If you owe more than your house is worth...
Know your options!
If you are experiencing a financial hardship and are either delinquent on your mortgage or in danger of becoming delinquent, you have the following options:
- Loan Modification or Refinance
- Short Sale
- Deed in Lieu of Foreclosure
- Foreclosure
Loan Modification
Your loan servicer may be able to modify the terms of your loan in order to lower your monthly mortgage payment to a more affordable level. Current modification guidelines, however, make this a Bandaid at best. Modifications don't address the real issue—principle balance. While your loan servicer may be able to reduce your payment from $1,500/mo. to $800/mo. by lowering the interest rate, that interest rate reduction is only good for five years. After five years, your interest rate will revert to an index that is tied to market rates. The principle loan balance, i.e., the amount you owe, remains unchanged.
Many borrowers in Arizona—especially those who purchased in the last 3-5 years—have properties that are worth 50%-60% less than what they owe on the mortgage. Forecasts are conservatively predicting a minimum of 10 years before those borrowers can break even. What if you have to sell your home before you break even? Can you afford to pay the difference between the sales price and the mortgage amount? If that happened today, most borrowers in this situation would still owe their lenders $100,000, $200,000 or more to get the house sold. We don't like that.
Your best chance of getting a loan modification is with a Fannie Mae or Freddie Mac loan. Give us a call and we can quickly tell you whether your loan is owned by Fannie or Freddie. Our team of lenders and attorneys can provide expert assistance in helping you obtain a loan modification.
Refinance
To benefit from a refinance, you must owe no more on your mortgage than 125% of what your home is currently worth. In other words, if your house is worth $100,000 today then you can't owe more than $125,000 on your mortgage in order to qualify for HARP (Home Affordable Refinance Program). This program helps very few people in Arizona due to the amount of depreciation we have seen in our local market in the last four years.
Your best chance of qualifying for HARP is with a Fannie Mae or Freddie Mac loan. Give us a call and we can quickly tell you whether your loan is owned by Fannie or Freddie. Our preferred lenders can provide expert assistance in helping you obtain a loan modification.
Short Sales
If you owe more on your house than it's currently worth, a short sale will enable you to sell your property at today's market value and at no cost to you. In most cases you can walk away without owing your lender a dime. Short sales are very complex transactions that take an average of 3-6 months to complete, and are worth the time and effort if you can complete one successfully. Successfully completing a short sale with a good result for the seller/borrower, as well as navigating all of the legal and tax ramifications requires having a team of expert real estate agents and attorneys at your side.
There are many variables that have a direct impact on your ability to successfully negotiate a short sale with your lender. Is your mortgage an original purchase money loan? Is your mortgage a rate-and-term refinance or cash-out? Are you current with your mortgage payments or are you delinquent? Do you have a second lien mortgage? If so, is it with the same servicer as the first lien mortgage or with another servicer? The answers to these questions will determine not only how your short sale is handled, but how your lender responds as well.
Depending on your specific situation, your lender may either accept, decline, or further negotiate your short sale transaction. When your short sale is ultimately approved, you will receive a letter from your lender stating the terms under which they approve the sale. READ THIS LETTER CAREFULLY! Bank of America, Chase and other lenders/servicers are using language in their approvals that leaves the door open to sue you for up to 6 years after the short sale. The language is either very subtle or simply an omission of a statement we require on every single short sale approval for our clients. Every single short sale approval letter is reviewed by our partner attorneys to ensure our clients have full legal protection from being sued, and only proceed once our attorney has given the green light.
If you are considering short selling your property, ensure that the real estate office you select to handle your short sale is fully staffed to handle short sales in-house. The last thing you want is a real estate agent who will take your listing and hand off the details to a third party short sale negotiating company. Short sale negotiating companies are notorious for delaying the process further, miscommunicating facts, slow turnaround times, and sometimes sheer incompetence that results in your house going to foreclosure. DON'T GIVE UP CONTROL OF YOUR TRANSACTION!
We can assist you in determining if you are a good candidate for a short sale, and can set your expectations up front for what is likely to happen based on your specific situation and the loan servicers involved. If needed, we can involve our partner attorneys in difficult negotiations to get our clients what they want.
Deed in Lieu of Foreclosure
This is essentially the last option before foreclosure. If you were not interested in or turned down for a loan modification and your short sale didn't go well, your loan servicer may allow you to basically "give the house back" prior to foreclosure. In order to be eligible for a Deed in Lieu, you must have only one loan (first lien mortgage) or a first and second lien mortgage with the same lender. You must have your lender's cooperation to successfully complete a Deed in Lieu.
You don't need the assistance of another lender or real estate agent to complete a Deed in Lieu, and you shouldn't have to pay anyone for this service. Contact your lender directly and ask for this option after you've exhausted all other available options (loan modification, refinance, or short sale).
Foreclosure
This is the last stage of the process when you are delinquent on your mortgage and have not been able to engage your lender in resolving your situation through any other methods. You will know if your property is scheduled for foreclosure if you receive a "Notice of Trustee's Sale". This is the official notification that is taped to your house and mailed to you.
IF YOU ARE IN THE MIDDLE OF NEGOTIATING A LOAN MODIFICATION AND YOU RECEIVE A "NOTICE OF TRUSTEE'S SALE", DO NOT ASSUME THAT YOUR LENDER WILL AUTOMATICALLY POSTPONE THE FORECLOSURE DATE. UNLESS IT IS CONFIRMED IN WRITING, YOUR LENDER CAN AND MOST LIKELY WILL FORECLOSE EVEN IF YOU ARE IN THE MIDDLE OF NEGOTIATING A LOAN MODIFICATION.
If you are in this situation, we can quickly look up public filings for your address and confirm whether the foreclosure date has been postponed. It only takes five minutes to do, we don't mind. We would love to help you if we can.
Call Sonny & Daniella today at (480) 302-9650
Let us help you decide which option is best for you.
We have helped over 100 homeowners in the last 12 months, please let us help you. We have a fully staffed office to handle all aspects of short sales in-house and at no cost to you. We partner with the valley's leading lenders, accountants and attorneys to ensure you receive proper legal and financial advice you need to make the best quality decisions.
