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foreclosure 1.htm
If you find yourself falling behind
on your mortgage payment
it is essential that you come to an early decision on how exactly you
want the
outcome of your foreclosure to be. Most people like to bury their head
in the
sand and hope that someone will arrive or something will occur that
will answer
the problem for them. Trust me you have a better chance of winning the
lottery.
And the reality is that even though you are experiencing difficulties
with this
aspect of your life you still have options and there are still choices
for you
to make. All procrastinating achieves is giving someone the right to
make your
choices for you.
No one is coming to save you. Repeat
no one is coming to
save you. So now that we have sorted that out let us lay out your
options.
- You really want to
stay in the home.
- You want to get
out of your current
scenario as soon as possible and start
anew.
- You would like to
stay in the home for
as long as possible and save
some start
up capital
by living rent/mortgage free.
So let us look at each of the above
strategies and the best
way to maneuver the rapids.
Strategy1. You really want to stay in
your home.
If your ultimate goal is to continue
living in your home
long term then it is essential that you immediately begin dialogue with
your mortgage
holder. Unless you have a large equity position built into your
property then
you can assume with confidence that the last thing the bank wants to do
is
foreclose.
They will work with you but they must
have something to work
with. If you have lost your income then realize that your home/
mortgage
payment isn’t your problem. Your problem is income.
So as you start on the journey to
keep your home you must
also start on a parallel journey to create an income substantial enough
to pay
for it.
Things are seldom as they seem and in
my experience
foreclosure is a symptom of another ill. So at this early stage, while
you
still have the comfort of time on your side, look at yourself and ask
why you
find yourself in this position.
It really is a great mistake to think
that the foreclosure
is the problem and to focus entirely on it. What can you achieve by
focusing on
a symptom and leaving the cause to go untreated?
I repeat the foreclosure is not the
problem, not paying the
mortgage for
whatever reason is the problem. After all
the soul
searching, after the fat lady has sung, what transpires is that
“for whatever
reason” is the cusp of the problem. Your task is to find out
what your specific
whatever reason
is.
In the end even though you initially
really want to stay
put, by examining the reasons for your foreclosure your might just come
to the
conclusion that for you the best thing is to reevaluate your life and
move on
using strategies 2 or 3.
However is you can come up with the
income necessary to
satisfy the concessions your lender is willing to make you might just
be on the
way to recovering your old life.
Strategy 2.
You want
to get out of your current scenario as soon as possible and start anew.
There are two ways of looking at
impending foreclosure from
this viewpoint. Some people who don’t really care about their
credit will just
up and walk away, abandon the property and let what happens happen
.Unburdened from
the home and the stress of dealing with a hopeless situation, like
abandoning a
sinking ship they are in their head at least free to start anew.
However if you are someone who would
like to control the
carnage then your option is once
again to begin early discussions with your lender to evaluate the
options
available to you.
If your economic situation is deemed
to be such that all
agree that you cannot afford the home then you will have two possible
options.
- Deed in lieu of
foreclosure commonly referred to as deed in lieu. If you have more than
lien against your home this option might not be available to as the
other lien holders would have to forgive their debt to enable you to
transfer ownership via deed to the first mortgage holder free and
clear. The first mortgage holder will not be willing to assume the
other liens. So deed in lieu is really for homeowners who only have one
mortgage recorded against their property.
- The other option
is Short Sale. Short sale is a negotiated process where the lien
holders agree to accept less than the amount owed to facilitate a sale.
Basically if your home is worth $200,000.00 in the current market and
your mortgages are for $250,000.00 then the banks would agree to accept
the lesser amount to allow you to sell the home and save all concerned
from the expense of foreclosure. Remember that if the bank is forced to
foreclose on your home in a bad real estate market they too will have
to sell it for current market value plus they will be stuck with the
legal costs of the foreclosure plus the cost of eviction and managing a
vacant property through to the final sale. In cold zones this is a
major headache with freezing pipes wiping huge sums off the value of
homes. So believe me you are in a position of some strength because the
last thing the bank wants to do is become a landlord.
But
remember time is of the essence.
Don’t repeat don’t dally. Make a decision regarding
your future and act with
haste. Call the Bank! Call the Bank! Call the Bank!!!
So you have talked to the bank and
come to the decision that
short sale is your best option, what to do. First find a real estate
agent to
list your home for sale. Do your due diligence here and find someone
who knows
the process. Every realtor will tell you that they are experts. Feel
free to
look at hiring a realtor as an interview for a job. Ask them for
references. If
it is there first venture into the short sale process then make sure
that you
are comfortable with their capability before you hire them. From a
realtors
perspective short sales are very time consuming because they will have
to spend
innumerable hours on hold with overworked loss mitigation agent at your
bank.
And remember if you have a second mortgage for 15% to 20% they will
most likely
be asking that bank to accept a $5,000.00 maximum payoff for your
liability
which could be over $100,000.00.
Also remember that a realtor is a
real estate agent who has
paid a fee to the local board of realtors. There is no exam required to
be a
realtor merely a payment of somewhere in the region of $500 per year.
So don’t
think that because you hired a realtor over a real estate agent that
you have
superior help.
So your have listed with a broker and
your home is listed on
the local MLS (multiple listing service). Initially this listing should
be for
an amount that will clear all outstanding liens against your home.
Every week
or two your agent should reduce your list price until you start
attracting
interest and showings. Eventually you will receive an offer. Keep in
mind that
when the list price falls below the amount required to satisfy all
debts
recorded against your home that your agent will be required to add a
remark
like “Subject to third party approval” to your MLS
listing and inform all
interest parties that any sale is subject to the approval of your
lenders.
The day has finally that you have an
offer and an earnest
money check. Now it is time to submit your short sale offer to the
bank. If you
haven’t already gathered the accompanying paperwork required
for the short sale
package, you will have to do this now. Most banks have a short sale
punch list
that they will provide you with. This is the bones of what you will
need.
- Fully accepted
offer and copy of earnest money check.
- Hardship letter
from borrower fully laying out your present financial circumstance and
why you can no longer afford to stay in the home.
- Tax returns, W2,
Pay stubs to substantiate your inability to pay your mortgage.
- A proposed HUD
settlement statement showing how the funds will be distributed at
closing. As previously mentioned most first mortgage holders will allow
no more that $5,000.00 to be paid to junior mortgage holders. Also it
is imperative that the debtor (you) is not seen to profit in any way
from the sale. It should also show real estate commission and legal
costs. If only one real estate agent is party to the closing the
commission might be capped a 4% however is there is a listing and
selling broker 6-7% is attainable.
- A limited power of
attorney signed by the borrower with the last four digits of their
social stating relevant information and naming the person authorized to
negotiate with the lender on their behalf.
- Income and expense
statement. Most banks have a standard income and expense statement that
they will forward to you as part of their short sale package.
Remember in the current real estate
collapse the banks are
bogged down, so on every item sent to them by fax or mail you should
print the
account number in large format in a conspicuous place. Feel free to
place it in
the margin handwritten in sharpie on your nicely typed documents.
Better to
mark the beauty than to have it go unread to the waste paper basket.
Now that the process has started give
the bank the initial
timeframe they ask for to access your short sale proposal and then be
the
proverbial squeaky wheel that gets greased. If you wait for the bank to
get back
to you then you will wait for the bank to get back to you. They will
not
imitate contact,,, period. If the person you have appointed to
negotiate on
your behalf with the bank is a slacker and not proactive then your home
will be
foreclosed. that is auctioned off. The bank will not wait forever and
it
incumbent on you to ensure that the negotiations are progressing at an
acceptable rate
Strategy 3.You would like to stay in
the home for as long as
possible and save some start up capital by living rent/mortgage free.
So now we come to the naughty folk,
the risk takers, and in
most cases the winners. Please note that I am not lauding this approach
but it
appears that if a person first addresses their income then when the
time comes
to move on they will at least be funded. And perhaps they will need the
funds
because their credit will be shot to pieces.
- Initiate
communications with the bank as if you are sincere in your attempts to
work out your problems.
- Follow all options
afforded to you by your lenders. Keep in mind that your ploy is to
prolong your payment free stay.
- When all avenues
have been exhausted and the bank finally decided to foreclose then the
day before the auction you should file Chapter 13 Bankruptcy at your
local US Bankruptcy Court. It is imperative that you file far enough in
advance to allow the foreclosing lender to be notified of the fact that
you have filed bankruptcy. Also it is better if you file Pro Se
(without the help of an attorney). By filing pro se you will receive
the maximum sympathy from the court. The lender is legally obliged to
cancel your auction on notification that you have filed bankruptcy.
- Follow through on
your Chapter 13 until (a) the bank files for “relief from
stay” Or until you feel that you are either incapable or
would rather not file the required documents with the bankruptcy court.
- Then you can
either wait until the court throws out your case for non compliance or
even better write the court and ask them (for whatever reason) to
dismiss your case.
- If the bank files
for relief from stay, request a hearing which will get you some more
time. Always substantiate your petitions with relevant documentation
i.e. offer to purchase, appraisals etc.
- When your chapter
13 which is reorganization is finally dismissed by the court the bank
will schedule your auction again.
- Shortly before the
auction you should file Chapter 7 Bankruptcy with your local US
Bankruptcy Court. Chapter 7 is a petition to wind up your affairs. By
filing chapter 7 you are stating to the court that you can no longer
hope to recover financially and that you would like them to distribute
your assets and absolve your debts. In a sense by filing chapter 7 you
are giving you home to the bankruptcy trustee to do with as he pleases.
- The bank will
almost certainly file for Relief from Stay. Basically when you file
bankruptcy all actions against you are stayed (stopped) by the court.
Because it is a chapter 7 (wind up) the bank will ask for and receive
Relief from Stay giving them the right to auction off your property.
- When you receive
notice from the banks attorney that they have filed for Relief from
Stay you should write to the bankruptcy judge assigned to your case
requesting a hearing to contest the granting of the banks petition. You
should state why and on what grounds you are contesting the granting of
the petition for Relief from Stay. If you have an offer to purchase the
court might grant you 60 to 90 days to finalize your sale.
Please note that any short sale that
may be in progress is
stopped by a bankruptcy filing.
- In some
jurisdictions it may be possible to petition the court to dismiss your
Pro Se chapter 7 on the grounds that you don’t know what you
are doing and hire an attorney to re file thereby granting you more
time. Do not Repeat do not ever let it appear that you are manipulating
the court to achieve your goal.
- After you have run
bankruptcy to its course there is a little known fact that you can
petition the court to gain some more time. In some states you can
Petition the Superior Court for Declarative Judgment to stop an
auction. If successful the court will issue a preliminary injunction
ordering the bank and its agents to cease until a specific date. Unlike
bankruptcy which is usually a last minute filing a petition to the
Superior Court should be submitted allowing sufficient time for all
parties named (the bank, the foreclosing attorney, the auctioneer) to
be served. Service is by local sheriff and you should also send copied
of all papers certified mail return receipt requested. The service
should be served at least 7 days before the hearing date. If you are a
day or so late filing your petition with the Superior Court in the
county where you home is located, the Judge at his/her digressions
could issue a short order of notice (less than 7 days) Don’t
repeat don’t rely on this. If you plan to petition the court,
do so in plenty of time. There will be a hearing and you must attend
and be ready to testify and plead your case. The bank might or might
not attend. It might be easier for them to allow you the extra time. If
the bank does not show up your petition will most probably be granted?
At this stage you have most probably
lived in your home for
about two years rent/mortgage free. Now comes the eviction part.
Depending on
the result of the auction your home will be either bought by a third
party (a
member of the public) or bought back by the bank.
If it is bought by a third party then
in approximately 30
days from the date of the auction they will be required to pay the
outstanding
balance between the bid amount and the required deposit. Now they own
your
house and unfortunately for them they also own you. Depending on your
states
housing laws and eviction procedures they will have to set about
getting rid of
you. Remember only a Judge can order your eviction. The new owner might
come
around demanding that you vacate. You don’t have to. If they
become aggressive
call the police and go to the court and take out a restraining order.
In some
states it is illegal to evict a tenant from a property that has housing
code
violations, call in the city code enforcement inspector and get a list
of
violations to bring with you to the eviction hearing. Check out the
registry of
deeds to make sure that the new owner’s deed has been
recorded. Only the owner
on record can evict you. Also the eviction warrant when granted only
applies to
the people named on it. If you are a resident and you are not named
then you
cannot be evicted.
Also in most cases it is in the new
owners interest be it
the bank or a member of the public to offer you key money to move.
After a
foreclosure the bank will almost certainly send its agent around to see
if they
can get you to move out without involving the courts. They will offer
you a sum
to move. Why not ask for a much larger sum.
With the mountain of foreclosures and
the mass of people
being thrown out of their homes sympathy for new owners be they banks
or not is
at a low ebb in the courtroom.
If you ask the judge at an eviction
hearing for a
compassionate period of time to move and state that you are willing to
pay the
new owner a rent, then in most cases the judge will side with you and
see to it
that the new owner accepts.
When the day finally dawns and you
have run out of time then
I would suggest that you hire your own moving truck and move the day
before the
sheriff comes. The embarrassment of being evicted just isn’t
worth an extra
free day.
Check back often as new procedures
will be added as they are
uncovered.
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