Archive for May, 2008

Facing Foreclosure – 3 Smart Moves

written by: Leslie J West

Historicly high foreclosure rates were caused by lack of controls on the lending institutions. Easy qualification of buyers and outright mortgage fraud engaged in greedy brokers undermined our financial lenders. Billions of dollars lent to high risk borrowers. All these loans were bundled together and securitized. The financial securities were bought by institutional investors, IRA retirement plans and even foreign investors. Homeowners who were qualified under optimist and unrealist criteria soon found they could not make the payments on their mortgage. Default notices were sent after a delinquent loan payment or two remained unpaid. Collection efforts were made until a decision was made to foreclose the loan. Attorneys representing the lenders sent hundreds and thousands of these foreclosure notices a month. Homes were sold at auction and the homeowners were foreced to move if they had not already moved on. Some of these homes sold at auction but most were retained by the lenders. These REOs represented poor lending practices and the FDIC rules came into play. Large reserves of capital had to be set aside as holding and management costs, as well as, costs to liquidate the asset. Naturally, many large firms failed and investors holding these securities lost huge amounts of equity. Our economy was dealt a financial blow that sent shock waves throughout the worlds financial markets. A homeowner in financial distress and feeling pressured by the bank should open communication with them. You should personally contact the lender by phone, fax, email or direct mail as soon as possible. Your lender must know what the problem is and how they can help resolve the problem. Many options are available in the early days of default. Absolutely, do not hide or avoid speaking with the bank. First, consult a professional. You may want to discuss this matter with an attorney. Other sources of help are foreclosure experts and others who are qualified in this area. Get all the advice you can. Do not hire anyone yet as your lender will be upset with you if repayment of your loan is not first considered. Second, by all means seek out help from any organization with means to help with your finances or management of your finances. Debt restructuring and asset protection can be obtained with experts and individuals willing to help. Simply tell your story with details of what you can do or not do. Important information you must provide is when you can provide funds, how much money, what terms and conditions you need as well as, other considerations. Get as much flexibility as possible for future renegotiation after your current situation is stabilized. Ask for more time to consider your options. Third, after considering your situation and all the information presented amkea decision of what you can do. Make a written plan describing all the tasks to be enacted. Schedule meetings with each party to the plan present your plan and get an agreement on something. Keep detailed records of the meeting and followup with a letter to recite the decisions made. Keep your emotions reined in and be objective even though these problems are very personal to you. Do not be fearful it is counterproductive. Ask for more time. Your situation will improve with time. Keep in contact with your supportive friends and others offering help. Keep active and avoid analysis paralysis. Keep looking for additional options to help keep your home and family secure.

These three steps are the beginning and may be adequate, but if you are still unable to keep your bills paid you will want to look for other methods. Homeowners who have the loss of a primary or a second income will have to seek more severe choices which may include the sale of their primary residence and uprooting of the family.

Basics of Foreclosure

Home sellers usually are not experiencing happy times at or near foreclosure. Hopefully, a mutually beneficial transaction will occur between the investor and the distressed homeowner.

Home ownership is the American dream. Oppositely, is the loss of homeownership thru foreclosure. Their most important asset is now defunk and years of good credit is being destroyed. Lasting financial ruin and the family’s upheaval and uprooting from their community cause long term wounds.

Foreclosure Advantages

A real estate investor may purchase a property well below market value.

The preferred outcome from a pre-foreclosure is a quick transfer of title. The investor gets a good deal and the homeowner is freed from the unaffordable house. The home owner may reduce the damage to his credit rating by selling before a foreclosure occurs.

Foreclosure Disadvantages

Everyone believes that buying a property from a distressed homeowner is easy and profitable. However, the truth is 4 out of five deals are problematic, overly complicated and can result in a financial loss. Each real estate transaction contains an uncertain amount of risk. Smart investors can reduce the risk but can never eliminate all of it.

Three Types of Foreclosures

Distressed real estate is acquired in one of three stages of foreclosure. The first stage is pre-foreclosure, second stage is foreclosure and last stage is post foreclosure.

• Pre-Foreclosures In the pre-foreclosure stage, investors will be able to help the troubled homeowner the most. The homeowner’s credit can be stopped from further damage and a mutually negotiated sales price can be settled. A quick closing may give the homeowner some need cash from his equity or keep him from having to seek help from his lender. Finding homeowners needing to sell are typically found by consulting with attorneys, accountants, real estate agents, friends or business associates.
• Foreclosure Stage When a property reaches the foreclosure stage an investor can find a notice posted with the county clerk for all properties in default. The clerk will be able to show the location of the postings. A property selected for merit would entail a search of the general index and a search for oustanding liens and encumberances. Many counties have a publisher sell the list of posted properties to interested parties. Title companies can help with a title search before an offer is made. They may provide this service for a fee or for the expectation of future business.
  Every state has their own unique foreclosure process. A state may have a judicial or non-judicial foreclosure process depending on whether they use title or lien methods. States using judicial foreclosure are for mortgages and states using non-judicial foreclosure use deeds of trust . Mortgage forclosures take much more time than deed of trust foreclosures.

  Non-judicial foreclosures pertain to deeds of trust where a third party, called a trustee, handles the entire process in a matter of two to four months after a borrower has defaulted and stopped making payments. Once the property passes through either the judicial or non-judicial phase, it is then ready to be sold at auction to the highest bidder.

• Post-Foreclosure Lastly, at the post-foreclosure stage a lender has taken possession of the property or an investor purchased the property by bidding the highest amount. Property held by the lender is called a REO or real estate owned by the lender.The foreclosure notice will contain the name of the lender, the address of the property and the mortgage balance. Lenders holding an reo property are eager to sell it and get it of the balance sheet. In addition, properties held by the lender reflect on them for making a poor loan decision. The FDIC requires that lenders place additional owner’s capital in reserve to provide for holding and liquidation costs. The bank is likely to be willing to negotiate.If an investor wins the bid and completes the purchase, they may be willing to sell the property for a wholesale price. As you can expect they will try to make a profit.  Purchasing distressed properties requires a degree of expertise. Successful investors decide where and when to make the purchase in the foreclosure process.

Leslie J West wrote this article. Come back for more articles BrandyStopsForeclosure