Avoid Foreclosure

In Maricopa county, short sales (also known as pre-foreclosures) may be the answer to helping homeowners in distress with their mortgage.  Right now, an estimated 1.15 million homeowners are at some stage of the foreclosure process, and 5.6 million are 30+ days late on their payments.  This translates into almost 6.76 million homeowners being in some sort of financial distress.

There are countless hardships that can turn home ownership into a burden.  The loss of a job, medical bills, or an unexpected hike in monthly payments can suddenly make an affordable mortgage payment unaffordable.

I am very concerned about the mortgage crisis not only for its effect on the real estate industry but more importantly for its effect on homeowners.  The most important thing to understand is that not only are the homeowners with sub-prime loans effected, today we are seeing more and more defaults by homeowners with “regular” conventional loans.

Read below or click on the headings for a explanation of different aspects of short sales, pre-foreclosures and an explanation of short sales vs. foreclosures.


What Is And Is Not A Short Sale?
How Does A Homeowner Qualify for a Short Sale?
What is Considered an Acceptable Hardship to Qualify for a Short Sale?
What is the Insolvency Requirement to Qualify for a Short Sale?
Short Sales vs. Foreclosure:  The Short Sale Option
Short Sales vs. Foreclosure:  The Foreclosure Option
Pre-Foreclosure – The Time for Opportunity
What is a Sub-Prime Loan?

To see if you qualify for a short sale, click here

The Mortgage Crisis:  How Big is the Problem Anyway?

Today, more homeowners than imagined are in some sort of financial distress. Historically, at any given time, there are always a certain percentage of homeowners that can’t pay their mortgage. In a healthy market, typically 1 to 3% of properties fall into this category. Today, this number is frighteningly higher; as many as 1 out of 25 homes are at some stage of the foreclosure process.

Not only have foreclosures been going up exponentially since 2005, so are defaults or missed payments before the foreclosure process begins.  It is important to note that as part of this debacle, mortgages actually were being written and closed where homeowners could not even make the first payment.  Nationally, 1% of all mortgages (ARMs, non-ARMs, sub-prime and conventional) are in foreclosure and 6.35% are not making payments.
 
In a HousingWire article released September 2, 2008, there is grave concern since Option ARM loans will soon reset.  An Option ARM is a loan whereby the interest rate adjusts monthly and the payment adjusts annually. The options include interest-only, and a "minimum" payment that is usually less than the interest-only payment. The minimum payment option results in a growing loan balance, termed "negative amortization".

The facts are:The Mortgage Crisis:  How Big is the Problem Anyway?

• $96 billion in Option Arms will reset by 2010

• 90-day+ delinquencies, already ranging from 10-24% could more than double

• The potential payment increase on these loans will be 63%

• Option ARM defaults are expected to spread into more expensive neighborhoods & higher priced    homes.

In data released by HOPE NOW on August 28, 2008, it is clear that problems have spread to prime credit borrowers as well.  Recently, prime foreclosure starts moved ahead of sub-prime foreclosure starts.  In July 2008, foreclosures were initiated on 105,000 prime borrowers and 92,000 sub-prime borrowers.  These starts on prime foreclosures are more than double the same time last year and are 10% higher than in June 2008.  Sub-prime foreclosure starts are up 22% over last year and 10% since June as well.
 
As a Certified Distressed Property Expert, I have the knowledge and systems to help people find solutions to their financial problems well in advance of the foreclosure process starting.  If a homeowner qualifies for a Short Sale, there are huge benefits to going that route -- most importantly there is little to no blemish on your credit report, you typically can negotiate the deficiency with the bank and, today, if your home is a primary residence and worth less than $2 million, you do not have to pay tax on the deficiency.
 
If you want to learn more about this or you have a question for me, go to www.ArizonaForclosureSolution.com. 

What is and is not a Short Sale?

There are a lot of words being thrown around today that require clarification.  These include short sales, pre-foreclosure, foreclosure, sub-prime loans, deficiency judgments and taxes on the debt or deficiency.

The information below defines these terms and explains ways to deal with financial distress through short sales.  Also outlined are the real differences between short sales and foreclosures so that homeowners can see the true benefits of a short sale.

A bank-owned house, or Foreclosure, is not a short sale.  A seller deciding to lower their price and take less profit is not a short sale. To have a short sale, one of the parties has to be “shorted;” either the seller or the bank, and for the owner to qualify, a number of criteria must be met (see below).

A “short sale” occurs when the homeowner gets an agreement from the mortgage company to accept less than the full balance of the loan at closing.  The homeowner closes on the property and the property is “sold short.”  This occurs prior to a property entering the foreclosure process.


How Does A Homeowner Qualify for a Short Sale?

There are four criteria a homeowner must meet to qualify for consideration by the lender for a short sale.  These are:

• There must be a demonstrable financial hardship, e.g., a lost job or material change in the financial situation;

• There must be a monthly shortfall;

•  There must be insolvency, meaning that the owner does not have the money to pay down the mortgage; and

• The owner does not have any assets to sell to pay for the shortfall. (Must be able to show insolvency)

What is Considered an Acceptable Hardship to Qualify for a Short Sale?

There must be a hardship that is preventing the owner from being able to pay their mortgage.  Examples include:

• Loss of job

• Business failure

• Damage to property

• Death of a spouse

• Death of family members

• Severe illness

• Divorce

• Mandatory job relocation,

• Medical bills

• Military service

• Payment increase or Mortgage adjustment

• Insurance or tax increase

• Reduced income

• Separation

• Too much debt

• Incarceration

What is the Insolvency Requirement to Qualify for a Short Sale?

The owner must not be able to pay down their mortgage.  To qualify for a short sale, the homeowner must be financially insolvent.  This means that they owe more than they have or that they do not have liquid cash or assets that could be used to buy-down their mortgage.

If the owner does have liquid cash or assets they will be expected to use them to pay down their mortgage.  There could be a scenario where an owner made a contribution towards the sale of the property and the lender covers the shortfall.

A short sale is not a way to get out of a mortgage.  It is a tool for a borrower to use when they truly can’t pay their mortgage.

To discuss this option or for more information, visit www.ShortSellMyPad.com.


Short Sales vs. Foreclosure:  The Short Sale Option

Short Sales offer the homeowner many more benefits than going through a Foreclosure.  In the case of a short sale, the benefits to the homeowner are:

• Only late payments on the mortgage show on a credit report and after the sale of the home, the mortgage will be reported as paid or negotiated.  This could lower a homeowner’s credit score by as little as 50 points if all other payments have been made.  The affect of a short sale can be as brief as 12 to 18 months.

• A Short Sale is not reported on a credit history.  There is no specific reporting item for ‘short sale.’  The loan is typically reported as ‘paid in full, settled.

• A Short Sale on its own does not challenge most security clearances whereas a foreclosure does.

•  A Short Sale is not reported on a credit report and is therefore does not present a challenge to employment.

• 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, (i.e., payment of the shortfall or the difference between what was owed and what the bank received.)

• Under the Mortgage Forgiveness Debt Relief Act of 2007, if a deficiency is forgiven or cancelled, the home is a principal residence, and it is worth less than $2 million, the tax on the deficiency will be forgiven.  This benefit applies to homes that are the subject of a Short Sale and a Foreclosure.
• A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 yrs.
• An Investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.

Click the links below for more details about The Mortgage Forgiveness Debt Relief Act of 2007

http://www.irs.gov/individuals/article/0,,id=179414,00.html

http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html

Short Sales vs. Foreclosure:  The Foreclosure Option

In a Foreclosure, homeowners fall behind in their payments and the bank typically repossess the house and sells it.  In almost all cases, the bank pursues the