Foreclosures

Foreclosure is one of the most frightening words in the real estate industry.  When you think of foreclosure you think, where am I going to live now?  What about the money I have already invested in this home?  What do I do now?  And for most, the answers to these questions do not come easily.  Foreclosure causes a hardship that is complex to recover from.  For the most part, most people do not understand what a foreclosure actually is and the ramifications it has on their ability to purchase another home or obtain credit of any sort in the very near future.  Foreclosures occur when the homeowner defaults on the payment terms of their mortgage loan and normally, the homeowner is behind a number of payments, not just one or two.  Once the lender unsuccessfully attempts to collect the mortgage payments, the process of foreclosure begins.  If you are a homeowner facing foreclosure or if you are a homeowner currently in foreclosure, you should research the laws of your State to determine what right of rescission you have, if any, and what rules and regulations both you and your lenders are subjected to adhere to.      

How do you avoid foreclosure?  When you first determine that you are experiencing a financial hardship and are unable to sustain making monthly payments on your mortgage loan, your first step should be to contact your lender to discuss possible options to help you avoid foreclosure.  Lenders are aware that hardships occur and may be able to provide solutions that will help you keep your current home.  Keep in mind that lenders have certain criteria that must be met before they can offer assistance.  Based on their criteria, some homeowners may or may not qualify for available programs.   

1. What options are available?  Your lender will be able to provide you with options available, if any.  One of the biggest problems homeowners are experiencing today is that, if your mortgage payments are not in default, it seems almost impossible to receive assistance, leaving homeowners to ask the question of what sense does that make?  This is a controversial issue that is receiving lots of attention right now.  Some of the options your lender may offer include, but are not limited to, short sales, forbearance, re-modifying your loan, right up to extending your loan terms (adding additional months to your loan term).  Now, these are just some of the options that may be available.  Options vary by lender and circumstance so what is workable for one lender may not be workable for another. 
    
2. What is a short sale?  A short sale is a process by which your lender allows you to sell your property for less than the remaining loan balance.  Now, it is not as simple as it sounds.  In order to do a short sale on your property, not only do you need the lenders approval, you have to submit a lot of paperwork, to actually show your hardship.  This includes an actual hardship letter; current bank statements; proof of sources of income; tax documents; a list of all debts and financial obligations, a letter from your homeowners association, if applicable and any other documentation requested.  This information will be taken into consideration when your lender considers your short sale request.  You will also have to list your property for sale with a licensed real estate agent/broker and submit any offers received to your lender or review.  Short sale approval is not a short process so please do not let the name fool you.  It can take 60 – 90+ days for short sale approval from lenders.  This can be frustrating to you as the homeowner and to buyers who are interested in purchasing your property.  If you are considering a short sale, be prepared and have lots of patience.  Also, once an offer is received, lenders are still taking a considerable amount of time to review the offer and, there is no guarantee that the offer will be accepted.  What you are doing when you propose a short sale to your lender is taking a chance and hoping that one of the offers presented will be accepted by your lending institution.  A short sale is also the process prior to a foreclosure.  The unfortunate part is that most homeowners are closer to loosing their homes to foreclosure because of the amount of time that it is taking for lenders to approve short sales so again, a short sale is a chance that you are taking. 
    
3. What affect does a short sale or foreclosure have on my credit?  Neither present well on your credit report.  Both indicate to potential creditors, your inability to pay debts and it is a big red flag.  In general both make it virtually impossible to purchase another home in the very near future.  After foreclosure and even a short sale, lenders are requiring approximately three years between the actual finalization of the foreclosure or short sale and your application for a new mortgage loan.  They also want to see a record of on time, continuous payments on your other debts, and other good credit established.  Because of the foreclosure market, requirements and criteria have gotten stricter and are expected to remain this way for quite some time.  Lenders have suffered severe loss with foreclosures and short sales and are just not willing to lend unless they are convinced that the applicant can and will be able to continue their payments, uninterrupted.  The sad part is that people do not go into a mortgage loan expecting hardships.  They can not predict job loss, injuries causing disability, loss of a spouse or other occupant listed on the loan that are responsible for contributing to the mortgage payments, so it is hard to predict what will happen in the future.    

• As a homeowner, always consult with your lender if you see that you are experiencing financial hardship and keep in mind that asking for their assistance is not a guarantee that you will receive it.  Always seek the counsel of a real estate attorney if you feel that you are loosing or have lost your property unlawfully as mistakes do occur.  It is always best to have representations from someone who knows real estate law, the current market conditions, the processes and procedures for foreclosures and short sales, and someone who has your best interest at the top of their list.   

Attached are links for some of the major mortgage lending institutions.  If your home loan is with one of these lenders, contact them to find out what type of assistance may be available to you.