Loan Modifications, Short Sales and Other Alternatives
Are you behind in your mortgage payments? Have you received a notice or warning from your mortgage lender that they are initiating foreclosure proceedings? If the answer is yes, don’t be ashamed, and don’t panic. In the current economic climate, many homeowners in Hampton Roads are facing the same or similar circumstances. There are lots of reasons: job loss,
serious illness, divorce…and, sometimes just a job relocation given the current market conditions can cause true hardship, and put you at risk of foreclosure.
The economic downturn has led to many homeowners being what we call “upside down” in their properties, essentially meaning that they owe more on their outstanding balance than the property will bring in the current market. This makes a traditional refinance virtually impossible.
Foreclosure is not inevitable. Depending on your circumstances, there are a number of alternatives out there, and it is very possible that there is a solution for your scenario that will not take such an extreme toll on your credit.
In order to maximize your chances of an effective work out, the most important advice we can give you is NOT to ignore your lender’s notices. It is critical to open a dialogue with your lender, and to reassure them that you are willing to work with them on finding a workable solution.
It helps to recognize that your lender would prefer an alternative other than foreclosure. They can incur significant losses through the foreclosure process. As a result, if there is a sensible alternative, they are generally willing to at least consider it.
This is also the ideal time to meet with your tax advisor if you have one, and a short sale specialist from Liz Moore & Associates. Our short sale team is specifically trained to assist in these situations, and they can help you explore and evaluate your options.
Loan Modifications
A possibility of which few folks are aware is what we refer to as a “loan modification.” Your lender may be open to modify the terms of your original loan, whether that means reducing the principal, lowering the interest rate, extending the period that the loan is amortized over (which effectively lowers your monthly payments), or other creative strategies to avoid foreclosure.
HAMP and HAFA
As part of the recent stimulus package, the U.S. government has programs to provide incentives for banks that use this strategy as an alternative to foreclosure. These programs are HAMP (Home Affordable Modification Program) and HAFA (Home Affordable Foreclosure Alternatives) program for short sales and deeds in lieu of foreclosure. To see if your lender is participating, visit www.MakingHomeAffordable.gov.
Short Sales
Short Sales are becoming one of the fastest-growing foreclosure alternatives. Many lenders will allow a home to actually sell for less than the amount of the loan, which is commonly called a “Short Sale.” This is attractive for lenders because they lose less money than in a foreclosure. Also, Short Sales generally take less time than foreclosures, so the banks don't have to carry the properties on their books as liabilities.
It's attractive for homeowners because the impact on their credit is far less than in a foreclosure. You may be able to buy another home in as little as two to three years after a Short Sale, compared with a typical seven-year wait after a foreclosure. Short Sales are paperwork-intensive, and there are many details involved. If you're considering this option, it's critical to work with a trained real estate agent who knows all the steps required to successfully complete a Short Sale.
It is important to work with a REALTOR who is familiar with, and has expertise in, the short sale process. There are many things that can be done to protect your interest. If you are interested in further exploring and evaluating your options, please let us know and we'd be happy to connect you with an agent who can help you.
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