– Repay Delinquencies to make the loan current
If you are expecting a large sum of money (e.g. tax return, special bonus, etc.) then you can pay back your delinquent amount to the bank to make your loan current.
– Special Forbearance Agreement with the bank. Also known as a “Trial Mod”.
You can request the bank to set up a special payment plan to give you time to catch up on your missed payments.
Refinance Loan with new Loan
If you have equity in your home you may qualify to refinance your current loan with a new bank loan.
– Loan Modification
You can apply to your existing bank to change the terms of your current loan by adjusting the rate, term, or principle balance.
If you don’t have the ability to refinance or reinstate your loan, your lender may give you time to sell your home to avoid foreclosure.
If you owe more to the bank than it is worth today then you may qualify for a Short Sale.
Your last option to avoid foreclosure is to voluntarily give your home back to the bank by signing a Deed-In-Lieu.
A Real Estate transaction in which the lender allows a property to be sold for less than the amount owed on a mortgage and takes a loss is called a short sale. (Wikipedia)
A Foreclosure has a more negative impact on a credit report. If foreclosed the Lender may pursue a larger deficiency judgment than if it is a short sale.
Both a short sale and a foreclose can be taxable. The deficiency amount will often be considered as income for tax purposes.
For more accurate information contact the Homeowner’s Tax Professional.
Some sellers may qualify for tax relief under the Mortgage Forgiveness Debt Relief Act and Debt Cancellation program.
Generally, No.
Requirements: The home must be listed for at least 90 days w/o any reasonable offers, it must have a clear title (no other liens like 2nd mortgages), a full financial package must be sent to the bank, and the Foreclosure Date cannot be within 30 days.
Typically it takes about 60-90 days for a short sale to close. If there are 2 loans with 2 different banks involved, add another 2-3 weeks on the timing for approvals.
A short sale may appear as Settled, Paid, Short Sale, or Offer and Compromise on your credit report.
Derogatory marks will typically last at least 3 years and may last longer.
Short Sales require the Servicer/Bank to review the Homeowners financials in order to determine if the homeowner has the ability to pay any or all of the debt, similar to a Buyer qualifying for a loan but in reverse.
The Servicer must also determine the value of the property and weigh that against the amount owed. They then compare what they think they would net from a foreclosure sale to the net proceeds of a Short Sale.
The amount to the Servicer is not always the determining factor. Sometimes an uncooperative Second Lienholder will cause the Sr. Lienholder to foreclose just to clear the Title.
The Lender may also have to get approval from the underlying investor; Fannie Mae or a PMI Co.
Lenders, Servicers, and Banks are corporations. These corporations are driven to make money, not to lose it. They must answer to their shareholders just like any other corporation. These corporations do not want to own property.
The only reason they foreclose is to gain control of the property or asset and recover as much of the principal loan balance, accrued interest, late fees, penalties, taxes they paid on behalf of the homeowner, court costs, and attorney fees.
In most states, the laws are written so that the lender can only recover these widely accepted losses.
It is not recommended due to the outstanding workload at the Servicers. Low-ball offers are usually ignored. It's best to send in a reasonable offer for the bank to consider it.
The negotiators are each working on over 1500 files at any given time. That is why it is IMPERATIVE the servicers receive an accurate package in the beginning. Otherwise, the file runs the risk of being thrown away or put on hold and then the Servicer says they never received it. If you are not getting a response from the bank and feel you have exhausted all of your options, you may request it to be escalated.
A complete Short Sale packet should include:
BPO stands for Broker Price Opinion. It’s similar to an appraisal but is less expensive for a bank to order and typically requires less information than a formal appraisal.
Negotiating a Jr. Lien /Second Mortgage takes skill and experience to become good at it. Be sure to hire an agent or broker experienced in Short Sales. When working on a short sale that has a Jr. Lien (Second, Third Mortgage, HOA Lien, Tax Lien, Bail bond, etc) The Agent should contact the Lienholder and discuss the possibility and terms of a release. *The Jr. Lien holder will be cleared from the Title in the event of a Foreclosure and may lose the ability to collect the debt anyway. The best case would be an additional cost to the Lienholder to collect after the foreclosure of the property.*
Many Second Mortgage Companies will tell you they want 10% of the outstanding debt. This is a typical response. Don’t let it shake you. Ask questions:
Explain the situation w/ your homeowner, their hardship, loss of a job, medical, divorce, death in the family, etc. The Negotiator needs facts & figures. Once you have established an approximate amount, have the title company prepare a prelim HUD 1 with the figures or whatever you determine is appropriate as the amount for the Release of the Lien. Get the prelim HUD 1 to the FIRST Mortgage holder as well as the Second Mortgage holder immediately. Follow up with phone calls &/or emails if the negotiator provided a direct email address. You must continue to negotiate the “gap” between the first and junior lien holders until a settlement is reached. This may require several preliminary HUD1 forms and lots of back and forth calls. This is a huge opportunity for the Agent to use & improve their negotiating skills as well as your sale skills. Don’t let your agent give up just because it sounds like the bank is standing firm on their payoff demands…if you submit a new HUD1 to the bank with revised figures they have to review it with their investors and send you a response. Just talking on the phone with a front-line agent is not the best way to negotiate a short sale. You should always submit a revised HUD1 estimate and corresponding documents (signed addendums, letters, etc) on each attempt otherwise your agent could be wasting their time.
Once a settlement is reached between the First Mortgage holder and all Jr. Lien Holders the Final HUD 1 should be prepared by the Title/Escrow Co or Attorney in exact accordance with the Approval/Demand Letters from each Mortgage holder & release letters from any Jr. Lienholder (HOA Lien, Tax Lien, Bail bond, etc). The Final HUD 1 should be sent to the Mortgage holders for Final Approval & signed off as “OK to close” just prior to closing.
