How to avoid foreclosure


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Seminar on using current tools to avoid foreclosure, buy a new home, or short sale.

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How to avoid foreclosure

  1. 1. 1Foreclosure/Short Sales 1. You are not alone. Current statistics on foreclosure locally and throughout America. (See attached numbers.) 2. Steps to figure out where you stand in the process. A) Are you upside down in your equity position? B) Are you having trouble making your payments? C) Are you currently behind on payments by at least 30 days? D) Do you have other assets which, if sold, would allow you to keep the home? 3. Is refinancing the answer? Time is of the essence. While some people fail to make payments for as long as two years, the nature of your bank will make all the difference of whether you will be foreclosed within weeks, months, or years. 4. Making the effort to apply for short sale permission from bank. 5. What happens next? 6. Question & answers 1 Copy right 2009 Gary Balanoff/REMAX Select
  2. 2. Foreclosure Statistics through end of 2009 According to the Mortgage Bankers Association of America, there are currently 45 million homeowners in America. Here are the stats as of the last reporting date, March 5, 2010: All mortgages 3.3% of all mortgages are in foreclosure, up from 2.75% in 2008 7.88% are in default, which is defined as 30+ days late, up from 6.41% in 2008 11.18% total, up from 9.16% in 2008 Prime loans 3.3% in foreclosure up from 1.8% in 2008 6.7% in default up from 5.06% in 2008 10% total Sub-prime mortgages 15.5% in foreclosure, up from 6.63% in 2008 25.2% in default, up from 21.88% a year ago 40.7% total, up from 28.51% a year ago FHA VA 3.57% in foreclosure (up from 2.43%) 2.46% in foreclosure 13.57% in default 7.41% in default 17.14% total 9.87% total (up less than 1% over 2008) Stats are courtesy of Mortgage Bankers Association of America and the web site The National Association of Realtors predicts there will be approximately 5 million homes sold this year (and their estimates are usually accurate but on the high side). There are 7.7 million people in default. Recent studies have shown as many as 70% of all foreclosed properties never go on the market until the bank actually takes possession. How many millions of people will see their home disappear without doing anything to salvage what is left of their credit and their investment? 2
  3. 3. Foreclosures (continued) We have a complete program established for every category of seller, whether in foreclosure, in default, or just simply having a hard time making payments because of job loss, or other family or economic distress. We have several agents who specialize in the short sale process. Whoever you choose to help you, look for someone like myself who has the CDPE designation for Certified Distressed Property Expert. We have gone through system specific training in how to cut the time it takes to receive an answer from the bank, putting together a package that will convince the bank to take an offer, etc. We can cut the time dramatically, which might be just the ticket to keeping you or a friend or family member out of deeper distress. Some facts to understand in avoiding foreclosure: 1. If you are foreclosed, it will stay on your credit record forever, and you potentially will have at least 5-7 years before your credit can be restored to the point you can own another home. If you go through a short sale process, there is no hit on your credit report unless you are already behind on your payments. Typical credit scores go down by at least 300 points after foreclosure. 2. Some banks are pursuing deficiency judgments. An example: Home has mortgage of $200,000, but can only sell for net proceeds of $150,000. The bank has a right (in exchange for not having the lien satisfied) to obtain a deficiency judgment against the homeowner for $50,000. The federal government has temporarily prohibited the Treasury from collecting federal taxes as if that $50,000 was actually taxable income (which they had done until January of last year). But if granted a deficiency judgment, the bank can actually garnish wages among other things. However, your saving grace might be that the banks have to file separately to obtain such a judgment, and they are swamped with keeping folks out of foreclosure. So they are less likely to do this, but it is still an option for them, and they have several years to do so. 3 Foreclosures (continued)
  4. 4. 3. Many employers now run credit checks on prospective employees and foreclosure is one of the top items that will put a potential new hire in jeopardy. 4. Security clearances and government positions including but not limited to military and law enforcement can be jeopardized by foreclosure. 5. You may be responsible for any deficiencies after foreclosure for an indeterminate period of time, which means you can be in a never ending web of collections. 4 Copyright 2009 Gary Balanoff RE/MAX Select Options for Homeowners Do nothing
  5. 5. The easiest, but potentially the most painful. Loan applications ask if the applicant has ever been foreclosed. Credit reports will disclose this most damaging information. Rarely the best option. Reinstatement If missing payments is a temporary situation and it has been resolved, the homeowner can make up all payments, + late fees + legal fees and reinstatement charges and get caught up. No need to change the mortgage document or seek outside help. Bankruptcy (see Peggy Hoyt for these) Chapter 7—completely settles personal debt. Chapter 13—payments are made toward a plan to pay off debt in 3-5 years Chapter 11—business debt solution Forbearance Lender arranges repayment plan based on homeowner’s financial situation. The lender may be able to provide a temporary payment reduction or suspension of payments. If not, will be required from the lender to show that the borrower is able to meet the new payment plan requirements. The down side is that if you miss even one on time payment, the process starts all over again and you are not only in default again, but that late fee money goes for nothing. Sell the property Might bring on potential for deficiency judgment, but again beats foreclosure. Sometimes we find there is actually equity still left in property, which event avoids the short sale possibility. Deed in lieu of foreclosure Gives the property back to the bank. Banks generally required the home to be well maintained, all mortgage payments and taxes to be current. Rent the property Possible short term solution if this allows the mortgage payments to be covered by rent payment, but you run the risk of house potentially damaged, and if the payments are not completely covered, you are back in the foreclosure mode again. Refinance Only possible when there is equity and credit that would allow that, but check with your lender for that info. 5 Answers for homeowners (continued) Mortgage modification You provide proof of income and expenses and the current lender modifies the loan to allow lower payments because of reduced interest rate or longer payment schedule. An excellent option to stay in the property. However, requires you to actually qualify for the new payments, which will be less, but still more substantial than some can afford.
  6. 6. Short refinance Relatively new but involves refinance with reduction in principal balance. Borrower has to show hardship as well as ability to pay the new mortgage with documented qualification process. You must be able to show you can afford the new payment plan requirements to qualify. Deed in lieu of foreclosure Homeowner gives deed to bank rather than face foreclosure. Only works when there is one loan and no other liens. Banks hate to foreclose but this is a rare option because they would rather foreclose than just give a borrower an easy out when they are upside down on the loan. Bankruptcy May stop the foreclosure and allow the homeowner to reorganize debt, but once the process is entered, it is difficult to sell the property, and once the bankruptcy is discharged, the foreclosure proceedings can resume. Chapter 7 completely settles personal debt and provides liquidation of assets. Chapter 13 allows payments made toward a plan to pay off debts in 3-5 years, and Chapter 11 is a business reorganization which provides business debt solution. 6 Service members Civil Relief Act (SCRA) Signed into law in December, 2003 this law provides short term relief to active duty military if the following provisions apply: 1. Homeowner got the mortgage priory to active duty. 2. Property still owned by military member 3. Military service materially affects the member’s ability to pay the mortgage. More info available at Still temporary and in most cases the best course of action is for the service member to sell the property and get out of the process. Short sale If none of the above applies, do this! The definition of a short sale is as follows: When a borrower owes an amount on this property that when combined with closing costs and commission is higher than the current market value and is in a hardship position that makes it impossible to continue making payments without resorting to extraordinary measures. Just because you owe more than a sale price does not make you eligible for short sale. If the short amount is small, and you can pay the difference, you do not have to get bank approval. But if you do not have the funds to cover the shortfall, the contract for purchase must include language that indicates the existence of bank approval being needed.
  7. 7. 7 What are acceptable hardships? 1. Loss of job 2. Business failure 3. Damage to property 4. Death of spouse or co-borrower 5. Death of family member(s) 6. Severe illness 7. Divorce 8. Mandatory job relocation 9. Medical bills 10. Military service 11. Payment increase or mortgage adjustment 12. Insurance or tax increase 13. Reduced income (fewer hours at work, failure of spouse to pay child support or alimony, etc.) 14. Separation 15. Too much debt 16. Incarceration If you are in any of the above situations or you know someone who is, make a note on the consumer preference sheet in front of you and we will make time to have a CDPE talk with you or your friend, family member, neighbor, about the process. 8 Investor Seminar 1. What are the current conditions? How do interest rates, availability and financing all play a role in whether you can invest now and if so, how much return on investment you can make? 2. Commercial vs. residential. Considerations involved.
  8. 8. 3. How do I start? What factors should I be considering to determine whether I am qualified to invest, and whether my risk/reward is in balance? 4. Looking for properties. 5. Making offers 6. After the sale, considerations of whether you will be managing your own properties (more potential profit, but unless you are a pro, it might take more time, effort, and resources than you are willing to spend) or letting a professional manage (more costly per month, but potentially a better solutions for all but the pros). 7. Figuring your tax benefits & long term investment position—how long should I hold the property to maximize both tax position and long term financial security? Examples. 8. Question and answers This is the worst commercial real estate market in the history of Central Florida. We are on the cusp of a huge wave of foreclosures. Already, the owners of the Oviedo Marketplace are in bankruptcy. The problem is compounded by the fact that most commercial loans are 5-year loans with refinancing after that period. For a property purchased for $2 million 5 years ago resetting today, the original buyer put $500,000 down and took a $1.5 million loan. There might be about $1.4 million left on the loan to be refinanced, which wouldn’t be bad if the property was worth $3 million. It might be worth no more than $1 million now, banks are not willing to lend more than 50% in many cases, especially in a declining market, which means the owner has to pay down an additional $900,000 to get a half million dollar loan. Hardly worth hanging onto, right? You can get some unbelievable deals if you have cash or terrific credit. There are more possibilities in residential, either multi family or single family homes as potential rental cash flows. The keys are as follows: 1.Establish your goal—rate of return expected, risk tolerance, and vacancy rates. 2.Target properties that have good cash flow if possible, and if not, are capable of quickly being turned into a cash flow producer. 3.Make offers based on current values minus 10-25% depending on the situation. 4.Get the right management in place to handle the ups and downs of the market. 5.Keep track of your investment 6.Consult with your favorite accountant on at least an annual basis to make sure your investment goals are being met.
  9. 9. First Time Buyer Seminar 1. Why this is the best time for the next 15 years to purchase a home. 2. Steps to take in order— A) Get pre-approved for a loan with a reputable lender B) Talk with a buyer’s agent about your needs C) Start the search online and through the agent D) Narrow the possibilities to your favorites, at which point the agent will do a cost analysis and comparison E) Make the offer F) Steps from sale to closing G) Things to be prepared for along the way H) Enjoy your new home! 3. Questions and answers. 4. Private time to ask individual questions and prepare better for the next steps to take. Be Prepared for the Following in Today’s Market 1. Let’s take a look at the value available in today’s market. (See attached materials.) These numbers indicate that a combination of factors make this a unique time in American history to purchase a home: A) High availability gives you plenty of choices B) It also drives down the prices. C) The $8000 tax credit for first time buyers (ending April 30, 2010) D) Interest rates are near record low rates. Add all of the above + the willingness of sellers, including banks to reduce prices further, makes this the best of all possible times to purchase. 2. Between 50-60% of all available homes are now short sales. That means you will be negotiating with a seller but also a bank. The process takes anywhere from a few days on homes with designated sales prices that are part of the pilot project being undertaken between Bank of America and Fannie Mae...up to 12 or more weeks to get an answer from many of the
  10. 10. overwhelmed banks dealing with millions of short sale properties. Some processors have upwards of 400 files to track, and that creates a lot of delays. No matter whether you choose us to work with or another agent, make sure they have the credentials and experience to expedite your chances to get a great value in your home. Look for the CDPE designation (Certified Distressed Property Expert), the ABR (Accredited Buyer Representative), the GRI (Graduate Realtor Institute) or CRS (Certified Residential Specialist). 2 3. Many homes are already foreclosed, which means you can often receive an answer fairly quickly...a day or opposed to waiting for a short sale response. While that is good, sometimes you will actually be bidding against several other interested buyers because the bank has marked down the price to below market value and there are plenty of folks just like you who have decided to purchase a great value. 4. It is still a buyer’s market because there are a little more than 16,000 available properties, with about 1800 closings per month. That is a 9- month supply, with plenty more foreclosures potentially going on the market over the next year. While that is good news for you because of the incredibly low prices and great low interest rates, it also means that the really good bargains are getting lots of traffic and offers, so do not be surprised if the great deal you look at today is not there tomorrow. 5. “Long sales” are still a great way to go because you do not have to worry about bank approval, just a traditional seller approval! They are not available in most neighborhoods built after 2004 because everything there is a short sale. But if you don’t mind going to a slightly older neighborhood, you will be able to deal directly. 3 Copyright 2009/Gary Balanoff/RE/MAX Select 6. Have a “sit down” with your agent to go over your wants and needs and they can find the best properties in a relatively short period of time. Then tell them how you prefer to work–everything from how often you need contact to what questions are most important to get answered, what positive or negative sales experiences you have had, and the timetable for your eventual move.
  11. 11. Your agent should not hurry you into any decision you are not comfortable in making. But let’s face it; if you have all the facts, you are ready to get started with owning your own home. 7. Home ownership is not the same as renting. No one will fix your leaky plumbing unless you get it done. How to avoid problems with your 3-step risk avoidance model—seller disclosure, independent home inspection, and warranty for at least the first year on all working components. 8. Following up with your Realtor and suppliers. Considerations re: how to maintain the value of your property and ideas to make the living arrangement the best for you and your family. 4 Copyright 2009/Gary Balanoff/RE/MAX Select FAQs Question--How much time does it take to find the right home? When should I start my search? Answer–That depends on your situation. Every potential buyer should assess his/her own personal and family needs to determine. There is no “right time” for everyone. But I like to take a contrarian approach. When everyone is selling, I buy. And vice versa. That is how the wealthiest people in the world became wealthy. Warren Buffett is buying now. So is Donald Trump. To finish the should leave at least one month for your home search, and determine what happens if you have to take longer. You should not feel rushed into the decision making process because those in a hurry often get burned. But after taking every need into consideration and getting your questions answered, you will have the knowledge and resources to move on a moment’s notice. And that is good because as mentioned, you might need to act quickly to take advantage of a particularly good value. Question--What will prices look like in a year? Would I be better off waiting until the market declined to the bottom? Answer–if you have a crystal ball, use to your advantage. Unfortunately, I do not think very many people predicted the market in Central Florida would be this depressed this quickly. However, pent up demand, low interest rates, and new availability of money is making it possible for most people to get a
  12. 12. tremendous deal now. Gary’s prediction–those who buy in 2010 will look back in 2015 and congratulate themselves on making the purchase of a lifetime. This will be the best value time for the next 15 years. Helpful Web Sites Our company web site. Has helpful information including every one of our listings + all other listed properties throughout the state of Florida. Also has helpful tips on home buying and how to get your license so you can practice real estate as well as buy it! All the listings of all the homes across the nation, so if you are looking for a property elsewhere in the US, it downloads the listings from all 50 states and has helpful tips on home buying. The government site with all kinds of housing information, from government loans to help in avoiding foreclosure and a fascinating calculator that figures the cost of renting vs. buying. In some rare cases now, it is better to rent. But almost across the board, anyone with enough money to purchase a home is better served by buying. We have included a couple of rent vs. buy examples in this package for your use. Basics re: the first time home buyer tax credit, eligibility requirements, how you claim the credit, etc. Does a great job of determining whether you are better qualified for refinancing or loan modification, eligibility requirements, and protecting yourself against the numerous scams floating about the housing environment.