The REAL Options For People Heading To Foreclosure
I am working on a new marketing piece, and I want to make sure that I understand what a homeowner's TRUE options are when facing foreclosure. Here's what I have come up with, please let me know if I've missed anything:
1. Refinance
2. List with a realtor and sell
3. Sell to private investor
4. Borrow money to make up back payments
5. File for BK (yes I know this only stalls the foreclosure process)
6. Walk away from the home and leave it for the bank to auction off.
I am missing any other options that the homeowner might have?
Thannks in advance for your replies...
Greetings vcrindc,
My thoughts are only a variation or subset of what you have listed -- but I suppose they could try to L/O it and use the option money for their arrearages, or just sell it themselves without a realtor.
I know of situations where the bank has offered to make up the default and just tack it on to the back end of the existing loan. That falls under your "refinance" category, but shows the mindset of lenders – they don’t want REOs.
Under certain conditions (there is enough income to make the mortgage payments), many lenders will do a forebearance agreement. The agreement can come in many forms. Usually they want some money now, and then they will put the rest of the past due money on the back of the loan. If it is an FHA home, HUD will even do an interest free loan to help bring the loan current.
But I guess just stating "forebearance agreement" would suffice.
Deed in lieu of foreclosure. I do not know under what circumstances the banks allow this. But they will let you deed the house back to the bank. I do not know if the bank will still do a deficiency judgement or a 1099.
Okay, I can sink my teeth into this one:
This may not work in your area, but what we try to do in mitigate (negotiate with the bank for the homeowner) a solution to the mortgage problem.
We work out a (1) repayment pland that the homeowner can afford. (2) modify the loan. (3) partial refund (4) forebearance (5) special forebearance (6) deed in lieu. (7) compromise or short sale. (8) liquidation.
These are the options offered by the bank IF the bank chooses to offer them. FHA and VA
require the banks to offer certain options but other than that, work-outs are at the bank's discretion.
Refinance is usually not an option. The good news here is that we also charge the homeowner a modest fee, usaully one house payment, to fix their problem.
We have been doing this successfully since 2002 and we also get the best investment prospects if and when the property must be liquidated.. We either acquire the property for our own accouint or assign it to one of our 50 some odd investors that we have acquired.
Hope this helps a bit.
C-
Quote:
On 2004-03-03 09:19, mcole wrote:
I know of situations where the bank has offered to make up the default and just tack it on to the back end of the existing loan. gif">
Is that common? I read somewhere that was an option usually. Or is that few and far in between that it happens? On what circumstances would they allow this?
cpifer,
Are there only certain banks that will offer forebearance? How did you get started offering that service to your clients?
Thanks,
vcrindc;
I was a real estate investment fund co- manager in 01 and 02. I alos have a mortgage banking backgraound and connections. They fired me but I loved the business. Back then it was no big deal going to the foreclosure auction and picking up nice properties for 55 to 70 cents on the dollar so we would set up little $1,000,000 LP's and go buy 14 to 17 homes that fit our acquisition profile then flip the $$/properties for a coyple of years.
When stocks took a downturn, everybody and their damned dogs, it seems, wanted to get into real estate which really put a damper on the wholesale RE market in Texas.
So, Liz and I developed a business model where we would advertise to distressed homeowners in the hope that we could get them early enough in the preforeclosure stage where we could help them negotiate with their banks and save their homes.
On the other hand, since we have developed a working rapport with the homeowner, they trust us to get them the best deal when they have to sell to avoid the foreclosure.
This model may not work for everybody but hey, one and a half years later we are still in business, having fun helping people save their homes and providing quality investors with excellent investment prospects.
C-
It's really that simple.
So if I understand you correctly, it works something like this:
"Mr. Homeowner, we have a lot of experiencing working with banks. We can try and negotiate, on your behalf, a forebearance agreement, that will allow you to keep your home if approved"
Then you just call the banks up, and use your knowledge to negotiate deal for the homeowner?
In that situation, how do you make money, and who is paying you?
Thanks,
We do more loan modifications and partial refunds now than anything. There is almost always some type of forebearance provision now.
We have established a good reputation with most of the major banks and they respect our position enough to where we make THEM an offer they can't refuse as opposed to asking them what they are willing to do.
Our homeowner clients pay us to mitigate and/or our investor clients pay us to acquire the investment prospect.
This a a very simple and transparent plan.
C-
I usually just lurk here and read all I can, but feel compelled to reply to this one because I have direct personal experience in this area. About 10 yrs. ago, we had to file bankruptcy and darn near lost our home. I can tell you that MY options at the time were:
1. Deed in Lieu
2. Walk away
Refinance was not an option because our credit was already shot. Nobody would touch us. Furthermore, our income was not sufficient (I had lost my job, which is what got us into the bind in the first place).
To add insult to injury, we were upside down on our mortgage and could not possibly sell the house for anywhere close to what we owed, let alone cover Realtor fees or closing costs or advertising.
Borrowing money to make up arrears was not an option either, due to credit being shot. We don't have any relatives who could afford what we needed to borrow at the time.
This was a VA loan, and we asked for "forbearance". Neither our bank nor the VA would work with us (other than Deed in Lieu of Forclosure). If I had all but $5 of the payment, they would not accept it. It was full payment or nothing. I had always heard that banks will work with you to save the loan and the house, but I found this not to be the case. This is how you get further and further behind, because they won't (or didn't) accept anything less than a full payment AND the late fee.
We considered just walking away, but then where would we live? To rent anything decent, you have to have good credit. So we were back in the same boat.
When you're fighting to survive, your priorities go something like this: Pay for the car(s) and gas/insurance for the car(s) so you can get to work/find a job. Then pay for food. Then pay for gas/electric/phone/water. If anything is left over, offer it to the mortgage company, if they'll accept it. Everybody else, like Visa and MasterCard or Uncle Joe or Dr. Smith or whoever are SOL.
For us, the only viable option was bankruptcy, which halted any forclosure process getting underway. Long story short, with the elimination of our other debts, we were able to make up the arrears on the mortgage. The homestead exemption prevented us from losing our house, and we are, happily, back on track with A credit (FICO 709) and a house now worth 2.5 times what we paid.
My point is, depending on the homowners' situation, they may not have many options at all, especially if they're just regular, hardworking people who got into a bind and do NOT want to walk away (as opposed to deadbeats who don't give a hoot).
Just my perspective and .02 cents.
CpIFER---> You have PM
cpifer - what is "(3) partial refund" and how does it work
Mustangmom
May I ask how you were able to "eliminate" other debts? How many months were you in arrears? Were you approached by any real estate investors offering a solution (via mail, phone, in person)?
How does the Homestead Exemption prevent you from losing your house when in foreclosure?
Finally, what prompts you to post here, are you now becoming an investor because of your experience?
thx
If you talk to some distressed home owners it would seem there is more they think they can do, but there isn't. Why just today I talked to a lady that actualy had all ready sold her house, but was thinking about not going through with the sale, and she didnt want to refinance. But my favorit line so far would have to be "I got it under control" sure you do buddy . I guess Im just blow'n off some steam, the frustrating stupidity of distressed home owners can be iritating.
Dear Mustangmom.
You did very well and are to be commended. I am sorry that the bank would not work with you. I am suprised that they would have taken a Deed in Lieu that usualy lets them get the property but without the full foreclosure it does not eliminate all the debts.
I have used that as a weapon when negotiating for clients. I do a lot of Pro Bono work but it pays off because they are my client the rest of their life.
When I negotiate with a Lender who is being unthinking and actualy doing a disservice to themselves. I point out these matters and then if necessary I file an action to restrain the sale and in we go with a full legal attack. I have even gone so far as to ask for a referee to be appointed to compensate for the strange actions of a lender. We try to show them that it is in their best interest to work these matters out if at all possible.
It is sort of interesting because on several occasions a bank officer or representative got physical. I got punched in open court by a vice president of one of our leading banks. Of course I fell down, pretending to crash heavily to the floor. A stunned silence. 'After all I helped build the Ark and I look it. We won. They were restrained and advised to accept an arbitrated settlement which actualy reduced the interest yield on the loan and plotched the back due payment way out to the end. Some Loss Mitigators have a very strange attitude it is as if they want to punish a person who has just had a string of bad luck. I believe that most things in life are negotiable.
Cheers Lucius
Quote:
On 2004-03-03 23:13, onehundredpercent wrote:
Mustangmom
May I ask how you were able to "eliminate" other debts? How many months were you in arrears? Were you approached by any real estate investors offering a solution (via mail, phone, in person)?
How does the Homestead Exemption prevent you from losing your house when in foreclosure?
Finally, what prompts you to post here, are you now becoming an investor because of your experience?
thx
The bankruptcy filing (Chapter 7, if I recall correctly) eliminated the debts we listed on a form of some kind. We did not list every single debt we had, namely our car payment (so we could keep the car), an Exxon credit card (so we could buy gas), and a JC Penney card that had no balance/nothing owed. When the case goes to court, all the creditors have a chance to show up and either dispute the filing or work something out. The only creditor who bothered to show was a guy from Sears, who only wanted to save our long-standing account by accepting low payments. In exchange for this, Sears would forget the incident ever happened, so we took him up on his offer. All the other accounts we had listed were eliminated/closed, with no further payment or contact between us.
We did not list our house on the form, and were not required to because of the homestead exemption, meaning they can't touch your house during bankruptcy. (At least, this was my understanding.) The house was not actually in foreclosure yet, but we were told by the mortgage company that they had started the procedure. (I'm not sure what all is involved...maybe they have to file something and just hadn't done it yet.) I guess we had about 9 more months before a sale would have occured. We were 4 months in arrears. Filing the bankruptcy stops ALL phone calls, collection attempts, foreclosure proceedings, harrassment, etc. No investor ever contacted us, but maybe that's because we weren't on any list (??) The mortgage company never did play ball, but it was the VA who at least would accept a deed in lieu. If we had gone that route, I guess VA would have paid the mortgage company and sold the house as a VA repo.
I posted here only because I happened to read this thread and was just trying to give a perspective from the "other" side...that being the homeowner trying to survive and recover from a severe financial setback. The original poster asked about options available to owners in foreclosure, and I shared my lack of options. I'd like to start investing in RE, but not foreclosures, and not because of my experience. I've always been interested in real estate, but I'm leaning toward the buy/rehab/flip side of things. In fact, I had an offer (rejected now) last week on a house, and I asked the loan officer what exactly my FICO score was. I was surprised it was as high as it is.
Lufos-- The most ironic thing I discovered through my ordeal was that not a single one of my creditors were interested in the least in working out a payment or recovery plan before I filed bankruptcy. To this day, I can't figure out why. Once we filed the bankruptcy and had a case #, all we had to do was tell the caller/collections agent this case number. Once they realized we were under bankruptcy protection, suddenly they all wanted to be my best friend and work something out, but it was too late then. Prior to filing, the creditors were nasty, relentless, unforgiving, and deaf; quite contrary to what I had expected. Was it not in their best interest to work with me before things went too far? After the filing, they changed their tune big time, asking if I would consider lesser payments, interest rate, etc. They were sweet as sugar. I flat told them that after the way they treated me for months when I was begging for a forbearance plan, they could now forget about it...too late. It still makes no sense to me!