Avoiding Foreclosure: All the Options

A homeowner is considered to have an Involuntary Inability to make payments if he or she is not making payments due to circumstances beyond control. Events that may trigger non-payment may include death of a family member, separation or divorce, disability, illness, business failure, natural disaster, unemployment/layoff, mandatory pay reduction, under-employment, loss of second income, decline in business earnings, incarceration of spouse or co-borrower, over-extended credit.

THE BENEFITS OF AVOIDING FORECLOSURE:

1) To the Homeowner:  Preserves Credit Rating: Foreclosure can remain on one’s credit report forever! Recent Fannie Mae guidelines now require that an applicant with a foreclosure is considered ineligible for conventional financing for five years.  Avoids a Deficiency Judgment: In the event that the proceeds from the sale of the home at auction (the trustee’s sale) are insufficient to cover the lender’s liens and other costs, the lender can obtain a deficiency judgment against the borrower for the difference owed. Avoid Taxes: In the event that the lender forgives the deficiency, the IRS treats the amount forgiven as income to the borrower! Therefore, income taxes are due and payable on this amount! 2) To the Lender: ü Avoids the time and expense of foreclosure: If a lender files for foreclosure, national average dictates that the lender will lose $33,000. Factors included in this calculation include interest revenue lost, attorney fees, staff and department expenses, contractor fees for repairs, property taxes, and realtor commissions to sell the property. ü Avoids the potential of R.E.O. (Real Estate Owned) and the negative impact to financial statements of carrying a heavy REO portfolio. Stockholders do not want to see REOs on the books. ü Avoids unusable equity: Avoiding foreclosure can help quickly clear the account and allow the lender to use all available capital for performing loans.

HOMEOWNER OPTIONS TO FORECLOSURE:

1) REINSTATEMENT: After the Notice of Default (NOD) is recorded—typically at 90 days late, the borrower has 3 months in which to bring the loan current. All past due payments, late fees and penalties must be paid. (Sources of funds may come from the sale of assets, family members, friends, or possibly an employer or 3rd party investor.)

2) RELIEF OPTIONS WORKED OUT WITH THE LENDER: A borrower may work directly with a lender’s loss mitigation department to reach a workable relief option. You will find, in general, that loss mitigation officers are quite willing to suggest payment programs that will help you once again become current on your loan. After all, their goal is to have performing loans! If you would like an excellent team of professionals to assist in dealing with your lender, Sunwest Capital recommends its referral partner, U.S. Loss Mitigations. This company has vast experience in working out relief options that are very favorable to the borrower. Their fees are reasonable and initial consultations are no charge. U.S. Loss Mitigations Toll Free: 1-866-625-7610 Web Address: www.uslossmitigations.com

3) WORKOUT OPTIONS: To consider a workout option, the lender will want to gather information about the borrower’s current financial situation, the property itself and the characteristics of the loan. Info required about borrower: 1) a letter explaining the involuntary inability to pay 2) Borrower Financial Statement (Form 1126) including info about assets, liabilities, income and expenses. Required supporting documentation: a) two most recent pay stubs b) signed federal income tax forms for previous year (Note: Self-employed borrowers will also need to provide last year’s as well as a current year-to date profit and loss statement along with two months’ bank statements. Info required on property: 1) Form 1013 (1-4 Unit Property Inspection Report) Lenders usually require inspection between the 45th and 60th day of delinquency and continued inspections until the delinquency is resolved. 2) Form 1092 (Broker’s Price Opinion): This form will give the broker’s estimate of market value in both an “as is” and “as repaired” condition along with any factors affecting the habitability, safety and occupancy of the property. Loan Modification: If the borrower is in a financial position to once again make regular payments on the loan, the lender may agree to modify one or more of the original terms of the loan (i.e. extending the term of the note, increasing or decreasing the interest rate to reflect current market rates, modifying pre-payment penalties.) Workout Mortgage Assumption: In certain cases, the lender may permit someone else to take the title of the property and assume the loan from the borrower. A family member, friend, or 3rd party investor may be able to assume the loan and bring past-due payments current. A 3rd party investor will most likely want to negotiate a percentage of the equity and appreciation for the period of time it takes for the original borrower to repurchase the home. Make-Whole Pre- Foreclosure Sale: A short payoff becomes a “make-whole pre-foreclosure sale” when it is determined that the shortage between the net sale proceeds and the total indebtedness will be paid in cash or mortgage insurance proceeds resulting in no overall loss to the lender. Deed in lieu of Foreclosure: A borrower conveys all interest in real property to the lender in order to satisfy a loan in default and avoid foreclosure. The borrower is released from personal indebtedness associated with the defaulted loan and may receive more generous terms than at a formal foreclosure. The advantages to the lender include the reduction in time and cost of repossession and additional advantages if the borrower subsequently files for bankruptcy. In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed. Generally, the lender will not proceed if the current fair market value exceeds the outstanding indebtedness of the borrower.

 4) REFINANCE: Homeowners with some equity in their homes may wish to refinance in order to pay off debts and start fresh. Sunwest Capital offers a very competitive refinance loan for homeowners with 90+ days late. Credit scores can be below 500. Maximum Loan-to-Value is 70%. Loan proceeds can be used to pay off existing loans, fees and penalties as well as delinquent property taxes or bankruptcy fees.

5) SALE AND LEASEBACK: In this option, the borrower sells to an investor who allows the borrower to lease the home with an option to repurchase once finances have stabilized. To clearly define and protect all interests, the title of the home is placed into a title-holding land trust created by an attorney who also serves as trustee. The former homeowner is named “resident beneficiary” of the trust with the first right to purchase. The advantages to the resident beneficiary include: home retention; time to rebuild financially;, a percentage of future appreciation on the property during the lease period (in most cases); tax deductible lease payment (in this scenario, the IRS recognizes the monthly lease payment as “triple net” and is therefore fully tax deductible. 

 6) ASSUMPTION “SUBJECT TO” BY AN INVESTOR: In some limited circumstances (as in the case of an assumable loan with favorable terms or in the case of a workout mortgage assumption), an investor may be able to assume your existing loan. The investor would then bring your monthly payments current, then negotiate a “Sale and Leaseback” as discussed in #5.

7) SELL “FOR SALE BY OWNER”: Once you’ve come to a decision that it is in your best interest to sell, you may wish to sell the home yourself. You can find “For Sale by Owner” kits at home improvement stores or online. In pursuing this course, you need to consider the following: Do you have the funds available for marketing your home? Is your home is top marketable condition? Or does it need updating and repairs? Have you taken into account the average length of time it takes to sell a home in your area? Will there be someone available during the day to show your home? Are you comfortable negotiating the terms of the sale and completing the documents?

8) HIRE A REALTOR TO SELL YOUR HOME: Hiring a good, professional Realtor to sell your home may save you time, headache and even money. Historical statistics for Utah show that using a Realtor typically helps you come out ahead on bottom-line net profitability over selling the home yourself (generally by several thousand dollars more in net profit). With a Realtor, your house will likely sell faster, and you’ll be represented by a professional who has your best interests in mind throughout all aspects of the negotiation. If this option is workable for you, we recommend the following Realtor: Lori Thornbrue, Equity Realty (801) 634-7830

9) PRIVATE AUCTION: If you need to sell your home quickly, and for top dollar, utilizing a private auction may be your best solution. Our trained staff at F3 Foundation utilizes extensive marketing strategies to create a “buyer’s frenzy” of qualified prospects who will compete against each other to purchase your home. With a private auction, your home will sell quickly—generally 7 to 10 days—and for top dollar! A private auction offers the homeowner speed, profitability and clean credit as opposed to the total loss and credit damage of a public auction/foreclosure. F3 Foundation Business Hours: 9:00 - 5:00 Mon – Fri (801) 565-4730

10) SHORT SALE: Finally, let’s consider a situation where the homeowner has very little or no equity, mounting bills and late fees, and is facing the loss of the home and subsequent damage to credit and to hope. Our professionals can turn this negative situation into a positive fresh start for the homeowner by utilizing a combination of three effective techniques: A) The home is placed under contract with an Option to Purchase. B) We negotiate a short sale with the lender. Because lenders know that they lose many thousands of dollars on a foreclosure, they are often very willing to work with us and cut their losses short. When we are successful in negotiating a short sale with the lender, we can actually create equity where none previously existed! C) Finally, we market the home to a retail buyer with attractive terms for a quick sale. Within 7 – 10 days, we are able to sell the home for top dollar. And, since we have created equity where none existed, we could even sell at a discount (for a super-fast sale) and still make the bottom-line results beneficial to the seller.

Now that you are aware of all the options you have at your disposal, please let us know how we can best assist you in keeping your home out of foreclosure. Our team is standing by to help relieve the stress and headache of your situation and help you reach a positive solution. Call now for a no-cost, no-obligation consultation. Office: (801) 738-4161