John Beckett's Real Estate Blog

You are two months late on your mortgage. You no longer have a grace period (usually 15 days), so your next payment is probably due on the first of the month. Once you are 90 days late, most lenders will not accept a partial payment. You usually need to pay the entire three months plus any fees, or the lender will start the foreclosure process. You have also recently gone through a Chapter 7 bankruptcy. Under the current bankruptcy law, you can’t refile for a Chapter 7 for the next eight years or a Chapter 13 for four years. Because of this fact, trying to save your home by using any unsecured or consumer credit lines (such as a personal line of credit or cash advances from a credit card) is risky if you find yourself unable to keep up with those payments. It is suggested that you contact Homeownership Preservation Foundation — a group partnered with NeighborWorks America, a national nonprofit created by Congress — by calling (888) 995-HOPE  at once. For the quickest service, call rather than e-mail or visit an office. A counselor will review your financial situation, make recommendations for a course of action that best fits your needs and help communicate with your mortgage lender to work out a plan. When you call, ask about a forbearance to temporarily modify or eliminate payments to be made up at the end of the forbearance period. Another alternative may be a permanent loan modification of the terms of the original mortgage in a way that addresses your specific needs. Such changes may include adding delinquent payments and other costs to the loan balance, changing interest rates or recalculating the loan. If all else fails, you may have two more options: selling your home in a short sale if you have no equity left, or a pre-foreclosure sale if the value of the house still exceeds the remainder of the mortgage. A pre-foreclosure sale arrangement allows you to defer mortgage payments that you can’t afford while you sell your house. This also keeps late payments off your credit report. These options are generally cheaper for the bank and less stressful for the homeowner than a foreclosure. Being late on your mortgage or having a loan modification on your credit report may set you up for a hike in your credit card interest rates under universal default rules. Review the default provisions of the credit cards on which you carry a balance and consider closing those accounts that have universal default provisions before they raise your rates. Once the accounts are closed, your rates should stay the same during your repayment period.

Read entire story at: http://realestate.msn.com/article.aspx?cp-documentid=13107755

Today’s Real Estate terms are ways to handle your home when you are behind on your payments are or will be behind in the near future:

Short Sale: A type of pre-foreclosure sale in which the mortgagee agrees to let you sell the property for less than the full amount due, and accept the proceeds as payment in full. The sale of property at a fair market price that’s lower than the loan balance(s).

Foreclosure: Foreclosure is the legal process whereby a lender (bank or secured creditor) terminates the owner’s right to a property that was pledged as security for a debt. The lender usually then forces a sale of parcel of the real estate or home, often at a public action, to satisfy the debt after the owner defaulted to comply with the agreement between the borrower and the lender.

Deed-in-Lieu of Foreclosure: Used by owners to voluntarily convey the title of their property to the mortgagee/beneficiary (lender) to avoid the negative credit consequences of a foreclosure. Lenders are generally reluctant to accept a “deed in lieu” unless the title is free and clear of any other encumbrances junior to theirs and the owners execute an estoppel affidavit acknowledging that they are acting volitionally, with informed consent.
A homeowner can qualify for a deed-in-lieu of foreclosure if:

• They are in default and do not qualify for any of the other options;
• All attempts at selling the house before foreclosure were unsuccessful; and
• There is no other mortgage in default.

Debtor In Possession: A situation arising out of a foreclosure or bankruptcy where the money-owing party remains in possession and controls the use of the property.

Deficiency Judgment:
1.  A judgment awarded by a court when the proceeds from the sale of the security pledged for a loan is insufficient to pay off the debt of the defaulting borrower.
2.   A personal judgment against a debtor for the amount remaining due after a judicial foreclosure of a mortgage or a trust deed. This remaining amount is handled by the lender in one of three ways: a payment agreement is offered, a deficiency judgment is entered, or the debt is forgiven.
If the deficiency debt is forgiven, your lender will issue you a 1099-C IRS form. The IRS then views the forgiveness of the debt as your personal income, which you will need to report on your taxes. If you are declared financially insolvent, the IRS can render the income as exempt.

The foreclosure crisis hit a new peak in the first quarter, as banks took back the largest number of properties to date. The number of homes entering REO status (short for “real estate owned” by a bank) climbed 35% to 257,944 — the highest quarterly total ever — from 190,543 in the first quarter of last year and 9% from the previous quarter. The increase comes as lenders seized more property that couldn’t qualify under the Obama administration’s Home Affordable Modification Program (HAMP). “There have been delays throughout the system, and it has taken longer for properties to go from delinquency to default,” says Rick Sharga, senior vice president at RealtyTrac. Once rejected for HAMP, however, these properties are now moving to foreclosure at an accelerated pace, Sharga says.

More properties moving through pipeline

Foreclosure filings — from notices of default to bank repossessions — were reported on 932,234 homes in the first quarter of this year, a 16% increase from the same period last year and a 7% jump from the previous quarter. And the pace accelerated near the end of the quarter, with foreclosure filings reported on 367,056 properties in March, an increase of 19% from the previous month and the highest monthly total since RealtyTrac began issuing its report in January 2005. Foreclosure auctions were scheduled on 369,491 properties during the quarter, the highest quarterly total since RealtyTrac began compiling its report. “There have not been a lot of households that have been successful under HAMP,” says Gary Painter, director of research at the University of Southern California’s Lusk Center for Real Estate. “It’s likely that many of the people who could be helped have been helped.” The good news is there doesn’t appear to be a huge wave of properties entering default.  In the first quarter, 304,799 properties received default notices, an increase of just 1% from the previous quarter and a decrease of 1% from the same time last year. Default notices have dropped 11% from their peak in last year’s third quarter.

Troubled states

Nevada continued to have the highest foreclosure rate in the quarter — four times the national average — with one in every 33 households receiving a foreclosure filing, followed by Arizona, Florida, California and states where employment has plummeted, such as Utah, Michigan, Georgia, Idaho and Illinois. Foreclosure filings were reported on 34,557 properties in Nevada during the first quarter, a 15% increase from the previous quarter but a 16% drop from the first quarter of 2009. Foreclosure filings in Arizona were reported on 55,686 properties — one in every 49 households — a 22% increase from the previous quarter and a 13% increase from the same time last year. Florida posted the third-highest foreclosure rate, with filings recorded on 153,540 properties — one in every 57 households — a 7% increase from the fourth quarter and a 29% increase from the same time last year.

Sitting on delinquencies

Just how many foreclosures move through the foreclosure process and when banks sell them will be key factors in how much more real-estate prices could fall before they recover. Most of these bank-owned properties are not making it onto multiple listing services, analysts and brokers say, despite banks having more of them to contend with. “We have about 860,000 REOs in our database, and only about 30% of them are available for sale on the MLS,” Sharga says. “That means you have another 550,000 to 600,000 that have yet to hit the market.” By keeping this “shadow inventory” off the market, banks are keeping prices unnaturally high in this soft economy, says Leo Nordine, a Los Angeles-area broker specializing in REO properties. “[Lenders] want to keep postponing them for as long as they can,” Nordine says. “Prices have stabilized” in many areas because banks have kept these properties off the market, he says, adding that banks will likely continue to do so until the economy picks up again.

A long, painful recovery

Meanwhile, foreclosure prevention efforts don’t appear to be helping a significant number of borrowers. While 1.4 million homeowners were offered trial modifications under HAMP through the end of March, just 230,000 homeowners had their modifications made permanent. That’s a drop in the bucket compared with the 5.5 million delinquent loans Sharga says are on the books. Acknowledging this poor progress, the government revamped HAMP last month to provide additional mortgage assistance for unemployed job seekers, increase payments to second-lien holders and give some underwater homeowners the chance to refinance into loans backed by the Federal Housing Administration. This could slow the number of homes entering foreclosure, but it probably won’t make a huge dent in the number of properties being taken back by the banks. “Many people are so far upside down [in their home’s value] they are not even eligible,” says Helene Raynaud, vice president of housing for the National Foundation for Credit Counseling. And since HAMP is voluntary, lenders and investors are still deciding which properties they want to take back. “The government is really trying, but there are some issues of accountability and enforcement with servicers.” And, Raynaud says, there are some questions about how many of these modifications will end in redefault, given borrowers’ still-high levels of debt. Very few servicers are requiring these borrowers to get debt counseling, she says. Given these factors, economists expect a steady stream of foreclosures to hit the market for the next several years. But they don’t think it will derail a recovery. “I think we are very close to a recovering housing market,” says Celia Chen, senior director in charge of housing at Moody’s Economy.com. “We expect a slight decline and then flat prices until 2011.” However, Painter says you might want to brace yourself for a bit of a bumpy ride. “I think we are going to see upticks and downticks as the process happens,” he says. “But generally we are going to be stuck in place for a while.”

Read at: http://realestate.msn.com/article.aspx?cp-documentid=23875844

A new federal program, Home Affordable Foreclosure Alternatives, encourages banks to accept short sales by offering them financial incentives to do so. It offers sellers incentives, too.

Homeowners win because:

• They won’t get stuck with a deficiency judgment. Under the program, homeowners are released from all obligations.

• They can receive $3,000 in relocation expenses.

• They can’t be charged any fees to participate.

Creditors win, too, because they don’t inherit a vacant home to maintain. As big as the losses in short sales can be, the losses from foreclosure can be even bigger — by some estimates, as much as 60% of what’s owed on the mortgage.

Secondary lenders, who often stand to get nothing in foreclosures, can receive up to $6,000.

You may qualify for the foreclosure-alternatives program if:

• You have tried unsuccessfully to get a mortgage modification through the Home Affordable Modification Program.

• The property is your principal residence.

• You got your first mortgage loan before Jan.1, 2009.

• You are behind on your mortgage or will be in the foreseeable future.

• You owe no more than $729,750.

• Your total monthly mortgage payment is more than 31% of your income before taxes.

The foreclosure-alternatives program is set to expire Dec. 31, 2012. Some critics predict that it will be as disappointing as the loan-modification program, which was launched in March 2009. Out of millions of distressed homeowners, just 170,000 had received permanent modifications as of the end of February, according to the Department of the Treasury and HUD. (Many more modifications are being offered or are in the trial phases.) The median decline in monthly mortgage payment was about $500.

Will the new program be any better?

“It’s half right,” says Mary Tootikian, the author of “Stunned in America: Sub-Crime Mortgage Crisis.” “The intent of it is good.”

She worries, however, that the new program’s application process will allow lenders to find out borrowers’ incomes and assets. “After they go through this fact-finding mission and they find out you have assets to go after, they don’t have to let you do a short sale,” she says.

Arian-Pace, the Florida attorney, is more optimistic. “The frustration of short sales is the timing of it all, getting banks to approve it,” she says. “You often lose the buyer in the process. I’m hoping it’s a step in the right direction. Really, it’s going to come down to how the banks implement it.”

Read entire article at: http://articles.moneycentral.msn.com/Banking/HomeFinancing/short-sales-are-the-new-foreclosure.aspx?page=2

For all the homeowners who are upside down and can no longer make their mortgage payment (because of either a job loss, divorce, or an option ARM that’s resetting higher), up to now the only option was, well, letting the bank foreclose. That’s not a good option since a foreclosure sticks on your credit record for at least 10 years. But some experts are now advocating a “short sale.” This is a case of a distinction with a difference: If your bank agrees to a short sale, you then hire an agent to find a buyer for the house, you sell the house for a loss, and with the bank’s blessing, they agree to eat the loss.

That’s the really short version of how it works. The experts say you will need to find a real estate agent and you’ll also need to scale back your own spending. Putting expensive jewelry on your credit card will make a bank less inclined to do you any favors on the sale of your home.

Of course, the better option is to find some way to stay in the house—by first, seeing if the lender is willing to restructure the loan, or forgo a couple of monthly payments to help you get back on your feet. Apparently, more and more lenders are willing to make accommodations to avoid taking the property back. Banks hate to take over homes, especially in a declining market, so you shouldn’t underestimate the willingness of a bank to make concessions.

Read at: http://www.businessweek.com/the_thread/hotproperty/archives/2007/03/the_new_exit_st.html