Owner Foreclosure Options

• 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 some cases, homeowners facing for eclosur e 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 a 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 Foreclosure
A deed-in-lieu of foreclosure is sometimes referred to as a friendly foreclosure because the homeowner essentially gives the deed back to the bank.• Bankruptcy
A bankruptcy may stop a foreclosure and allow homeowners to reorganize their debt and keep their property.• Servicemembers 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 thanit is currently worth and one of the previous solutions does not apply to their situation, there is the option of pursuing a short sale (see reverse side for more information).

 The Basic Foreclosure Process…

1. Default — homeowners must miss a payment or default on payment for the property to enter the foreclosure process.

2. Legal Notice — the lender of the foreclosing property must notify homeowners that they are entering into the foreclosure process.

3. Bank Sale or Auction Date — homeowners are informed that they have a bank sale or auction date at which point the foreclosing mortgage company will gain control of the property.

4. Redemption Period — the period of time in which homeowners may present payment to the bank and regain possession of their property. (Not all states havea redemption period.)
Short Sales

 

What You Need to Know…

In the past, it was rare that a bank or lender would accept a short sale. However,due to the overwhelming market changes, lenders havebecome much more negotiable when it comes to these transactions. Recent policy changes within many organizations have made the chances of getting a short sale approved even higher.The following information describes the short sale process:
• Homeowners are “short” when they owe an amount on their property that is higher than the current market value.• A short sale occurs when a negotiation is entered into with the homeowner’s mortgage company to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is “sold short.”

Foreclosure vs. Short Sale

Homeowner Consequences…

 Issue

Foreclosure

Successful Short Sale

Future Fannie Mae LoanPrimary Residence(Effective May 21, 2008) A homeowner who loses a home to foreclosure is ineligiblefor a Fannie Mae backed mortgage for a period of 5 years. A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.
Future Fannie Mae LoanNon Primary (Effective May 21, 2008) An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years. An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.
Future Loan with any Mortgage Company On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the
standard 1003 that asks, “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” This will affect future rates.
There is no similar declaration or question regarding a short sale.
Credit Score Score may be lowered anywhere from 250 to more than 300 points. Typically, this will affect a score for more than 3 years. Only late payments on a mortgage will show and an after sale mortgage will be reported as paid or 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 person’s credit history for at least 10 years. A short sale is not reported on credit history. There is 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 security
clearance outside of a conviction of a serious 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 a security clearance, the clearance will be revoked and the position will be terminated.
A short sale on its own does not challenge most security clearances.

 

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