In any give real estate market there is always a certain percentage of homeowners who suffer financial difficulties, start missing mortage payments and head towards foreclosure. The reasons for this are many, but most recently, the majority of these are due to variable rate creative mortgage payments that are turning into higher payments. Most of the time these resets yield monthly payments that are so high that they are unsustainalbe by the homeowner, resulting in default in a very short period of time. Default is defined as missing just one payment. Properties in default are referred to as distressed properties.
Here’s some disturbing statistics:
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One in five properties are currently in distress (in some areas in the country it approaches 80%)
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One out of two mortgages that reset are going into default
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The potential payment increase on an ‘Option ARM’ mortgage is 63%
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7 out of 10 homeowners go into foreclosure without seeking professional help.
Homeowners in this situation should understand that they are not alone. Stories about this mortgage crisis dominate the news media. Default is a serious problem that should not be ignored. These problems can be mitigated and the resultant damage to your credit rating minimized, but it does take immediate professional assistance by an expert trained to negotiate for you with your lender.
Default can lead to foreclosure which is the worst case scenario. If the situation cannot be remedied by a refinance or recast of the payments, the best approach is to structure a plan of action to negotiate a short sale before it goes into foreclosure. Short sale is the best thing possible; foreclosure is the worst thing possible. Here’s the differences:
1. A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 7 years. A homeowner who successfully negotiates and closes a short sale will be eligible after only 2 years.
2. On any future loan (1003) application, a prospective borrower will have to answer YES to the question 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.
3. A foreclosure will lower a credit score anywhere from 250 to over 300 points, typically affecting the credit rating for over 3 years. For a short sale, only late payments on the mortgage will show and, after the sale, the 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.
4. Foreclosure will remain as a public record on a person’s credit history for 10 years or more. Short sale is not reported on a credit history. There is no specific reporting item for ’short sale’. The loan is typically reported ‘paid in full, settled’.
5. Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. Security clearances for police officers, military, or any other position that requires a security clearance, in almost all cases, will be revoked and the position terminated. A short sale, on its own, does not challenge most security clearances.
6. Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure, in many cases, is grounds for reassignment or termination. A short sale is not reported on a credit report and is, therefore, not a challenge to employment. Also, many employers are requiring credit checks on all job applicants.
7. In 100% of foreclosures (except in a few states) the bank has the right to pursue a deficiency judgment. In some successful short sales, it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner.
Having to sell a home due to a personal financial situation can be stressful, but it doesn’t have to be financially devastating. The consequences can be greatly minimized, but it does take professional help by a specialist in this area. Just listing the home for sale with an agent and hoping to negotiate with the lender if you get an offer, in most cases, will not work. It’s not that easy.
Lenders require that the listing, marketing, communication, paperwork and follow up be handled in a specific manner. They are buried in short sale proposals that never even get proper review, because they were not processed properly. The clock is always running in a short sale situation. Foreclosure must be avoided. Time is the enemy. A successful short sale requires quick, decisive action by a professional working in concert with the homeowner.
Times are tough right now, but people who find themselves in difficult times can take the steps to lighten their load. Ignoring a problem like this will not make it go away. It can only get worse. Contact me immediately so that I can help you plan for a better future. All communication will be held in the strictest confidence. Please call Reuben Alexander at: 818-497-3879 or simply dial (800) 595-0754 code 050 for recorded 24 hr. message for homeowner’s options in default. Please listen to this cost free, no obligation report. You won’t have to talk to any realtors. Just sit back, relax and listen to the recorded information and take some notes if you wish.
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