March 3 2009 Update – Homeowner Affordability and Stability Plan
The sad but sickening news is that very few people are getting any help from the various programs designed to help homeowners in trouble. I recently asked my followers on Twitter and Facebook for any stories of success with a loan modification. You guessed it, not one story of anyone getting any help. What makes me really angry is when I see big companies like AIG getting billions from the Government, yet the ‘little guy’ gets nothing. What’s worse are the false promises that help is on the way through catchy slogans and phone numbers that include the word HOPE. Another new program is on the way. The Obama Administration is saying that $275 billion will be set aside to assist people with troubled mortgages to refinance to lower rates. Even the Obama Administration’s own figures project that this new program will only help about nine million homeowners. We are already hearing about a list of requirements and restrictions that seem to make this new help very little help at all for most homeowners with troubled mortgages. Here is an outline of the program. Of course, we don’t really get any details about how exactly this will work and who can qualify for help but are supposed to get the fine print any day.
From June 3, 2008 -
The staff of Christian Money.com has spent the last three months researching the various foreclosure assistance programs being promoted by major lenders and the U.S. Government. What we found is that these programs are helping very few people and are offering real assistance to less than 1 in 10 homeowners that are in trouble. As a result, we have created a new e Book, Foreclosure Self Defense intended to provide real solutions for people behind on their mortgage and in risk of losing their homes. Along with today’s blog, we are making available a podcast interview that includes Robert Yetman and myself discussing options for homeowners facing foreclosure.
1. Can You Get A Loan Modification or Forbearance?
Let’s start with a couple of basic definitions that you need to know before going any further. A modification is an agreement between you and your lender that will establish new terms for your loan. For example, you currently have an adjustable rate mortgage and your lender agrees to fix your rate for five years or makes other permanent changes to your terms. A forbearance typically involves taking past due payments and allowing them to be placed at the end of the loan or letting you go without a payment for a few months (or reduced payment).
You do not need anyone to call a toll free number or reference a special government program to be able to contact your lender to discuss your options for a loan modification or a forbearance. Anyone can simply pick up the phone and call their lender and find out what options may be available.
The various government programs being touted are all voluntary up to this point, and really provide nothing more than a basic framework for borrowers and lenders to work out modification agreements. Your lender does not have to do anything to help you and the government programs are not compulsory. Of course, your lender would be better off if you were able to keep making your payments, so they will have an incentive to try and work out a plan that makes sense for both parties.
2. Should You Short Sale Your House?
If you can not come to terms with your lender on a loan modification, maybe it is time to consider a short sale. A short sale comes into play when you owe more on your house than its current market value. Example: Your current mortgage balance is $200,000 and you have a buyer that is willing to pay $180,000. This is a typical short sale situation. Your lender may agree to forgive the $20,000 in negative equity to be able to facilitate a sale. Once rare, there are now more short sales occurring now than at any other time in history. You and your prospective buyer can contact your lender and propose a short sale without a middle man. In reality, you will likely have more success if you engage a knowledgeable real estate agent to handle this for you. You should look for an agent that has experience in transacting short sales.
3. How To Sell If Your Buyer Can’t Get A Mortgage
One of the big challenges today is finding a buyer that can get a mortgage. There are no shortage of people that want to buy, but only a small percentage that have the cash or can obtain their own mortgage. You can sell your house without the necessity of the buyer obtaining a new mortgage. There are two strategies that would make this possible.
Wrap Around Mortgage – Your buyer agrees to a mortgage with you while the existing mortgage on the property is left intact. Each month your buyer makes a payment to you and then you make your regular monthly mortgage payment. This owner financing arrangement is usually agreed to for about five years. After five years, the buyer agrees to obtain their own financing.
Lease Purchase – Your buyer agrees to lease the property for 3 to 5 years and ultimately purchase the home and obtain their own financing by the end of the lease term. Lease purchase agreements typically include a requirement of a substantial downpayment (5% or more of the purchase price). The downpayment can be used by you to get caught up on back payments and/or use to be able to secure your next residence (your first month’s rent and security deposit, if you are going to be renting for a while).
An additional feature of a lease purchase is the ability to obtain above market rent. Let’s say that market rent for your house is $1,200 per month. Under a lease purchase, you may be able to get $1,500 per month rent. People will pay more on a lease purchase if you offer them a partial credit. How this works is that you offer that $300 of the monthly rent count as a credit (price reduction) at the final sale of the home. Be careful that you plan on receiving less money at the final sale due to the higher rent you are collecting. A $300 monthly credit can quickly add up (in 3 years it would represent nearly $11,000). Don’t put yourself in the position that you would end up having to bring money to the closing table when the property is ultimately sold.
If your new buyer defaults on the lease purchase, they lose their downpayment and monthly rent credit. So, you can start the process all over again with a new buyer. Only about 1/3 to 1/2 of lease purchase buyers will follow through with the purchase. As a Christian, we don’t want to structure a deal and hope for the buyer to fail, this is simply the reality of what happens on lease purchases.
Caution: If you have an ever rising payment due to being in an adjustable rate loan, the above strategies may not be good solutions. It would be more prudent to get your lender to at least give you a fixed rate modification first, so you would be in a position to make a long term agreement for a lease purchase or wrap around mortgage buyer. It would not be ethical to agree to payments with your buyer that will not be sufficient for you to cover increases in your own payments.
Partial Owner Financing – If you have paid down your mortgage and have substantial equity, you may be willing to carry a second mortgage for 5 years or longer to help your buyer get approved on a new first mortgage. If you can finance a second mortgage for 10% of the purchase price and your buyer can make a 10% downpayment, a lender has to only make an 80% loan.
4. Consider Leasing Out Your House
One segment of the real estate industry that is booming is the rental market. With more and more people losing their homes to foreclosure, rental properties are in huge demand. If you can find a tenant to lease your property and cover your mortgage, you can move out and make other plans. Move out? Where will I go? Some people move in with family, others rent an apartment or move into a mobile home, you have to be resourceful. If you can not make your monthly mortgage payment, you will eventually have to move, it is just a matter when not if.
5. Selling Your House To An Investor
It is unfortunate that the media has portrayed all foreclosure investors as sharks that are trying to steal people’s homes. The truth is that most are just real estate investors looking for opportunities to make decent returns on their money. I have had numerous e mails from people asking me whether or not they should let an investor take over their mortgage. How this typically works is that you sign over your deed to an investor who makes the payments on your mortgage until they are able to get their own financing. If you have no equity in your home, you are on the road to foreclosure, what do you have to lose? If the investor does not make your mortgage payment you will still end up in foreclosure, but if they do, you may be able to walk away without destroying your credit.
Where people get burned with investors is when they sign over the deed and place at risk real equity they have in the home. If you have equity in the property, you should require the investor to pay you for your equity prior to signing over the deed. Once they get the deed, it may be very difficult to collect what you are owed.
6. Deed In Lieu Of Foreclosure
Rather than going through the lengthy court process, your lender may allow you to sign over the deed and forgive any balance you might owe if the house does not sell for a high enough price. Most states laws provide the lender the option to pursue the borrower for any deficiency after the foreclosure sale. If you think your house is worth less than you owe on your mortgage, and your lender is willing to agree to this kind of a settlement, you should consider it a reasonable way out. If you don’t, they can come after you for a deficiency judgment and drive you into bankruptcy.
7. Get Help From An Attorney For $26 per Month
I have been investing in real estate for over 20 years and have personally transacted millions of dollars as a mortgage broker and a real estate broker. So, it is easy for me to punch out a quick blog with a list of strategies for extricating yourself from foreclosure. This is a serious matter and you will likely need an attorney’s assistance. Consider becoming a member of Pre Paid Legal. For $26 per month, you will have unlimited access to attorneys for advice on any legal matter, including foreclosure. If you have questions about Pre Paid Legal, please send me an e mail. CMC receives an ongoing commission from each membership we refer to this company. So, buy signing up you are helping yourself and supporting our ongoing work.
Those Pesky Toll Free Numbers Everyone Else Gives Out:
HUD (800) 569-4287
Hope Now (888) 995–HOPE www.hopenow.com
Agree or disagree, or have your own ideas click on comments below.
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