Stop Foreclosure

If you are actively trying to keep your house from going on the auction block but are losing the fight, you need to look at the options that might stop foreclosure. Refinancing is the option that most homeowners attempt first but in todays upside down world that might not be a workable option.

In the good days YOU had to qualify. Now it’s your HOUSE that needs to qualify. If you owe anything near the current appraisal price, you’re toast. In today’s market a homeowner needs to think outside the box to save his or her home and credit.

First things first, the home in danger of foreclosure MUST be listed for sale. Selling to avoid a foreclosure is always better than the foreclosure. Did I say ALWAYS? Now the words of caution.

Almost every real estate agent will tell you that to get the very best price “you need to fix it up a bit!” Well that may be true but if you’re in foreclosure you are probably in other financial trouble too. This is not the time to go further into debt or to borrow from the relatives. If the market is depressed in your area, $10,000 in fix ups will make little difference and there’s a good a chance that it will still not sell.

I know every real estate agent in America will probably disagree with me and I know there is some validity to their thoughts. But here’s the point I will make: since I will make nothing from the sale of your house and they will, who’s impartial?

Another option is to try and work with your lender to arrange a short sale. A short sale is where the property is sold for less than what is owed on the loan. A short sale will pay off the loan and will do more to save your credit than the damage a foreclosure would have done.

Next stop if unsuccessful with the short sale is to ask your lender about giving you a deed in lieu of foreclosure. This is the “Give it Back” plan. The best part of this plan, if accepted, is that you are free of the debt. The mortgage company agrees to accept the deed instead of foreclosing on your home. You still lose the house but that was happening anyway. Time to move on!

It is always suggested that you check the Internet for foreclosure rules for your state. Some states allow a lender to continue collection activities after foreclosure by suing for a deficiency judgment.

The reality is that very few lenders sue for deficiency judgments. They know your financial situation and pursuing you would be more wasted money. Having said that I know of one major bank that seems to pursue everyone for every penny. It is probably to maintain a reputation as being hard on bad debts.

Being diligent and following through with all your options will benefit you in the long run. Do the research and make the calls. It’s your life and your credit. And more times than not, your lender does care about you and your situation.

Tags: foreclosure facts

When it comes to credit and credit reports the two most often asked questions are:

1) How does a bankruptcy affect my credit report?

2) How does a foreclosure affect my credit report?

The reality is that a potential creditor will evaluate your credit report in total, if they see your credit report at all.

In all likelihood the only thing they will see is your credit “FICO” score. A FICO score is a way to determine the likelihood that you will pay your bills. FICO scoring methodology is shrouded in mystery. Additionally, the score can change at any minute as information about you is inputted into the computer. Even an inquiry can change your overall FICO score.

If you fail to pay a mortgage or loan payment for 30 to 90 days, that late pay will decrease your FICO score. If the lender begins the foreclosure process your FICO score will again suffer. Each step of the process will lower your FICO score more. The late pays, the Notice of Default, the judgments, the Notice of Sale and the auction will all lower your FICO score.

Make no mistake about it: a low FICO score will cost you in two important ways. One is that you will probably be denied credit for the next 7 years.

The second way is that if you are granted credit, you WILL pay a lot more in interest because of that score. I know it is hard to believe that a score can cost you but it could cost you $3000 or more on a new car purchase.

The mystery is just how much the foreclosure will hurt you FICO score. There is a science to it but the formula is guarded better then the KFC recipe.

Having said that, many experts feel that a foreclosure will decrease your FICO score anywhere from -100 points up to -150 points.

There is life after a foreclosure. You will probably be able to buy a home after a year or two. You will have to pay a higher interest rate and be prepared to put down a larger down payment then others might.

The longer you wait the better your FICO score should be. Of course you need to re-establish credit and improve the credit you do have. The credit report works on a 24-month schedule so by being diligent, you should be able to improve your credit in two years anyway.

Tags: foreclosure and credit report

OK, you’re three months behind in mortgage payments and the lender is calling every day. Most people in the situation think selling their home is the best and only solution. It seems everyone knows a realtor and of course they turn to that person for help.

After a review by your realtor friend you are told the bad news. Your home won’t sell for enough to pay off the balance of the loan, the fees, and of course the real estate commissions. Many people still try to sell their home but eventually they accept the fact that foreclosure is inevitable.

What is a Short Sale?

Many lenders have an abundance of homes that have been repossessed and are willing to settle debts owed by homeowners through a process known as a “Short Sale.” Simply put, a “Short Sale” occurs when a homeowner is upside down on their home loan. Unless they find a really giving investor the property will end up selling for less than what is owed on the mortgage loan.

In most cases a short sale would benefit a lender more than a foreclosure would. A short sale is a done deal. Money is received and a write off is taken. End of problem.

With a foreclosure the lender takes the house back and then has to dispose of it in order to mitigate his losses. If the house does not sell for months he carries the negative on the books. Additionally, there can be cost added to the ultimate sale that further reduces the loss recovery.

In a successfully negotiated Short Sale the lender agrees to accept the lesser amount and consider the loan as paid in full. Of course the homeowner will receive nothing from the sale of their home but that’s no surprise. The good part is that no foreclosure is reported against your credit.

Be warned, if the short sale was not done carefully and correctly the homeowner will still owe the difference between what was owed and what was received.

To qualify for a “Short Sale”, the homeowners must be able to demonstrate to the lender a real hardship and they must be financially insolvent. With your recent payment history it should be easy to demonstrate that you are unable to make your house payments. This is important. Otherwise there would be no reason for the short sale.

You will need a signed and accepted offer for your house. Finding a buyer is not as hard as it seems given the fact that this is a short sale and the house is probably going for a lot less than market value. A lender will not even look at a short sale package unless you have that offer.

Do I need a Lawyer to do a Short Sale?

Successfully negotiating a Short Sale is a difficult process. DO not consider doing a short sale yourself. You will need someone that is an expert in short sales. Your brother-in-law that read about short sales is not qualified. The short sale process will be a combination of negotiating with loan loss mitigation personnel and processing and submitting a ton of paperwork.

Lenders require a lot of documents and information. Giving the lender too much information or to many of the wrong documents can completely destroy your attempt. Additionally, the lender will want financial information about you the homeowner. You will need to demonstrate to the bank that you are insolvent. You need to give the lender precisely what they want but you cannot lie about your financial condition. You will need to present bank statements and tax returns that need to support your statements.

Your precarious position is that you need to demonstrate that you are now insolvent but at the time of your loan application you were not, or this could be considered mortgage fraud.

Are there tax implications with a Short Sale?

With a short sale the lender has money that was not covered in the sale. If that money was “written off” you can be sure that they will either seek a judgment against you or report the write-off to the IRS as 1099 income for the homeowner. Normally the amount of the 1099 will increase your yearly income and ultimately the amount of taxes due for that year. The judgment will appear on your credit for 10 years.

Conclusion

A short sale is not a cure all. If you’ve reached the point of foreclosure, contact your lender and ask for information on short sales. Put your request in writing. At this point a short sale will probably leave you better off than foreclosure and possible bankruptcy.

Tags: Foreclosure, short sale, stop foreclosure

Generally speaking, subprime loans are loans that carry a higher interest rate than a prime rate loan. The ideal prospect for a subprime loan is a person with a poor or limited credit history. The higher interest rate is to compensate the lender for the increased credit risk.

Very few lenders advertise themselves as a sub-prime lender. The definitive way to tell a subprime lender is with the rates that are charged. Do I need to say, if you can qualify for a prime rate loan, avoid subprime lenders.

A subprime borrower is one who would fail to qualify for a prime loan generally due to a low credit score. That score is normally referred to as a FICO Score. The score in the mid range could qualify a borrower for a loan but additional factors are taken into account. Those factors could include the down payment proposed, your amount of debt, and your ability to document your income.

Borrowers that are self-employed often cannot document their income and apply for stated income loans. A stated income loan is simply the income the borrower states on the application form. Because the income cannot be verified, the interest is higher than normal but the loan can still be given.

Subprime lenders use the same factors as prime lenders to determine an interest rate. Rates are higher with a low credit score and if the down payment is minimal. Still, keep in mind the rates and fees are higher at subprime lenders due to the higher risk and higher costs. Additionally, more subprime loans go into default then prime loans.

When Prime Borrowers Go Subprime

It amazes me when I see a prime borrower end up with a sub-prime loan. They have the credit score, the down payment and the documented income but they pay sub-prime prices.

The main reason for this is that prime borrowers are constantly being bombarded by subprime lenders on radio and TV with “Unbelievable Deals” to finance or re-finance a mortgage. They pitch the cash that you can clear on the deal or the lower interest rates that lower the monthly payment. They forget to mention in the advertisement that that teaser interest rate will expire and your house payment might double.

If you’re in the market to finance or re-finance a home, please check around before deciding on a loan. TV is great for mindless entertainment but use your mind when it connects to your wallet. Check with mainstream lenders to determine your eligibility for a prime loan.

In 2006, the Wall Street Journal reported a surprising fact that 61% of all borrowers that secured subprime loans had a credit score that would have qualified them for a prime loan. Need I say more?

Subprime exist to allow access to the market of no-credit or poor-credit borrowers. These are also the higher risk borrowers. You pay more, which is no big surprise. They lose more, also no big surprise. They have an endless supply of prospects, unfortunately, no big surprise.

Tags: how-to-stop-foreclosure, subprime lending