Foreclosure Avoidance Seminar

You may recall that a few weeks ago we had our Foreclosure Avoidance Seminar. It was the first time that we’d done one of these events, and we really didn’t know what to expect in terms of attendance and response from the public. I had this sick fear that we were going to be talking to an empty room for a couple of sessions, but it turns out that we had a very good attendance and response. I thought that I’d use this space to share some of the highlights of some of the information that we covered for those who were unable to attend.

The big key points that we wanted to make to our attendees are a couple that we make to every person who contacts us with mortgage problems: You aren’t alone. And you have options. Unfortunately, far too many people who start down this road never seek assistance – 7 in 10 foreclosures happen without any visible intervention.

If you look at the national trends, the numbers are staggering. According to the Mortgage Bankers Association (MBA), around 1 in 6 mortgages in the U.S. are delinquent, and 4.6% of loans are in some stage of the foreclosure process. The local numbers are pretty grim as well, as you know if you’ve been reading this blog for any period of time. I don’t have the MBA numbers for our area but I can tell you that about 40% of homes in our market have negative equity, and we’ve seen around 950 homes lost to foreclosure since the beginning of 2007. So you see what I mean by “you aren’t alone”.

The consequences of foreclosure can be pretty severe. It’s one of the biggest hits you can take to your credit, and it’s the only one that can affect your ability to borrow even after it has rolled off your report. It can also have a negative impact on your employment, both current and future, and it can cause problems for borrowers that have security clearances. There are also potentially some significant tax issues that could arise, and in some cases the lenders could come after a homeowner after the fact for a deficiency judgment. That’s effectively the difference between the total amount owed on the loan (plus late fees, penalties, and legal expenses) and the amount that the lender is eventually able to net after the foreclosure. Bottom line – you don’t want to go down this road if you have other options.

So let’s look at the “you have options” part. We went over a whole series of options for homeowners in default. There are several ways to avoid foreclosure, and it all depends on the situation. In a nutshell here they are:

• Reinstatement – if you have the means, you can pay the past due amount and get everything back where it was.
  
• Forbearance – set up a payment plan with your lender to pay back the past due amount in addition to your regular monthly mortgage.
  
• Sell the property – If you have equity, you can sell it straight out to a third party, pay off the mortgage and walk away with cash in your pocket.
  
• Rent the property – This doesn’t work out often, but if you can rent the property for the amount of the monthly mortgage, it might be a solution.
  
• Deed-in-lieu – Cut to the chase and get it over with. Make arrangements with the bank to take it back without going through the whole process. Some banks still report this as a foreclosure, however, so the consequences could be about the same.
  

And then we have the two options that we spent the most amount of time covering: Refinance/ loan modification and short sales. We had Patrick Chandler from Bank of America Home Loans to talk about the loan side of it, and he covered some programs that are available to struggling homeowners. He covered the options that are available through some new government programs, and rather than go over them here, I’ll send you straight to the source – www.makinghomeaffordable.gov.

Then I talked about short sales. If you’ve been reading this blog for any amount of time, you know something about short sales. But for the uninitiated, a short sale happens when a seller has to sell a house, but won’t be able to pay off the total debt on the house with the proceeds. It’s a process that can be relatively quick, or long and drawn out. And the key component in it is patience. I pointed out to the attendees that one of the truisms in our profession is that we don’t list houses. We list sellers. And that’s especially true in a short sale. If the homeowner isn’t completely on board and willing to cooperate with the agents and banks throughout the process, we’re likely to have a less than successful outcome.

I also covered the new HAFA short sale program, which is also detailed on the link above. In brief, it’s a new program that came out in April that can help homeowners get through the short sale process in a more streamlined and standardized process. It also has some good incentives for both the homeowner and lenders. The big incentives for the homeowner are a $3000 relocation assistance payment and a release of the debt – the lenders have to agree to waive the right to a deficiency judgment. That last part is HUGE in some cases.

We had some very good Q&A time at the end, and in both sessions, we had questions from several people who had been attempting loan modifications. What we weren’t hearing were a lot of success stories. We weren’t surprised to hear that there is a lot of frustration out there. You need to remember, this is a relatively new endeavor for the lending industry. They simply weren’t geared up for this and they’ve been scrambling to get processes worked out and thousands of new employees hired both for modification and short sale departments, all while taking huge losses. So yes, things have been bumpy.

The best advice we were able to give them is to educate themselves on the programs, and be persistent. What I told them - and what I’m telling you - is that if you are going through either a loan modification or a short sale, you have to be your own best advocate. We rattle cages for our clients as much as we can, but you need to be right there making noise as well. It’s a participation sport.