3. Options to Avoid Foreclosure
OPTIONS TO AVOID FORECLOSURE
If your home is at risk of foreclosure, you don’t have to panic. There are many ways to ease the difficult
situation, and one may be right for you.
Reinstatement: To reinstate a mortgage, the homeowner has to pay all the missed payments, late fees and
legal fees that are due up to the date that the loan is reinstated.
Forbearance or Repayment Plan: The lender allows the buyer to pay the missed amount over a period of
time or the lender places the missed payments on the end of the amortization of the loan.
Rent the Property: In same cases, homeowners facing foreclosure will have payments low enough to allow
them to rent their property and keep up their mortgage payments.
Sell the Property: If sellers have equity in their property, they can sell it and prevent foreclosure.
Refinance: If homeowners have sufficient equity and income and their credit has not been too badly
damaged, they may be able to refinance.
Mortgage Modification: A loan modification is very similar to a lower interest refinance where the lender
lowers the interest rate on the existing loan to lower the payments.
Short-Refi: This process involves the refinance of a home with a reduction in the principal balance and
often the interest rate as well.
Deed-in-lieu of a Foreclosure: A deed-in-lieu of foreclosure is sometimes referred to as a friendly
foreclosure.
Bankruptcy: A bankruptcy may stop a foreclosure and allow homeowners to reorganize their debt and
keep their property.
Service Members Civil Relief Act (SCRA): This law provides certain protection to military personnel who
are in foreclosure in specific situations.
Short Sale: When homeowners owe more on a property than it currently is worth and one of the previous
solutions does not apply to their situation, there is the option of pursuing a short sale.
4. FORECLOSURE VS. SHORT SALE Homeowner Consequences...
ISSUE FORECLOSURE SUCCESSFUL SHORT SALE
Future Fannie Mae Loan Primary A homeowner who loses a home to foreclosure is A homeowner who successfully negotiates and closes
Residence (Effective May 21, 2008) ineligible for a Fannie Mae backed mortgage for a a short sale will be eligible for a Fannie Mae backed
period of 5 years. mortgage after only 2 years.
Future Fannie Mae Loan Non Primary (Effective May An investor who allows a property to go to a An investor who successfully negotiates and closes
21, 2008) foreclosure is ineligible for a Fannie Mae backed a short sale will be eligible for a Fannie Mae backed
investment mortgage for a period of 7 years. investment mortgage after only 2 years.
Future loan with any mortgage company On any future 1003 application, a prospective There is no similar declaration or question regarding a
borrower will have to answer YES to question C in short sale.
Section VIII of the standard 1003 that asks, “Have you
had property foreclosure upon or given title or deed
in lieu thereof in the last 7 years?” This will affect future
rates.
Credit Score Score may be lowered anywhere from 250 to more Only late payments on a mortgage will show and
than 300 points. Typically, this will affect a score for an after sale mortgage will be reported as paid or
more than 3 years. negotiated. This will lower the score as little as 50
points if all other payments are being made. A short
sale’s effect can be as brief as 12 to 18 months.
Credit History Foreclosure will remain as a public record on a A short sale is not reported on credit history. There is
person’s history for at least 10 years. no specific reporting item for a “short sale.” The loan is
typically reported “paid in full, settled.”
Security Clearances Foreclosure is the most challenging issue against a A short sale on its own does not challenge most
security clearance outside of a conviction of a serious security clearances.
misdemeanor or felony. If a client has a foreclosure
and is a police officer, in the military, in the CIA or any
other position that requires security clearance, the
clearance will be revoked and the position will be
terminated.
Foreclosure Vs. Short Sale
5. Loan Modification Vs. Short Sale
From Condos to Multi-Million Dollar Estates, a short sale may be the best solution for you.
Fact – Loan Modifications are hard to come by, rarely offer principal reduction and generally require
many months of frustration to get any answers.
Solution – NO COST SHORT SALE. Your mortgage debt may be eliminated and it will cost you
nothing.
Fact – Loan Modifications generally require you to fall behind three months or more before the lender
will talk to you.
Solution – NO COST SHORT SALE. Can be completed while current on your payments allowing
you to purchase another property immediately (Per Fannie Mae/Freddie Mac)
Fact – ¼ of all mortgage holders in Southern California owe more on their mortgage than their
property is worth.
Solution - NO COST SHORT SALE. A workout that allows you to get away from a bad debt you can
no longer afford.
Fact – A Foreclosure is extremely damaging to your credit,job or promotion prospects and will cause
you to be viewed as a security risk.
Solution - NO COST SHORT SALE. Is viewed as a workout, not a kick-out; Is far less damaging to
your credit and allows you to borrow money again far more quickly.
Fact – Foreclosure is very expensive to the bank and is damaging to local communities and the
economy.
Solution - NO COST SHORT SALE. Is beneficial to all involved and helps the communities and
economy.
Is your loan modification keeping you stuck? A short sale could be the solution you need. We have the
experience, knowledge and the contacts with banks to get your short sale completed now.
Please contact us today to learn more!
6. The Short Sale Process
A successful short sale requires a lengthy process, one that is best initiated early on. The entire short sale
process can take anywhere from three months to a year or more when considering the many negotiations
needed before the actual sale. Our short sale experts will be invaluable assets for anyone seeking a short
sale, helping to make sure communication is expedited to see the process resolved.
The following steps are involved in the short sale process:
You must be considered in a distressed state, most often with the home entering the foreclosure process,
but many lenders are now willing to negotiate a short sale even if your mortgage payments are current.
Proving your financial situation to your lender may help them reconsider allowing a short sale of your
property.
In order to prove to your lender that you are not able to make your mortgage payments, you must gather
documents of proof of your financial hardship. These documents are similar to those you may have
used initially to qualify for your home loan, but this time you are proving that you would disqualify for
the loan. Additionally, a letter explaining the cause of your financial hardship should be written. These
documents, combined with market trend reports, market analysis, and any other useful information that
can help your lender decide why your request for a short sale should be granted.
If your lender agrees to accept a short sale, your home must be placed on the market and evidence of
a concentrated effort to sell the property at market value must be provided. Your lender must receive
detailed information about the effort to sell your property, another advantage of hiring a short sale
expert from Advantage Short Sales to aid in the process.Once you have found a buyer for your home, the
purchase contract and other documents are provided to your lender for approval. If your lender accepts
the offer, the sale of your home continues in the same way as any other real estate transaction.
In most instances, your lender will pay almost all of the fees and commissions required by all of the
parties involved in the process, leaving you to pay nothing. However, your lender may require you to
pay for any appraisals or back dues owed to a homeowner’s association. In no instance are you allowed to
complete a short sale with any form of financial gain or proceeds.
