureaus from one source. The service will also offer you credit monitoring and letter templates to correct any inaccuracies on your credit history. A service such as this one is instrumental in rebuilding your credit after you’ve gone through any of these workout solutions, especially considering that you have missed several mortgage payments. RentLaw.com An e xcellent database of legal information for landlords and tenants. Zillow.com An online real estate service that provides lots of valuable information on home prices and sales around your neighborhood. The website uses interactive maps and features lots of useful tools that will help you sell your home fast. ZipRealty One of best real estate brokers I’ve ever used. They helped me to sell my home through a short sale. They also give back 20% of their commission to the buyer and you can save up to 25% when you sell a house with them. They have an e xtremely large network and are the largest broker online, so you get the benefits of those searching online for a home. Trulia.com A real estate search engine that helps you find homes for sale and provides real estate information at the local level to help you make better decisions in the process.
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Craigslist.com If not the largest local online classifieds, it certainly is one of the largest. Here you will be able to use the boards to announce your home for sale, rent as well as look for an apartment or home to rent. DebtAvenger.com Should you be $9,000 or more in debt, then you should visit this site to get credit counseling. They ha ve an excellent network of advisors who will help you gain control of your finances and get back up on your feet, no matter the circumstances. IRSTaxFreedom.com If you are having problems paying your taxes as a result of a deficiency judgment or short sale, you can use the services provided by these expert tax relief specialists to reach a settlement with the IRS. They settle tax debt; give you back control of your finances; end wage garnishments; stop levy, liens, and property seizure; remove penalties and interest charges; remove tax liens; and settle state and payroll tax. Web2Carz Should you be looking to refinance your existing car loan, and have bad credit, then it gets no better than Web2Carz. 99% of applicants are accepted, even with bankruptcy. Up2Drive Get the lowest rates and the fastest service for auto financing, their secure online application takes less than 5 minutes, they have e xpedited check available for those approved, and they can make the check to you or the dealer. They offer new, used, private party, and car loan refinancing. You tend to need to have stronger credit with this lender and I’ve placed the link here for those of you who may still have decent credit. Lower Your Insurance Premiums! The following are all excellent comparison sites for insurance rates. As you look to cut your expenses you should look to these websites to get lower premiums. Don’t worry, they work with people from a variety of credit backgrounds, so you don’t have to worry if you’re credit is not strong: Auto Insurance Home Insurance Life Insurance
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Health Insurance
Foreclosure What is Foreclosure? Foreclosure is a legal process. The end result of this legal process is the termination of an owner’s right to a property. Usually a lender initiates a foreclosure process when a borrower defaults on a mortgage loan. A foreclosure process usually involves the forced sale of the property by a sheriff, where the proceeds of the sale are applied to the mortgage debt. There are two types of foreclosure: judicial and non-judicial. In judicial foreclosure states, a mortgage is the contract between you and the lender, and you must appear before a judge during foreclosure. The judge will order your home to be sold at the Sherriff’s sale unless you have a good reason for not making your payments (highly unlikely). Under a non-judicial foreclosure, the agreement between you and the lender is held in a deed of trust, which is a three party contract involving the beneficiary (the lender), a trustee (a third party who looks after the agreement, usually an attorney), and the trustor (you). Foreclosure is easier for a lender in non-judicial states because no court hearing before a judge is required. The trustee will process the necessary paperwork and the sale of your home. Most times you’ll see a “substitute trustee” handling your case because the actual trustee is too far from the courthouse where the sale is being held. In some states, you may redeem your property after the foreclosure sale within a specified number of days. This is known as the redemption period. However, the homeowner must follow specific procedures and make all back payments to the lender including interest, penalties, legal fees, redemption fees, and any home improvements made after the sale. If your home is auctioned and the amount it sold for is less than the amount owed on your loan, then the lender has the right to sue you for a deficiency within a specific window of time after the foreclosure sale. A judge could also order that you pay the difference. Depending on the laws of your state, a mortgage foreclosure may not result in an automatic deficiency judgment. The lender will have to motion for a deficiency after the foreclosure sale. If you can prove that the home was sold at its market value on the sale date, then the court will not grant a deficiency judgment. You may present evidence of the value of your home through an appraisal or other formal opinions of value.
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Should you be concerned about your lender obtaining a judgment against you, you should seek professional help from an attorney and pursue an asset protection strategy using Land Trusts, Personal Property Trusts, etc. The harder you make it for the creditor to collect assets from you, the less likely they are to motion for a deficiency judgment. Foreclosure Process 1. Notice of Default, likely taped to your front door or delivered by mail. 2. Deficiency Judgment, A legal judgment in favor of the lender against the borrower that allows the lender to recover losses related losses incurred through the foreclosure and sale of a home How Your Lender Views Foreclosure Your lender does not want to foreclose on your loan. By foreclosing the lender accumulates the following expenses: 1. Loss of Mortgage payments while you live in the home 2. Legal Expenses (estimated at $10,000 a month) 3. Loss between the mortgage amount and the price the home sells for at auction 4. Loss of all income between the time the home is foreclosed and the purchase 5. Depreciation of the home’s value during the foreclosure process It will cost your lender at least $30,000, and much more if you have a large mortgage in a neighborhood with rapidly depreciating home values. These costs give you room to bargain with your bank. Your bank will be motivated to work out any deal that will result in less expense than a foreclosure. Here’s a secret. Your lender probably doesn’t even own your loan. Your lender likely sold the loan within the first two months after it was originated. Your lender cares about foreclosures because their foreclosure rate set the value they can sell their loan portfolio for. The truth is your lender probably sold your loan to an investment bank like Morgan Stanley two months after the loan was originated. Yes, I know that you still call your lender about your loan. When the bank sold your loan they made an agreement to “service” your loan. That means that at this point the only real objective of your lender is to avoid foreclosure and “servicing” you.
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Avoiding Scams Be careful to avoid foreclosure rescue scams. Companies that promise to rescue you from foreclosure may solicit you. Some of these companies are legitimate, but some will try to trick you into signing your home over to someone else or other disadvantageous solutions. Here are some red flags to look out for: 1) Over-promised results. Foreclosure rescue service promised to sell your home in 7 days, or assures you that they will fix your credit. 2) Amateur Advertising: Business uses flyers or solicits foreclosure services doorto-door. 3) Transfer of Home Ownership. Beware of solutions that offer to lease back your home, so you can buy it back over time. Look out if you are asked to sign QuitClaim Deeds, Powers of Attorney, or asked to put your home in a Trust. 4) Question large up-front payments, where no guarantee of performance is promised. 5) Claims to cancel your mortgage 6) Deed In Escrow. Where an investor loans you enough money to stop the foreclosure and then holds a deed from you to him “in escrow” until you pay him back. He will put you on a payment plan, but if you miss one payment he’ll record the deed and take ownership of the house. You’ll have no proof of the amount you borrowed and he will have a signed deed to your house. 7) Seller leasebacks are not necessarily scams, but there are very difficult to execute for both parties because they often go sour. This will be covered in greater detail later in the book; however, this is not an ideal option. 8) Bankruptcy is also a possible avenue of fraud. Lawyers are quick to tell you that bankruptcy is the only way to stop foreclosure, but keep in mind that is how they stay in business and feed their families, so of course they will recommend this option over all others. Bankruptcy should be your last resort and you should be sure to explore the other options presented in this book. Once you find a foreclosure rescue service or attorney that you might consider, make sure you take the following actions: 1) Get all promises in writing.
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2) Review the paperwork with a lawyer before signing it. 3) Go online to the Better Business Bureau (www.BBB.org) and look up the company’s history of complaints. If you have already fallen victim to one of these scams, then you should contact the Attorney’s General’s office of your state and report the company to the Better Business Bureau. You should also get to online forums like http://www.MortgageFit.com and http://www.BKForum.com and post your experience.
Self Assessment Your Circumstances, Temporary or Permanent? As you will find in this book, there are numerous options for avoiding foreclosure. Selecting the right solution for you depends upon your circumstances. The most important circumstance is whether the events that lead to your delinquency are on going or whether they are temporary. Temporary circumstances are great candidates for solutions that involve a workout with your lender. If your circumstances are on going, and not likely to cure within a known period of time, then the alternatives to a work-out with your lender are your best options. Income Your lender will want to see your income so that they can evaluate whether you have the ability to repay your delinquent amount. If you are asking your lender for a workout solution where you keep your home, then your records of income should substantiate that your delinquency is related to an acceptable cause, and that cause is temporary. If you are looking for a solution that avoids foreclosure but does not allow you to keep your home, then your income documents should substantiate that your delinquency was/is for an acceptable reason, and that reason continues to be an expected and ongoing condition.
What Initial Actions Can I Take to Ward Off Foreclosure? Put Some Money Awa y for a Rainy Da y Whenever it is possible, put money away in the event “life” happens. The experts say we should have an emergency fund, at least 6 months of income saved, that you could utilize, in order to avert financial disaster. You may say I only ha ve enough to take care of my current month-to month obligations. That’s okay, save what you can. Every little bit helps. Make your savings automatic by using direct deposit. In this way you never “miss” the money or forget to save. Pa y yourself first no matter what, otherwise you’re just working for your creditors, not yourself.
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Save On Your Cable Bill Isn’t it true that we love cable? But, let’s be honest. How many cable channels do you really need? Here’s a strategy-call the cable company and cancel all of the excess features/stations that you can live without. You can always get them back when your financial situation improves-the cable company will welcome you back with open arms!
Limit Your Meals Out Consider limiting your restaurant visits, for lunch & dinner. It’s amazing how much we spend to have meals out. Here is a two-fold benefit that you will receive. First-the difference between the money you save by shopping at the grocery store instead of eating out can be put into the bank, or towards your mortgage. Second-cooking at home can be healthier, and you can share that time with extended family and friends.
Shop Around For Lower Insurance Rates Now is a great time to look for lower insurance premiums and to work with your credit card companies to get a lower rate. As Ramit Sethi explains in his blog and book, “I Will Teach You To Be Rich”, you do have negotiation room with your insurance company. If talks do break down you can always look for lower auto, health, life, and home insurance rates on the Internet. Getting a lower credit card rate or your fees waives is much easier than you think. A simple phone call to the customer support department informing them of better offers you get in the mail and a threat to deflect is usually all it takes for them to play ball. Should the person you talk to resist lowering your rate or waiving a late fee, and then ask to speak to a supervisor. Do not hang up until you get some type of concession. The book, “I Will Teach You To Be Rich” outlines this strategy in better detail and also offers lots of other phone scripts to lower your fees and interest rates from a variety of companies and banks. Monthly Memberships If you are paying for monthly memberships that are only used occasionally, cancel them and save the money. As in any of the above suggestions, once you have taken care of the most important financial issues in your life, you will always be able to reactivate those luxuries.
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Refinance Large Ticket Items Your lender will want to look at your debts. Your lender will look to see whether your delinquency is caused by a yacht pa yment. If you have a yacht, now is a good time to sell it. Here is an example of another way for you to create more money in order to stay current with your bills. If you have a large car payment, look into refinancing to lower your monthly payment. Or, sell the car and buy one that is less expensive to conserve costs. Sell other assets: a vacation home, fine jewelry, or your second car. These are just a few suggestions to get you thinking. Your lender will be more inclined to provide a workout agreement if they see that you have taken action to mitigate your delinquency. Meaning, you should show that you have made an effort to cut costs. I Can’t Afford to Keep My Home You’ve been painfully honest with yourself, and decided that it’s just too much to keep the house. So, consider selling it, before the foreclosure process begins. Then, you may be able to purchase a home with a lower mortgage. Or, even consider renting until you get back on your feet. Either way, your credit should stay intact.
For your convenience, I have included a worksheet in appendix 3 to help you organize your monthly expenses. Feel free to share this worksheet with your lender to demonstrate your hardship.
Work it Out: Lender Workout Solutions A “Workout Solution” is a one that allows you to workout a solution with your bank. There are two types of workout solutions: The first type of solution is where you keep your home. The second type of workout solution is where you leave your home. The solutions that allow you to keep your home require that you have, or will shortly have the ability to pa y your e xisting mortgage payments, and that you have the ability to pay off your delinquent amount over time. Conversely, the workout solutions that result in you moving out of your home require that you do not have the ability to pay your
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existing mortgage payments, and that you do not have the ability to pay off your delinquent amount over time. Forbearance Agreement or Repayment Plan A Forbearance Agreement with your bank is the most common solution for avoiding foreclosure. This solution requires that you contact your bank and ask for a Forbearance Agreement. Just because you ask for a Forbearance agreement does not mean that you will receive one. Lenders do not want to create forbearance agreements for borrowers that have on-going financial problems that will not allow them to re-pay delinquent amounts within a reasonable amount of time (6-12 months). A lender will want you to qualify for a Forbearance Agreement by providing your recent financial documents and an explanation for your delinquency. If you don’t provide an acceptable reason or if you don’t show enough income, you will not qualify for a Forbearance agreement. Advantages:
•
Keep Your Home.
Disadvantages:
•
You keep your existing loan, which is bad if you have an ARM.
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Requires that the hardship is temporary.
•
You will have higher payments to pay back the delinquent amount.
Special Forbearance Repayment Plan (delayed repayment plan) Like a regular Forbearance Agreement, this agreement allows you to re-pay your delinquent amount over time. You will be required to provide your recent financial information and an explanation for your delinquency. However, in this work-out solution the lender considers an on-going financial situation, such as a hospital stay. In this agreement, you pay back the delinquent amount, but your payments are also lowered temporarily while the on-going circumstance persists. Advantages:
•
Keep Your Home.
•
Temporarily lowers payments.
Disadvantages:
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You keep your existing loan, which is bad if you have an ARM.
•
Requires that the hardship is on going.
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•
You will eventually have to make higher payments, once your on-going situation is resolved.
Loan Modification You can also contact your bank and request a loan modification. This is where the lender adds the delinquent amount to your loan balance and adds additional time on your loan. The bank will consider your total delinquency amount to include attorney fees and late fees. The bank will not accept a loan modification if you have very little equity in the home and/or your total delinquency is greater than 12 of your loan payments. In other words, the bank does not want to accept a loan modification if you do not have a significant amount of money invested in your home (equity), or if you are so delinquent that a loan modification would require adding more than one additional year to the term of your loan. Advantages:
•
Keep Your Home.
•
Ma y be able to turn an ARM loan into a Fixed Rate Loan.
Disadvantages:
•
Requires that you have equity in the home.
•
You will likely have to make higher payments.
Deed in Lieu / Surrender Title in Lieu of Foreclosure This solution differs from the other workout solutions because in this solution you do not retain the property. In other words, you will have to move out of the home. This solution is similar to the results of a foreclosure, but instead of the lender forcefully taking away your property rights, you surrender the property rights. In exchange for surrendering the deed to the house, you will not have a foreclosure on your credit report. Your credit report will still be damaged, but you can recover and get another mortgage in about two years. Here are some helpful tips to acquiring a Deed in Lieu agreement: •
Find a real estate attorney to paperwork.
help
•
Have your home appraised so that you know the fair market value of the home.
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•
You can offer a rental agreement with your offer for deed in lieu of foreclosure so that you still have a place to live.
•
If the fair market value exceeds what you owe on the mortgage, you can negotiate for a cash consideration from the lender to make up the difference.
•
Most lenders will require that you try to sell the home for 90 days before allowing a Deed in Lieu agreement.
•
Negotiate with the lenders what will be reported to the credit bureaus.
Court Protection If you are unemployed or underemployed, you can seek court protection. The laws vary by state, but you are usually able to delay foreclosure for up to six months. Within this period you should save money and look for another place to live or this may be enough time for your hardship to pass.
Bankruptcy Bankruptcy is a big pill for a big illness. It is a powerful cure that should be administered by a trained professional; an attorney. This cure has side effects, and these side effects should be considered before using bankruptcy. You cannot file a Chapter 7 bankruptcy for your home loan. Chapter 7 is reserved strictly for unsecured debt such as credit cards, personal loans, and store cards. You may use a Chapter 7 bankruptcy to free up money so that you may repay back payments on your home or establish a repayment plan with your mortgage company. If you allow your home to be foreclosed on, the lender may still come after you for a “deficiency balance”. This balance is what is owed to lender after your home is auctioned at the courthouse. Following the auction, a Chapter 7 bankruptcy can be filed to clear you of this obligation. However, you will have both a foreclosure and bankruptcy in your credit history, which will make life very ugly for the first four years after filing. Under Chapter 13, you reorganized your debt and consent to a reasonable repayment plan mandated by the courts. You cannot file Chapter 13 unless your income is great enough to pay all priority and secured debts, and 25% of your unsecured debt over a 5year period. Additionally, your mortgage may rise because you will have to continue to pay the lender in addition to any amount that you missed during the proceedings or leading up to the proceedings. If you fall behind on your mortgage payments after securing a Chapter 13, then the mortgage company will ask the court to lift the stay and proceed with a foreclosure and you may find your home on the auction block in a matter
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of weeks. A homeowner can file an individual bankruptcy in only their name and it will not affect their spouse’s credit so long as their spouse did not sign the mortgage. Chapter 13 Advantages
•
Delays Foreclosure Proceedings
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Allow you to build savings while the process is underway.
•
Lets you pay off the past-due amount over the length of a repayment plan.
•
Ma y help you eliminate the payments on your second or third mortgage if you no longer have the equity with which to secure the later mortgages.
Chapter 13 Disadvantages
•
Need enough income to at least meet your current mortgage payment.
•
Will damage your credit score for many years.
Chapter 7 Advantages
•
Delays Foreclosure Proceedings
•
Allow you to build savings while the process is underway.
•
Ma y help you eliminate the payments on your second or third mortgage if you no longer have the equity with which to secure the later mortgages.
•
You will be clear of debt and able to start building new credit.
Chapter 7 Disadvantages
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Does NOT cancel the Foreclosure.
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Ma y have to secure new housing.
•
Might cause you to lose property you don’t want to give up.
•
Not eligible if your average gross income for the six-month period preceding the bankruptcy filing exceeds the state median income for the same size household.
•
Will damage your credit score for many years.
One last note regarding bankruptcy. Be wary of an y one who aggressively solicits you by mail or phone regarding bankruptcy. You cannot be assured they will advise you honestly if their primary goal is to get you to file bankruptcy. Furthermore, big city law firms might let your case fall through the cracks because they have so many clients.
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You should look through your yellow pages for a smaller firm that will be familiar with your case and give you the attention you deserve. Do not wait until the last minute to file bankruptcy. Some states require that you complete credit counseling 7-8 days before filing your case with the court, so time is of the essence if you have already received your Notice of Default.
Alternatives to Lender Workout Solutions No Home Equity Solutions Contact A Housing Non-Profit This is a very good resource. The HOPE National helpline @ (888) 995-HOPE, helps homeowners 24 hours a day, 7 days a week with their foreclosure concerns. It’s FREE! Non-Profit Credit Counselors You may also seek counseling from HUD-approved counseling services. These agencies will help you create a budget so that you may pay your debts and cover your living expenses. They will also call your lender to arrange a workout, protect you from future credit problems, and provide you with information on assistance and housing programs in your area. To contact a counseling service now, just visit www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm. You may also contact counselors associated with the National Foundation of Credit Counseling or the Association of Independent Credit Counseling Agencies (see the appendix for more information). Update: Lenders and banks who are members of the U.S. Treasury-backed Hope Now Alliance have voluntarily agreed to follow new guidelines to help homeowners avoid foreclosure (http://www.hopenow.com/); you can get a list of contact numbers for these lenders/banks here: http://www.hopenow.com/loanservices/servicerdirectory.html. The guidelines shorten the time homeowners receive and get a decision from their lender, and homeowners will usually know within 5 business days if they will receive help from their lender. Lenders will make a decision on the loan within 45 days. The guidelines also push for deed in lieu or short sale to help homeowners avoid foreclosure.
Short Sale A “Short Sale” is when you get the bank to allow you to sell your property for less than is owed on the mortgage. This means that you are paying off “short” the balance of your
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mortgage. In other words, the proceeds from the sale will fall short of paying off your remaining mortgage balance. In this solution the lender agrees to accept the sale price of the home as the total loan pay-off even though the amount is less than the mortgage balance. A short sale is a viable alternative when the borrower is over financed. That is, the buyer’s home is worth less than the balance remaining on the mortgage. If the homes in your neighborhood are selling for less than they used to sell for when you purchased your home, the bank may be willing to allow a short sale. A bank is motivated to permit a short sale when the bank’s expected costs to foreclose are greater than the loss on the sale of the property. If you do an approved short sale (all lien holders must approve the short sale), then, strictly speaking, there is no "deficiency balance". A deficiency balance only arises in the foreclosure context. In the short sale context, there is "forgiven debt", the difference between how much you owe and how much you sell the house for. Granted, the phrase “deficient balance” describes both situations but that is technically inaccurate. But, make no mistake, you are liable to pay income tax on the forgiven debt of a short sale, unless you qualify as insolvent (See IRS Form 982), and the mortgage company will send you a 1099 (assuming the amount is over $600). However, if a foreclosure happens within the context of a bankruptcy you do not pay income tax. Advantages:
•
Shows “paid in full” on your credit report. Short sales are tricky; they do not damage your credit score if the lender reports this as a “settled debt.”
Disadvantages:
•
The homeowner is taxed the “short” amount on the form of a 1099 for income taxes.
•
You have to move
Note: The tax on forgiven debt is suspended due to the Mortgage Forgiveness Debt Relief Act of 2007. Private In vestor Sale Leaseback In the investor leaseback tactic, an investor will purchase your home. This purchase will stop foreclosure proceedings because your mortgage will be paid off. The new owner will then lease your home back to you. Depending on the situation, an experienced
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investor may negotiate a short sale with the bank and then lease your home back to you. Advantages:
•
Gives you time to rebuild your and credit history.
•
You will have the opportunity to buy back the home.
•
It does not hurt your credit.
•
You do not have to move.
Disadvantage:
•
You lose ownership in your home.
•
Your interest will be higher than the current typical rate.
•
The IRS will take a close at your finances and tax returns to ensure this isn’t a scheme to hide assets and change the appearance of ownership.
Sub-Prime Lenders If you have decent credit, and your situation is temporary, then you should consider contacting sub-prime lender. This company contains a database of sub-prime lenders who will lend you the amount you need to make up your mortgage back payments. They have been in business since 1998 and they specialize in helping people with terrible credit. In fact, they guarantee you a loan.
Private Loan You will likely need an amount equal to 3-4 mortgage payments plus attorney’s fees in order to stop your foreclosure. If you cannot do this through traditional lenders, you should try a private lender. Their rates will be much higher, but such is the cost for obtaining “private money”.
ForeclosureFish.com is one such private lender that is backed by Adama Properties LLC, which has been around for some time. This company matches borrowers with private lenders and also provides additional resources for those facing foreclosure.
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Borrow From Your Retirement Plan You can take a withdrawal from your IRA or 401(k) to prevent foreclosure. You will lose a big chunk of that withdrawal to taxes and penalties. The full amount of your withdrawal will be treated as taxable income and the IRS will hit you with an additional 10% penalty if you are under 591/2. The better choice would be take a loan from your retirement plan, instead of a disbursement. As long as you are employed you are able to take a loan from your employer’s 401(k) plan. If you leave or lose your job, you won’t be able to continue borrowing from the plan. This option works for those who are self-employed as well and have established a SEP (Self-Employed 401(k)).
Home Equity Solutions Government Help The U.S. government is offering ways to help homeowners facing foreclosure. The Federal Housing Administration (FHA) may grant FHA refinancing to borrowers who can show: 1) Delinquency related to a change in interest rates. 2) Mortgages where the interest rates will reset between June 2005 and December 2008. 3) 3% cash or equity in the home 4) Enough income to make the mortgage payment. This tactic is not good for those who don’t have enough income to make mortgage payment, or for those whose home value has declined. Keep your eyes on the FHA web site. There might be more solutions offered during this foreclosure crisis. The FHASecure program provides homeowners with refinancing of up to 97.75% of their home’s appraised value into a FHA-insured mortgage. A FHA-insured mortgage usually has lower monthly mortgage payments. There isn't a limit on how far behind you can be on your mortgage. Both first and second mortgages can be included in FHASecure so long as the combined amount is within the FHA loan limit. If the combined amount exceeds the FHA loan limit or the loan-to value limit, you can ask the lender for a second mortgage to make up the difference.
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www. StopForeclosureBlog.net Advantages:
•
Keep Your Home.
•
You will have lower payments
Disadvantages:
•
Loan will only cover a percentage of the appraised amount.
•
Must be related to interest rate changes.
HELOC
A HELOC or Home Equity Line of Credit is a line of credit where the collateral held on the line of credit is the equity you own in your home. This means that if your mortgage is for $100,000 and your home is worth $200,000, then you have $100,000 in equity in your home. Your lender will likely grant you a HELOC if your credit has not deteriorated too much. You can use this line of credit to pay off your delinquent mortgage amount. One disadvantage of these loans is that they tend to be an adjustable rate. To begin looking for a HELOC visit www.bankrate.com to view rates from banks nationwide. Advantages:
•
Keep Your Home.
•
Your credit remains intact
Disadvantages:
•
You keep your existing loan, which is bad if you have an ARM.
•
You have another loan payment.
Second Mortgages Unlike the HELOC, a 2nd mortgage is usually a fixed rate loan. This loan also uses the equity you have in your home as collateral for another loan. 2nd mortgages cannot be for 100% of your equity. Rather, lenders grant second loans where the total of the two loans equal 75-85% of the current value of the home. To begin looking for a second mortgage visit www.bankrate.com to view rates from banks nationwide. Advantages:
•
Keep Your Home.
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•
Your credit remains intact
Disadvantages: • You keep your existing loan, w hich is bad if you have an ARM. •
You have another loan pay ment.
Cash out Refinance A refinance is when you acquire a new loan with better terms and you pay off your existing loan with the proceeds. In a cash-out refinance, the new loan is for more that the current mortgage amount, so the excess is given to you as cash. To begin looking for a refinance visit www.bankrate.com to view rates from banks nationwide. Advantages:
•
Keep Your Home.
•
Your credit remains intact
•
You get extra cash
Disadvantages: • May have a higher loan payment w ith longer terms
Straight Refinance Like the Cash out Refinance, this refinance is where you acquire a new loan with better terms and you pay off your existing loan with the proceeds. In a Straight Refinance, the new loan is for the current mortgage amount. Advantages:
•
Keep Your Home.
•
Your credit remains intact
Disadvantages: • May have a higher loan payment w ith longer terms
Fractional Ownership If you have equity in your home then your lender is interested in loaning you money where the collateral is the equity in your home. Rather than get a loan based on this
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equity, you can sell this equity outright. Perhaps a family member or friend or even a private investor is interested in buying your equity in the home. For example, if your father would like to invest in your property, you could sell part of the property to your father. In e xchange your father would give you cash, and he would receive partial ownership in the home. If the home appreciates and you decide to sell it, your father will be entitled to a proportional share of the profit from the home sale. Likewise, if the home depreciates in value and you realize loses by selling the property, then your father will also bear a proportional share of the losses. If you want to grant the investor the right of ownership in the event that you die, they should hold title as “joint tenant”. Should you sell your home to a non-family member, their name would be added to the title as “tenant-in-common”. Holding title as tenantsin-common gives the right of survivorship to the investor’s heirs in the event they die. Obviously, their heirs would only be entitled to their share of the property. In either scenario the investor’s ownership interest should be designated on the title as well. The investor has the right to sell their interest anytime they wish to get their money back. So you may be co-owner of the house with someone else in the future. When you want to sell, you may only sell your ownership interest. Both you and the co-owner must agree to put the entire home up for sale. Also It is recommend that you place in writing who will be responsible for mortgage payments, taxes, insurance, and repairs so there is no misunderstanding. Advantages:
•
Keep your home
•
Receive cash to bring mortgage payments current
•
Ideal for temporary hardships
Disadvantages:
•
Must get investor’s consent to sell the entire home
Vacating the Property Solutions Swap Your House You can trade your home for a motor home, free rent or even a boathouse. You can find a trade opportunity in the local newspaper, www.Craigslist.org, neighborhood fliers, and local real estate investment clubs. If you have equity in your home and you cannot sell it, this could be an option for you. If you want to downsize your home and you find
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someone who wants to up-size his or her home, there is an opportunity to trade. To trade, both participants must have the same amount of equity in their properties. Both parties take on the payments of the other, and they switch properties. The equity in one property is transferred to the other party and vice versa. If both properties do not have the same equity, you can use cash or another asset (e.g., car, boat, motorcycle) to make up the difference. Advantages:
•
You still own a home
•
You have lower payments
Disadvantages:
•
You may hold a property that does not appreciate as quickly as your former property.
Rent Your Home If you can rent your home for a price that can allow you to make your mortgage payments, then this is a good solution for you. The advantages are: 1. 2. 3. 4.
You keep the home Your credit is not affected You solve your delinquency problem The IRS allows you to write-off interest, some monthly expenses, and depreciation
For this solution to work, you have to rent your property quickly and at the highest rent possible. To pull this off you need to research the rent on homes in your area. If you know what other homes a potential renter has to choose from, you can promote your home for rent with terms that beat out the competition. For more information on how to do this check out this very helpful guide. I have had great success with bandit signs and Rentals.com. Bandit signs are a great way to get your home noticed. Put them up around Wal-Mart Stores, Home Depots, supermarkets, major neighborhood intersections and shopping centers, and outside apartment buildings/complexes. Be careful to follow your local laws with regard to signs. Once you have researched the market and you know what qualities make your home better than the competing homes for rent, it is time to advertise and show the home. It is critical that you advertise if you want to rent your home quickly. The first step of your advertising campaign should be to put a “For Rent” sign on your lawn. Provide a fact
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sheet next to, or attached to your sign so that prospects can quickly learn the details of your offer. Here are some additional quick-rent techniques: 1. Keep the shades open so that people can peek in 2. Hold an Open House several nights a week 3. Get the contact numbers of those people who are interested and follow-up with them just like any salesperson would 4. Accentuate any impression that other renters are competing to rent the property Once you have an applicant make sure you screen the applicant before you sign any agreements. Have the potential tenant fill out an application. Check out Landlord’s Guide To Renting where you can find my information on how to get a nice, loyal pay-ontime tenant. It is important that you check the tenant’s rental history, references and credit. Lots of local companies will do this for a small fee. Don’t move from the frying pan to the fire! The most important step is screening your tenants, because the wrong tenant can be a nightmare and make your situation a lot worse. The Landlord’s Guide To Renting has lots of additional useful information that can help you act wisely. Once you are satisfied with the tenant’s ability and willingness to pay rent, sign a rental agreement.
Solution Considerations Update: The Mortgage Forgiveness Debt Relief Act of 2007 is effective through December 31, 2009 and it “excludes discharges of indebtedness on principal residences from gross income”. This means that you will not be liable for income taxes on forgiven debt in solutions such as Short Sales, Deed-In-Lieu, Foreclosure, or Bankruptcy. The only e xception is for those whose residence is in California where you will be liable for income tax. Solution Short Sale Deed- In-Lieu Forbearance Agreement Repay ment Plan Loan Modification Leaseback HELOC
Damages Credit? Discretion of Lender Yes Yes Yes No No No
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Tax Pay ments? Yes
Keep Home? No
Yes No No No No No
No Yes Yes Yes No Yes
www. StopForeclosureBlog.net 2nd Mortgage Cash Out Refinance Straight Refinance Fractional Ow nership Rent Your Home Trade Your Home Chapter 7 Bankruptcy Chapter 13 Bankruptcy Private Loan Borrow From Retirement Plan Ear ly Withdraw al From Retirement Plan
No No No No No No Yes Yes No No No
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No Yes No No Yes Yes Discretion of court No No No Yes
Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes
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Contacting Your Lender If you’re reading this chapter it’s probably because you want to go forward with a workout solution with your lender. This option is for borrowers that have temporary and acceptable reason(s) for their delinquency. The exact meaning of “acceptable hardships” is covered in more detail later in this chapter. The first step in getting a workout solution from your lender is for you to contact your lender. The lender likely has a department that handles workouts. These departments are typically called the “Loss Mitigation Department”. Once you have established contact with your lender tell them that you are experiencing hardship and that you would like to work out a solution that will allow you to pay back the delinquent amount and avoid foreclosure. Your lender will request proof of your hardship and will ask for a letter describing your circumstances, as well as some financial documentation. The rest of this chapter is devoted to providing you with the documents your will need to provide to your lender. Alternatively, you can pay someone to do this for you. This is a fairly time consuming process, but you can get through it, especially if you want to keep your home. Though for some folks they may not have the time, patience, or confidence to speak with the lender and negotiate a workout. In which case, I recommend you seek the help of loss mitigation service. Last but not least, you can find more hardship letter templates, bank forms, and financial worksheets at the U.S. National Housing Authority. Acceptable Hardships If you’re asking your lender to workout a loan solution for you, be prepared to answer your lender’s questions about the nature of your hardship. Your lender will not be inclined to provide you with a workout if your reason for delinquency is gambling debts or a shopping addiction. The lender wants to workout your loan if you have a temporary reason for delinquency, and that reason is mostly due to no fault of your own. Acceptable hardships include: 1. Unemployment 2. Illness 3. Bankruptcy
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4. Divorce 5. Disability 6. Loss of Rental Income 7. Death in Family 8. Reduced Income 9. Acti ve Duty/ Military
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Step-by-Step Directions for Creating a Lender Workout The Loss Mitigation Department is set up to handle delinquent accounts and alleviate losses. They really do want to speak with you.
Always open mail from your lender, and take their calls! It may seem like a scary proposition because you don’t know how to explain the situation, or you may be embarrassed and just don’t want to talk to them before you have it all figured out. Don’t waste time! Avoiding the lender will not make your troubles go away. Quite frankly the situation will get worse. And who knows, your lender may offer great options that you have not considered
Here Are The Steps to Follow when Working With Your Lender: 1. Call. Get the name of the person you are speaking with and their direct extension. Since you will have multiple conversations with loss mitigation, try to establish a relationship and maintain communication with the same person. Always be POLITE! You can attract more flies with honey, than with vinegar. 2. Have your account information ready. Take notes. Record the date/time of your conversations. 3. Be honest, inform them that you are experiencing a financial hardship. Let them know if it’s temporary, or long term. 4. Confirm the amount you owe. Get a breakdown if necessary. 5. Be prepared to provide income statements, most recent pay stubs, and bank statements along with your budget. And, assure them that payment of your mortgage is your first priority. 6. The lender may want you to complete a “loan work-out package. Get the specific date it needs to be returned. Then, complete it ASAP! 7. Ask if the foreclosure sale of your property will be placed on hold, while they consider the work-out. If the answer is yes, get it in writing. 8. Keep copies of everything you send to the lender, and what you receive from them.
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9. Continue to follow-up until the final arrangements are agreed upon.
Do I Have Rights? As a homeowner, you do have mortgage rights, but there is a limited time frame in which you can exercise them. Read your loan documents in order to understand what your lender may do if you default. Learn about the specifics of foreclosure for your state, and take action immediately. The lender is working on a schedule, dictated by laws of the state and the financial institution. Therefore, being proactive will send a message to them that you are serious about reaching a beneficial outcome. When in doubt, consult a lawyer or contact legal aid for reputable advice.
Don’t Pack Up and Leave! Don’t abandon your home! Under most circumstances, you need to be living in it to qualify for assistance. It’s understandable if you’re emotionally down however, taking this action may put you in a no-win situation.
How will a Foreclosure, Bankruptcy, Short Sale, or Deed-In-Lieu Affect My Credit score? A foreclosure and deed-in-lieu can lower your credit 200-280 points, while a short sale can lower your credit score 75-125 points. The general wisdom is that a short sale will show up on your credit report as a “settlement”, or a “pre-foreclosure in redemption.” In a bankruptcy your credit score is frozen during the bankruptcy process, and is unfrozen after you have completed bankruptcy. So if your credits score was 650 before bankruptcy, it will remain 650 when you come out of bankruptcy. This is not the case with a foreclosure, short sale, or Deed-In-Lieu. Every time you miss a mortgage payment it hurts your credit score and because you are still obligated for those payments you cannot claim them as errors. You are on the hook until foreclosure procedures are complete or you sell the home through a short sale.
A foreclosure on your credit report can stay 7-10 years, and lower your FICO score 200280 points.
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Contacting A Private Investor Your best chance of meeting a reputable private investor to buy or trade your home with is through a local real estate investment club that is affiliated with a national organization such as the Real Estate Investors Association. You should either attend a meeting or ask for a newsletter to obtain the contact information for the investors who are members of these organizations. Be sure to ask for at least three to five references before doing business with any investor.
Rather than provide a list of the clubs available which may become outdated, you should refer to CFEOnline.com, which is regularly updated: http://www.creonline.com/real-estate-clubs/index.html
Finally, The BIG Secret Revealed! Many talk about a BIG secret, that secret is simply that lenders/banks DON'T want to own your home. They want mortgage payments on-time every month, not home ownership. This then gives you some power to negotiate terms to get your payments current, or some level of debt forgiveness such as a short sale or forbearance.
FAQ’s Q. How long does a foreclosure stay on my credit? A. A foreclosure judgment will stay on the credit report for ten years from the date of release. Q: Why did my mortgage company send me my payment back? A: If you ignore your lender and do not work-out your loan, your mortgage company will accelerate your loan, meaning that they will use the terms of your mortgage agreement to require you to pay off your full loan at once. When this happens, they no longer accept a payment less than the full amount due. Q: How much time do I have before I am evicted?
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A: It depends on which state your property is in. Checkout your States laws in the Appendix at the end of this book. It also depends on how full the court system is. It could take as little as 3 weeks or several months. Q: I just received a Notice of Default. Where can I get accurate information on how long I have until my home is auctioned? A: The Trustee hired by your foreclosing lender is the person to contact. This person can give you details of the foreclosure process for your particular State. The phone number of the Trustee and their address is listed on the Notice of Default (NOD). If you are in default, you probably received this notice in the mail. Q: How will a Foreclosure, Bankruptcy, Short Sale, or Deed-In-Lieu affect my credit score? A: A foreclosure and deed-in-lieu will lower your credit 200-280 points, while a short sale will lower your credit score 75-125 points. In a bankruptcy your credit score is frozen during the bankruptcy process, and is unfrozen after you have completed bankruptcy. So if your credits score was 650 before bankruptcy, it will remain 650 when you come out of bankruptcy. This is not the case with a foreclosure, short sale, or Deed-In-Lieu. Every time you miss a mortgage payment it hurts your credit score and because you are still obligated for those payments you cannot claim them as errors. You are on the hook until foreclosure procedures are complete or you sell the home through a short sale. Q: How soon can I be evicted after the foreclosure sheriff sale? A: Homeowners probably have at least two weeks to a month after the sheriff sale date to arrange for a new place to move into. However, you should call the sheriff's department to ask them when then eviction will take place.
Q: Will I be liable for a deficiency judgment? A: A deficiency judgment refers to a mortgage lender’s judgment against the borrower for the difference between the outstanding balance of the mortgage note, plus costs and attorneys fees, and the value of the property foreclosed. The property value is determined on the date of the foreclosure sale. If a court allows the lender to recover his dues through deficiency judgment then you will be liable to pay for the balance. Q: Where can I go for counseling, or help during the foreclosure process?
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A: The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if you need this assistance. Contact a HUD-approved Housing Counseling Agency: Toll FREE (800) 569-4287; TTY (800) 877-8339. Hope Now Alliance- a group consisting of banks and major lenders has been formed under the name "Hope Now" to head off what is expected to be a tsunami of foreclosures by expanding and improving assistance to troubled homeowners. Their goal is to keep people in their homes and when that is not possible, prevent foreclosure. Contact them at: 1.888.995.HOPE. HOPE NOW efforts come at no cost to the borrower. Q: Should I just walk-away from my home? A: Before you make that decision, see what other options you may have. Can you rent out a room in order to make monthly payments? Or, can you rent out the entire house, and live someplace else for a while? Keeping the house continues to give you ta x advantages and allows you to build equity. (Even though the market is in current turmoil, many think it will turn around, and your home may regain its value. Read the following by Kenneth Harney of the San Francisco Chronicle, before you do anything rash:
Fannie Warns Homeowners Who Walk Away The country's two largest sources of mortgage money have a blunt warning for anyone thinking about joining the growing "walkaway" trend, where homeowners stop making payments and months later send the house keys back to their lender: You will feel the pain. On March 31, Fannie Mae sent out new guidelines to lenders intended for walkways and other foreclosure situations. Fannie will now prohibit foreclosed borrowers from getting another mortgage through the giant investor for five years, unless there are "documented extenuating circumstances." In those cases, the mortgage prohibition is for three years. Even after fi ve years, borrowers with foreclosures in their files will be required to make at least a 10 percent down payment, and will need minimum FICO credit scores of 680. Freddie Mac, Fannie's rival, counts foreclosures as major credit blots for seven years, and a senior official said the company is now aggressively pursuing some walkway borrowers "to preserve our deficiency rights" where permitted under state law. The walkway trend is particularly noteworthy in former housing boom markets -
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including California, Florida and Nevada - where many homeowners find themselves upside down on their loans, owing tens of thousands more than the current market value of their houses. If they in vested little or nothing in down payments, some owner’s reason, continuing to make payments - even if they can afford to - may be throwing good money after bad. A number of Web sites have popped up claiming to cut the hassles of bailing out of a mortgage. One company promises that clients "will be able to live in (the) home for up to eight months with no mortgage payments," after paying $895 for a customized plan. The same site says it will provide clients with "legal credit repair" to "improve your FICO scores." Another Web site claims that "your credit can be repaired and (you will) be able to purchase a house in as few as two years" - after paying a $495 fee. Still another company says walkways can expect "up to one year living payment free" as the lender goes about filing for foreclosure. That company charges $995 for its how-to-do-it kit. Fair Isaac Corp. of Minneapolis, developer of the FICO scores used in most mortgage transactions, is unhappy at any suggestion that a foreclosure could be minimized or wiped away in a short period of time. Its scoring model counts foreclosure as a longstanding and severe event, nearly comparable with bankruptcy, with negative consequences for all forms of credit that walkways might seek to obtain. That includes credit card applications, auto loans, student loans - and even insurance and employment. FICO spokesman Craig Watts said that the impact of a foreclosure on an individual's score depends heavily on the payment history, length and number of credit trade lines in a consumer's file, but "it is always significant." Robin Stout Migala, consumer outreach manager for Freddie Mac, said in an interview that "there are so many bad reasons for walking away" from a home loan. Not only are borrowers' credit standings wrecked - forcing them into excessively high interest rates on any credit they can manage to obtain. But the y also face other potential problems, including federal income tax liabilities. Federal legislation enacted last year allows homeowners who negotiate loan modifications with lenders and have portions of their principal debt eliminated to escape income tax liability for the amount forgiven. Walkway borrowers, by contrast, have nothing forgiven, and the IRS may demand income taxes on the balance they never paid, according to Migala. Many borrowers facing foreclosure today have endured serious financial crises, said Migala - loss of employment, loss of an income-earning spouse, medical issues,
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predatory loan terms - that led to their inability to make their mortgage payments. When they apply for a loan from either Freddie Mac or Fannie Mae, she said, the standard application form asks whether they have ever e xperienced a foreclosure or handed over their deed in lieu of foreclosure. If applicants check "yes," the loan is immediately shifted to manual underwriting. Every piece of information is scrutinized by underwriters, who probe for the facts surrounding the loss of the house. For borrowers who faced genuine financial hardships leading to foreclosure, underwriters are likely to be more sympathetic a few years down the road. But if you walk away, here's the deal: Don't expect to get a new home loan - certainly not one with favorable terms - for five to seven years. That's no matter what some promoter promised you online. By Kenneth Harney San Francisco Chronicle Q: What should I look for in a Realtor who is performing my short sale? A: You must have a Realtor with experience who has excellent negotiation skills, legal knowledge and is reliable. A person who knows how to work with lenders, and understands their jargon; knowing what is required for that particular lenders short sale package, and how to put it together to facilitate the lenders decision. They must be accurate in preparing the paperwork; and know how to clearly explain and answer any questions regarding the process to you, the buyer and their agent. Use a service like ZipRealty to find and compare a list of real estate agents.
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Appendix 1: Foreclosure Laws by State State
Security Instrument Foreclosure T ype
Initial Step
# of Months
Redemption Period
Deficienc y
Alabama
Mortgage
Nonjudicial
Publication
1 12 MM
Allowed
Alas ka
Trust Deed
Nonjudicial
Notice of Default
3 None
Allowed
Arizona
Trust Deed
Nonjudicial
Notice of Sale
3 None
Allowed
Arkansas
Mortgage
Judicial
Complaint
4 None
Allowed
California
Trust Deed
Nonjudicial
NOD
4 None
Prohibited
Colorado
Trust Deed
Nonjudicial
NOD
2 75 DD
Allowed
Connecticut
Mortgage
Strict
Complaint
5 None
Allowed
Delaware
Mortgage
Judicial
Complaint
3 None
Allowed
Dist. of Col.
Trust Deed
Nonjudicial
NOD
2 None
Allowed
Florida
Mortgage
Judicial
Complaint
5 None
Allowed
Georgia
Security D eed
Nonjudicial
Publication
2 None
Allowed
Hawaii
Mortgage
Nonjudicial
Publication
3 None
Allowed
Idaho
Trust Deed
Nonjudicial
Notice of Default
5 None
Allowed
Illinois
Mortgage
Judicial
Complaint
7 None
Allowed
Indiana
Mortgage
Judicial
Complaint
5 3 MM
Allowed
Iowa
Mortgage
Judicial
Petition
5 6 MM
Allowed
Kans as
Mortgage
Judicial
Complaint
4 6-12 MM
Allowed
Kentuc ky
Mortgage
Judicial
Complaint
6 None
Allowed
Louisiana
Mortgage
Exec.Process
Petition
2 None
Allowed
Maine
Mortgage
Judicial
Complaint
6 None
Allowed
Maryland
Trust Deed
Nonjudicial
Notice
2 None
Allowed
Massachus etts
Mortgage
Judicial
Complaint
3 None
Allowed
Michigan
Mortgage
Nonjudicial
Publication
2 6 MM
Allowed
Minnesota
Mortgage
Nonjudicial
Publication
2 6 MM
Prohibited
Mississippi
Trust Deed
Nonjudicial
Publication
2 None
Prohibited
Missouri
Trust Deed
Nonjudicial
Publication
2 None
Allowed
Montana
Trust Deed
Nonjudicial
Notice
5 None
Prohibited
Nebras ka
Mortgage
Judicial
Petition
5 None
Allowed
Nevada
Trust Deed
Nonjudicial
NOD
4 None
Allowed
New Hampshire
Mortgage
Nonjudicial
Notice of Sale
2 None
Allowed
New J ersey
Mortgage
Judicial
Complaint
3 10 DD
Allowed
New Mexic o
Mortgage
Judicial
Complaint
4 None
Allowed
New Yor k
Mortgage
Judicial
Complaint
4 None
Allowed
North Carolina
Trust Deed
Nonjudicial
Notice Hearing
2 None
Allowed
North Dakota
Mortgage
Judicial
Complaint
3 60 DD
Prohibited
Ohio
Mortgage
Judicial
Complaint
5 None
Allowed
Oklahoma
Mortgage
Judicial
Complaint
4 None
Allowed
Oregon
Both
Both
NOD
4 None
Allowed
Penns ylvani a
Mortgage
Judicial
Complaint
3 None
Allowed
Rhode Island
Mortgage
Nonjudicial
Publication
2 None
Allowed
South Carolina
Mortgage
Judicial
Complaint
6 None
Allowed
South Dakota
Mortgage
Judicial
Complaint
3 180 DD
Allowed
Tennessee
Trust Deed
Nonjudicial
Publication
2 None
Allowed
Texas
Trust Deed
Nonjudicial
Publication
2 None
Allowed
Utah
Trust Deed
Nonjudicial
NOD
4 None
Allowed
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Mortgage
Judicial
Complaint
7 None
Allowed
Virginia
Trust Deed
Nonjudicial
Publication
2 None
Allowed
Washi ngton
Trust Deed
Nonjudicial
NOD
4 None
Allowed
West Virginia
Trust Deed
Nonjudicial
Publication
Wisconsin
Mortgage
Judicial
Complaint
Wyoming
Mortgage
Nonjudicial
Publication
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2 None Varies
Prohibited
None
Allowed
2 3 MM
Allowed
www. StopForeclosureBlog.net
Appendix 2: Loss Mitigation Departments Lender
Phone Number
ABM AMRO Mortgage
800-783-8900
AmTrust Bank Beneficial Charter One Chase CitiFinancial Mortgage CitiMortgage Countrywide Fifth Third Bank First Merit Bank GMAC Mortgage HSBC Mortgage Huntington National Bank Key Bank LaSalle National Bank Mortgage Electronic Registration Systems National City Ocwen Federal Bank Ohio Savings Bank Option One Saxon Select Portfolio Servicing SkyBank Third Federal Savings US Bank Wachov ia Bank Washington Mutual Wells Fargo
888-696-4444 800-333-5848 800-234-6002 800-446-8939 800-753-3673 800-283-7918 800-262-4218 800-375-1745, Option 3 888-728-9931 800-850-4622 800-338-6441 800-323-4695 800-422-2442 800-783-8900 888-679-6377 800-367-9305, Ext. 53221 800-746-2936 888-696-4444 866-711-1962 800-665-7367 888-818-6032 800-290-3359 888-844-7333 800-365-7900 866-642-8608 866-926-8937 877-216-8448
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Appendix 3: Monthly Profit & Loss Worksheet Expenses Savings
Weekly
401 (k) account IRA or Roth IRA account Emergency fund College fund Other savings
Rent/mortgage Monthly payment Condo/neighborhood fees Food Eating out Lunch at work Sodas, snacks at work/ school Stops at convenience store Fast food Groceries Other Entertaining Dinner parties Birthday parties for kids Video games Going to the movies Renting /Buying movies Cable on-demand movies Taking kids to science/other Tickets to a show Tickets to games Joining sport leagues Classe s Tennis Club memberships Other Holidays & Gifts Gifts plus mailing costs Travel Decorating Holiday parties, etc. Anniversaries Weddings, funerals Other Communications Telephone Cell phones PDA (BlackBerry, Palm Pilot) Other Computer High-speed internet access Software programs and games
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Monthly
Annual
www. StopForeclosureBlog.net Hardware Digital camera printing fees New computers Other Television Cable or satellite TV fees TiVo boxes and monthly fees New TV Other Automobiles Car loan payments Gas Car washes Oil changes Other maintenance Vacations Hotels Transportation Meals Tickets Pet/House sitting Other Health & Beauty Health club/gym membership Facials Nails Massages Hair cuts Cosmetics Other Pets Vet bills Groomer fees Toys and collars Dog walker Regular medicines Pet food Cleaning couch/carpets Pet insurance premium Other Kids Daycare Babysitters School fees, tuition Books, supplies Allowance Toys, games Other Credit cards Monthly minimums Late fees
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www. StopForeclosureBlog.net Student loans Monthly minimums Late fees Other loans Monthly minimums Late fees ATM use ATM user fees Home Utilities (gas & electric) Painting, repair, maintenance Decorating, furnishings, rugs, etc. Yard service Garden/lawn plantings, etc. Maid/Housekeeping services Other Financial Property taxes Home/apartment insurance Auto insurance Alimony/child support Life/disability insurance Other Medical Health insurance Doctor/Dentist co-pays Uncovered expenses/deductibles Prescription drug costs/co-pays Over-the-counter medicine Braces, etc. Other Charity Donations Other Reading Books, magazine subscriptions Music CDs Ipods Computer download expenses Satellite radio fees Other TOTAL EXPENSES TOTAL INCOME REMAINING
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Appendix 4: Hardship Letter Template (1) Date Mortgage Company Name Address City/State/Zip
Re: Loan # and property address
Explain what happened to cause you to be delinquent. Use specific dates of events that correspond to your delinquency period. Explain whether your circumstances are on going or temporary. Explain what you have done to remedy the situation (i.e. you sold your yacht). Describe what solution you are hoping the lender might provide. The hardship letter needs to be powerful. You want the mortgage company to give you a second chance. Limit the length to one page. Respectfully
Your name
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Appendix 4a: Hardship Letter Template (2) Date Lender Name Address Loan Number Dear Sir/Maam, {In this section explain your hardship and why you must utilize a short sale - some example hardship reasons are listed below} Unemployment Reduced Income Divorce Separation Medical Bills Too Much Debt Death of my Spouse Death of a family member Payment Increase Business Failure Job Relocation Illness Damage to Property Military Service Incarceration Other (Please Specify) Borrower’s Signature Date Co-Borrower’s Signature
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Appendix 4b: Example Hardship Letter To Whom It Ma y Concern: I am writing to explain my unfortunate set of circumstances that have caused us to become delinquent on our mortgage. We have done everything in our power to make ends meet, but unfortunately we have fallen short and would like you to give strong consideration to working with us to modify our loan. Our number one goal is to keep our home and we would appreciate the opportunity to do that. The main reason that caused us to be late is (insert reason here and get straight to the point). Soon after being late and our income was not nearly enough, we had fallen further and further behind. Now, it's to the point where we cannot afford to pay what is owed to (lender). It is our full intention to pay what we owe. But at this time we have exhausted all of our income and resources so we are turning to you for help. Our situation has gotten better because (reason here) and we feel that a loan modification would benefit us both. We would appreciate it, if you can work with us to lower our delinquent amount owed, or monthly payment so we can keep our home and also reestablish our good name with your firm. We hope that you will consider working with us, and we are anxious to get this settled as soon as possible. We look forward to your response. Thank you in advance for your prompt attention to this matter.
Respectfully, Mr. & Mrs. ___________________ Signature____________________ Loan # ______________________ Address______________________ Phone_______________________
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Appendix 4c: Authorization Date Bank Name Loss Mitigation Department Address City, State Zip
Re: Loan ID# Name Address City, State Zip Re: (enter property address) To Whom It Ma y Concern: I am writing this letter to give my Real Estate Agent (enter agent name), who is employed by (enter brokerage name) authorization to access all of my personal loan information on my property located at (enter property address). My account number is (enter account number). Sincerely,
Signature Printed Name
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Appendix 4d: Short Sale Package Content Recommendations Cover Letter Contract-authorization from seller authorizing agent to negotiate w ith the lender on his/her behalf. Authorization to Release Information (see example) Sellers Hardship Letter (see example)- the homeow ner must be truthful, yet not too lengthy in w riting this document. Seller ’s financial information – most banks have a form for this. Supporting Financial Information: This is usually the same information that w as required when you applied for your loan. 2 years w2’s 2 months pay stubs 2 months bank statements 2 years tax returns Supporting Hardship info – for example liens, medical information, disability information, lay-off notice, etc. Repair Estimate for the property- providing the bank w ith a detailed repair estimate from a reputable contractor w ill be a big help in getting your short sale accepted. The bank doesn’t w ant to ow n property, and certainly not property that needs a lot of w ork. Comps for the property-provide the bank w ith at least 3 to 5 comps of properties in the area that have sold in the last 6 months. Highlight comparable sales that reflect the low est value. Letter of facts about the property. Explain everything that is w rong w ith the property and why it is impossible to sell it for a higher price. Notice of Default (NOD) Marketing Plan-What measures w ill be taken to sell the house. IRS For m 982
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