Foreclosure: Know Your Options | Mortgage

by JoshCantwell

When you're about to lose your house, the stress can be pretty overwhelming. You already have financial problems, the debt collectors are constantly calling, your family is getting stressed out as well, and you find yourself wondering where you will live when they take the house away from you. Your main goal in life becomes getting rid of the stress.

Maybe you already have an idea of what might happen in foreclosure, especially if you know someone who has already been there. Most people don't realize they have more options than to stay or leave. Moving away might be a temporary solution, but there's more to it than just giving the house back to the bank. How will the foreclosure affect your credit? Will you even be able to buy a car after this is over?

Everyone involved in the foreclosure process, especially homeowners and the real estate professionals they hire, needs to be fully informed on the ramifications of each individual situation. Homeowners need to take the initiative to educate themselves so they can make informed decisions every step of the way. Real estate professionals need to take the lead in helping homeowners understand which decisions need to be made and when. Understanding how the foreclosure process works is the key to surviving the loss of a home.

Two of the options have been covered frequently in the media lately: deed-in-lieu and loan modifications.

A deed-in-lieu is nothing more than a voluntary foreclosure. It saves the bank time and money, but your credit still gets hit with the full ramifications of the foreclosure.

Loan modifications can be a viable alternative to foreclosure, especially since the government's Home Affordable Modification Program (HAMP) made more loan modifications possible. However, very few of all attempted mortgage loan modifications ever succeed. Only 4 percent of those loans ever become permanent; in California, that means 5,600 out of the 140,000 trial loans initiated in one recent three-month period have actually been modified. Records show that 450,000 notices of default were mailed out to Californians in 2009 alone. Not many of those will actually be helped by loan modifications.

Let's look at some more probable options.

1) Live in the house until eviction, and let the bankruptcy system hold off the foreclosure until the auction date. It won't make the foreclosure go away, but it will help the homeowner save money temporarily.

2) List the house for the amount of the debt and hope someone comes along who loves the house so much that they will pay your asking price before the auction date. You can dream all you want, but the odds are that nobody will pay more than the house is worth, and you'll end up going back to option one.

3) The homeowner can list the property with a real estate agent who is willing to wait out the short sale process and encourage buyers to do the same in order to get a discount on the property. The buyer may get a great deal on the house, and the real estate agent may still get credit for the sale, but it doesn't always work that way.

One complication arises when the agent has to convince the buyer to not only sign the purchase agreement, but to wait at least 60 to 90 days to take possession. The typical buyer needs something that is already available.

Several roadblocks can come up during the process of negotiating a short sale if the seller and/or his agent don't completely understand how to manage those negotiations. Lenders are very careful to train their loss mitigation department in debt collection, so sellers and agents who aren't as well-trained in short sale negotiation skills can be easily sidelined.

For instance, sometimes promissory notes and deficiency judgments can be avoided after a short sale. Did you know that? It can be worth a great deal to a homeowner when you not only learn how the system works, but also how to work the system.

4) The real estate agent could list the house as a short sale, while arranging the purchase by a short sale investor who doesn't mind handling the paperwork, negotiating a successful short sale on the seller's behalf, and waiting for the lender's approval before closing on the house. The homeowner would avoid a foreclosure, the agent would still get the commission, and the buyer would get the home as an investment property to sell or rent.

Here's another reason why the homeowner would rather work with someone who coordinates short sales on a daily basis. Did you know that there's more to the BPO process than just being there when the bank appraiser comes to the door? Do you have any idea how to use the process to maximize the short sale outcome in your favor? A good short sale investor does.

As a real estate professional, you should be able to explain these four options to a homeowner who is facing foreclosure. They can let it go and file bankruptcy, they can sell for the amount of the debt, they can apply for a short sale and wait for a buyer, or they can apply for a short sale with a buyer already waiting for them.

My partners at Strategic Real Estate Coach specialize in educating people about short sale solutions for homeowners in trouble. We offer a free Silver Membership in the coaching program, and the benefits include several reports to help you learn everything you need to succeed!

Attorney Jeff Watson has some great commentary on the legal side of real estate investing. You can find that and more on his blog. Just visit topshortsalelawyer.com.

Give people the best and most up-to-date information possible. Help people understand what they're up against, and what could happen with each choice. When homeowners make an informed decision about their future, they have a chance to stop feeling beaten down and walk away feeling relieved.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

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