FORECLOSURE PROCESS: (Lis Pendens, Summary Judgment, Courthouse Auction)

Note: The information below is for informational purposes and should not be construed as attorney advice. For legal advice you should consult an attorney with consumer protection law experience.

1.       What is a Demand Letter?

A demand letter is usually the first step to the foreclosure process. Usually lenders will hire an attorney and send a demand letter certified to your home. You usually have 30 days to make payment in full before the lender decides to file suit. A Lis Pendens and foreclosure suit usually follows 30-60 days after the demand letter if you fail to make full payment. Different lenders have different time frames and different requirements in different states. Usually everything is outlined in the demand letter.

2.       What is a Lis Pendens?

Latin for "a suit pending." The term may refer to any pending lawsuit. (2) A written notice that a lawsuit has been filed concerning real estate, involving either the title to the property or a claimed ownership interest in it. The notice is usually filed in the county land record’s office. Recording a lis pendens against a piece of property alerts a potential purchaser or lender the property’s title is in question, which makes the property less attractive to a buyer or lender. After the notice is filed, anyone who nevertheless purchases the land or property described in the notice takes subject to the ultimate decision of the lawsuit. For most homeowners, receiving a Lis Pendens, usually means your home is in foreclosure.

3.       What is a foreclosure?

Foreclosure is a process lenders use to take control of a property which they have financed. Typically, this is because the homeowner is behind on payments and is unable to remain current on the loan. When the lender forecloses on the homeowner, the homeowner must move or risk losing all possessions left inside the property and jeopardizing any possible equity the homeowner may have in the property. Foreclosure time frames vary from state to state. Usually a Lis Pendens is filed prior to the suit or simultaneously. The Lis Pendens and or foreclosure suit is usually preceded by the demand letter. Some states use a quicker process called a “Non-Judicial” process that doesn’t require lenders going thru a lengthy judicial foreclosure suit.

4.       What does a Summary Judgment Order mean?

A final decision by a judge that resolves a lawsuit in favor of one of the parties. A motion for summary judgment is made when the lender believes they have presented their case and there are no arguable facts before the case goes to trial. The party making the motion marshals all the evidence in its favor, compares it to the other opposing party’s evidence, and argues a reasonable jury looking at the same evidence could only decide the case one way--for the moving party. If the judge agrees, then a trial would be unnecessary and the judge enters judgment for the moving party. A Motion for Summary Judgment in a foreclosure case usually means your case could be coming to an end depending upon when the Judge rules. The Judge could rule in as little as 20 days (each state is different) and as long as 2-6 months after the motion has been filed depending upon the Judge and the Court.

 

5.       How long do I have once the Judge issues an Order for Summary Judgment?

It may vary. However, if you do not file the appropriate motions in court, usually the auction date will be set approximately 30 days after the Order for Summary Judgment is signed in most states like Florida. However, it does vary in other states.

6.       When does the Certificate of Title transfer to the Lender and can I still sell my home and or submit a contract to the Lender after my home has been auctioned at the Courthouse?

It varies by state. However, the title usually transfers in 10 days in Florida. While it is a difficult process and the Judge makes the final decision, a contract submitted before the title transfer can stop the title transfer if the proper paperwork is filed with the court. FRG has submitted a short sale contract to the lender and then had the homeowners file the necessary pleadings in Court after the home had been sold via auction. The Judge stopped the title transfer and the court decision was ultimately reversed and the short sale was approved. Proper motions are required to be filed. Most Judges’ today are trying to implement the Congressional and Legislative intent of allowing homeowners to do short sales as opposed to receiving credit destroying foreclosure credit marks preventing new home ownership for sometime.

7.       If I submit a short sale to the lender will it stop the foreclosure process?

Maybe. Some lenders will stall the foreclosure process when a short sale is submitted but usually you have to request this to be done. However, FRG works with its clients and uses various consumer protection laws to file with the lender and attorney representing the lender. The consumer protection requests to the lender and attorney requires the foreclosure process to stop until those requests are answered and verified. Certain pleadings are filed by the homeowner in court when the lenders and or lenders attorney doesn’t comply with stopping the foreclosure. FRG is one of the first companies to pioneer these new strategies and currently has a high success rate in stopping foreclosure when having a short sale. In addition, FRG has even requested certain lenders to provide our clients 90 days to complete a short sale and the lenders have stopped the foreclosure process to allow us to complete a short sale.

8.       How long do I have before my home is foreclosed and auctioned?

This varies by Court District, by Judge, by lender and by the law firm representing the lender. Some Florida Court Districts are taking 6-9 months while others are averaging 9-18 months to complete foreclosure sales. There are some Judges who have heavier case loads and so their foreclosure time period may be longer. There are some Judges who rubber-stamp these thru the process especially if the homeowner is not filing an answer to the complaint or pleadings. Some lenders hire certain law firms who some how are able to get their foreclosure suits processed quicker than other attorneys and are usually more aggressive. However, Florida homeowners should expect at least a 6 month to 18 month process. You should always plan on the side of caution and use 6 months as your gauge and be prepared for shorter periods of time if your court case dictates a shorter period. In addition, FRG implements and employs targeted consumer protection requests to lenders and the lender’s attorney that usually helps to slow down the foreclosure process.

9.       In my foreclosure suit, can the lender make me pay for court costs and attorney fees?

Yes. Usually the Judge issues an Order finding the defendant or homeowner responsible for court costs and attorney fees incurred by the lender during a foreclosure sale. This may vary by state.

 

FORECLOSURE OPTIONS: (Short Sale, Deed in Lieu, Loan Modifications)

10.    What is a short sale?

A short sale is where the lender agrees to accept less than the amount owed on the home if the homeowner experienced a hardship. A qualified buyer and a contract for sale/purchase are required. However FRG can file Consumer Protection requests with some lenders to get you pre-approved for a short sale. Some states like Florida allow lenders to seek a deficiency judgment against the seller for the amount owed on the home in a foreclosure suit. However, in many and if not most Short Sales, FRG negotiates with the lender to forgive the deficiency amount owed on the property. The more difficult your hardship the better chance of having your deficiency forgiven. Second liens sometimes make a short sale more difficult. Other times, FRG negotiates with second lien holders to accept a payoff from the first lender which is usually around $3,000 as full payment to release the lien. In a short sale, FRG uses negotiation, arbitration and sales experience to negotiate the best deal. Many Real Estate Brokers, Real Estate Agents and individual Investors have underestimated the due diligence, work and time involved in short sales and is the reason they have not been able to secure quick short sales with acceptory terms and conditions for buyers and sellers. Since homeowners don’t need to pay fees to get a short sale completed it is important and to their advantage to use the best loss mitigation company and real estate agents with the most experience who specialize in pre-foreclosure or short sales. Most financial experts believe a short sale is a better solution for distressed homeowners than foreclosure and Deed in Lieu. Even the Federal Government is incentivizing lenders with money to complete short sales as opposed to foreclosure. In a recent Wells Fargo offer via HUD, the homeowner was offered $750 to do a short sale and $1,000 if it is sold in 90 days. FRG anticipates the rest of the lenders to follow Wells Fargo making pre-foreclosure sales the largest part of the real estate market for the next 2-3 years. A short sale will have the least impact on your credit record. After the short sale, some people have been able to get credit and financing in as little as 6 months to 1 year but will vary from person to person depending upon their entire credit profile. Some lenders have even listed a short sale loan as “Paid” and or “Paid as Agreed” on the credit report depending on the situation which may actually increase your credit score. FRG negotiates and requests lenders to list the debt as paid or paid as agreed.

11.    What are my options other than doing a short sale?

Sales and title transfer options including “Deed in Lieu of foreclosure” and foreclosure. Other options include older and more traditional options like refinance, repayment plans, loan modifications, special forbearances, VA loan and modification refunding. The new government sponsored loan modification programs include Making Home Affordable Refinance, Making Home Affordable Modifications, Foreclosure Alternatives Program and Hope for Homeowners Program. Finally Bankruptcy alternatives like Chapter 7, 11 and 13 could be considered but only as your last resort and with the recommendation of an attorney.

12.    Why did my attorney or accountant tell me it is better to let the house go to foreclosure?

Probably because the attorney or accountant did not fully discuss with you the different options you have and may not have been fully apprised of all the new laws. Attorneys or accountants who specialize in Consumer Protection Laws including FDCPA, FCRA and RESPA would usually have more knowledge. If you have an attorney or accountant recommend foreclosure over a short sale you should probably at least get a second opinion or have them put in writing the advantages of doing so. Even news sources have reported President Obama having made remarks about protecting your credit and name by seeking alternatives to foreclosure like instituting a short sale.

13.    How come my attorney recommended a Chapter 13?

Probably because the attorney did not know all of your options. Some attorneys just don’t understand all the benefits to a short sale or that you would qualify for a short sale. Many attorneys also don’t realize you can negotiate your debt or deficiency balance sometimes to $0 (zero balance). Bankruptcy should be your last option after you determined the other options can not work for your particular situation.

14.    Do I qualify for Chapter 13? Can Chapter 13 Bankruptcy help save my home?

Filing a Chapter 13 Bankruptcy will at least temporarily save your home from foreclosure due to the Automatic Stay which stops all legal proceedings including your foreclosure suit. Most debtors filing Chapter 13 never complete Chapter 13 and end up losing their home from foreclosure. Chapter 13 is one of the worst things you can do that impacts your credit.

15.    Can Chapter 7 Bankruptcy help save my home?

Filing a Chapter 7 Bankruptcy will temporarily save your home due to the Automatic Stay which stops all legal proceedings including your foreclosure suit. However, lenders are able to file motions to lift the Automatic Stay for the foreclosure if it appears you will not be able to pay the arrears in full. It is estimated more than 90% of homeowners who file Chapter 7 Bankruptcy still end up losing their home. Filing Chapter 7 only wipes out your debts that are not collateralized. Chapter 7 does not eliminate any debt in the arrears and or liens on the home including second mortgage liens. You should consult with an attorney if you are considering Bankruptcy.

16.    If I filed bankruptcy in the last 7 years will I be able to file again?

This is a question for your attorney; however, unless you have an unusual circumstance and or a Judge overrides the rule, you are not able to file bankruptcy but every 7 years.

 

DEFICIENCY BALANCE: (Deficiency Income, Debt Collectors, Wage Garnishment)

17.    Will I have to pay the deficiency amount if I let the house proceed to foreclosure which is later auctioned and or sold?

You might. If the deficiency amount is high, there is a good chance the lender may seek to collect a deficiency. However, there is a likely chance this deficiency amount could be sold to debt collectors who will then have 7 years to collect from you. However, most homeowners who implement a short sale as opposed to allowing a foreclosure usually do not have to pay a deficiency.

18.    What if the lender auctions the home and the highest bidder only pays 25% of what the home is worth? Will I still be responsible for the entire deficiency?

Some of the mortgage agreements provide language which allows this scenario. However, the lender would have to submit those losses to the Court and get a Judgment from the Court which has been done in some foreclosure situations.

19.    If I let the home go to foreclosure will the bank come after me for the deficiency at a later date and if so when?

If the Judge signs an Order making you liable for the deficiency and the bank does not forgive the deficiency, then most likely the lenders will seek to recover the debt. Today the majority of the banks who are not forgiving deficiencies are selling the debt to debt collection companies for $.25-$.60 cents on the dollar. A debt collection company can try and collect this debt for 7 years. The debt collection companies will wait till you are financially stable again and or have a job where they can sue to garnish your wages or try and attach to any other assets you may have. Most states allow garnishment of wages but a few states do not. Florida allows garnishment of wages.

20.   Can the lender or debt collector sue me at a later date to recover the debt and how much of my wages can be garnished?

Yes. They can sue to garnish up to 25% of your wages. If you have any other assets, they may also choose to pursue a lawsuit to attach liens to those assets for up to 7 years depending upon state laws. Each state is different and the laws are tricky so you will need to seek legal advice from a qualified attorney.

21.    In 2006 and prior, many lenders did not generally chase or seek to recover deficiency balances so why are they changing their strategy?

In previous years, when the economy was booming, chasing deficiency balances was a waste of time for lenders. In previous years most homes in foreclosure usually meant a “breakeven” or 5% loss compared to 35-70% losses today due to home values decreasing. With these 35-70% losses in home value, lenders are almost required to recoup their costs and pursue deficiency balances. In previous years, lenders could even sit on the home for a year and the value could increase 5-10%. In today’s economy it is rumored these deficiency balances are now being packaged and sold to debt collectors for around $.25 to $.60 (cents) on the dollar. In other words $1,000,000.00 (1 million) in deficiency balances could be worth $400,000.00 cash to a lender and are significant revenue opportunities (so if “for-profit-lenders” who are struggling financially are forced with this decision, what do you think they will decide to do?). Later when the homeowner is more financially stable, lenders or debt collection companies can come back and sue to garnish your wages and or attach liens to any other assets you may own.

TAX IMPLICATIONS: (Deficiency Income, Primary Residence, Secondary Home, Rental Property, Commercial property)

22.   Will I have to pay taxes on the deficiency balance on a foreclosure?

If the lender forgives the debt you will not have to pay taxes under The Mortgage Debt Relief Act of 2007 until 2012 if it is your primary residence. But the key is if the lender forgives the debt and seeks to pursue the deficiency balance which is a chance you take in foreclosure. If it is a secondary home, vacation home, rental property or investment property you may have to pay taxes. However, if this is your primary residence and the lender does not forgive the debt and the lender continues to try and collect the debt after 2012, you most likely will have to pay taxes part of the debt after 2012. You should consult a tax attorney if you are faced with this situation because the laws and court cases have still not fully defined this issue. There are several legal ways to reduce your tax burden for deficiency income; however, you really need to find an experienced tax consultant or accountant to minimize your tax consequences. Bottom line is: Don’t chance having to pay taxes on deficiency income by allowing your home to go to foreclosure!

23.   Will I have to pay taxes on the deficiency balance that is forgiven if I do a short sale?

If it is your primary residence, you will not have to pay taxes on deficiency balances that is forgiven due to The Mortgage Debt Relief Act of 2007 until 2012. If it is a secondary home, vacation home, rental property and or an investment property you might not have to pay taxes if you show you are insolvent at the time. See the previous question.

 

CREDIT REPORTING: (Short Sale, Foreclosure, Deed in Lieu, Bankruptcy, Chapter 7, Chapter 13, Credit Repair)

24.   Why can my credit score be different than someone else going thru the same situation?

First no one can make any claims of how much a transaction will affect your credit score with 100% accuracy because there are so many formulas and data used that make each person’s score unique. Your score can be based upon your age, marital status, job, length of job, salary, debt to income ratio, credit history, types of loans (such as Bank Loans, Car Loans, Home Loans, Furniture Loans), types of credit cards (Department Store Credit, Visa, MasterCard, American Express, Discover, Carte Blanche) you have etc. So the only way you can predict your credit score is with estimations or ranges.

 

25.   How does a foreclosure affect my credit score?

A foreclosure will remain on your credit report for 7 years and credit experts explain it could lower your credit score 250-300 points depending upon your unique situation. If your score is already low, a foreclosure could prevent your credit score from increasing over a longer period of time. Credit experts explain most people are not able to get acceptable or average financing terms on home mortgages or cars for 3-5 years after a foreclosure. This is just estimates and you should always consult with a credit score expert to gauge your own unique score.

 

26.   I heard when you go thru foreclosure you get multiple marks on your credit profile. Please explain and provide real examples.

In most foreclosure situations this is true. After the foreclosure is complete the lender places an additional bad mark on your credit stating your debt was not paid as agreed. Next the lender can later sue you to garnish your wages or gain a judgment against existing or future assets which could show up as a garnishment suit, lien or judgment on your credit report. This would be a third mark against your credit and will remain there for 7 years. A lender may also sell this debt to a debt collector which could be a fourth mark against your credit. Usually these marks against your credit happen over a 2-3 year period meaning each new bad mark placed on your credit report probably reduces any increase in your credit score for  “good time” (paying on time) on your other debts. Each situation for each consumer can be different; however a foreclosure on your record usually involves more than one credit mark against your credit.

 

27.   How does a Deed in Lieu affect my credit score?

A common misconception is a Deed in Lieu is not bad on your credit score. A DIL will remain on your credit report for 7 years. Some lenders even report DIL’s as a foreclosure on your credit report. A DIL drops your credit score by 250-300 points and mortgage credit experts advise it may take 3 or more years for you t o qualify to buy a home and get new credit.

 

28.   How does a short sale affect my credit score?

It depends on how the lender reports your debt. Some lenders report your debt as paid as negotiated or settled. These labels usually reduce you credit score 50-85 points depending upon your unique situation. FRG requests lenders to remove late payments status since the homeowner participated in the short sale process where the lender understands the homeowner is not making payments. Some lenders are already doing this with their homeowners even on loan modifications. Lenders are now being incentivized by the Federal Government’s FAP (Foreclosure Alternatives Program) to approve homeowners to participate and complete a short sales process as opposed to going thru foreclosure, saving lenders thousands of dollars in foreclosure costs. Some lenders are treating the short sale approval times to do short sales as a period of time where the homeowner is not late on payments since the lender encouraged the homeowner to do the short sale. Some lender policies will not allow a homeowner to make even partial payments to the lender during the short sale process due to legal reasons. Some lenders have even marked a short sale as a Paid as Agreed I(which could actually increase your credit score) since the short sale funds met the amount of money the lender was requesting to complete the short sale. Each lender will have their own policies which will probably continue to change during our current foreclosure crisis. With all the new Government rules and incentives for homeowners to complete short sales there still remain some standards that will need to be approved to give guidance on how to treat short sales in a person’s credit profile. While the foreclosure crisis continues with no standardization expect different lenders to have different policies and expect how your credit is reported to be negotiable in some cases. Nevertheless, FRG negotiates on your behalf to remove late fees and request the lender to mark the account paid as agreed. We suggest you contact a credit score expert or the credit reporting agencies for more accurate guidance on this subject.

 

29.   How does Bankruptcy Chapter 7 affect my credit score?

Chapter 7 Bankruptcy is not understood by most consumers. Chapter 7 usually will shut your credit down for a minimum of 6 months. However after 6-12 months you are able to start gaining credit again at above average interest rates. Chapter 7 affects your credit capabilities much less than Chapter 13. It remains on your credit report for up to 10 years but most creditors look at someone who filed Chapter 7 Bankruptcy as someone who doesn’t have a lot of debt and may be more credit worthy than someone living paycheck to paycheck with their debt to income ratio extremely high.

 

30.   How does Bankruptcy Chapter 13 affect my credit score?

Most credit experts agree Chapter 13 is probably one of the worst credit marks on your credit profile. First, all of your credit is shut off and it is almost impossible to gain new credit while you are in Chapter 13 due to legal reasons and the automatic stay. Most people in Chapter 13 are scheduled to stay in Chapter 13 for 1-5 years meaning your credit is shut down during the entire time. Meaning you are not able to gain any new credit. However, most consumers who file Chapter 13 never finish the first year and a majority never complete Chapter 13. In addition, your credit is usually affected for 3-5 years after you are out or Chapter 13 especially if you did not successfully complete your Chapter 13 Bankruptcy. Chapter 13 should be your last option to use when you are unable to participate in any of the other options. But sometimes Chapter 13 might be your only option and can help save your home.

 

31.    How does credit counseling affect my credit score?

While most credit counseling firms and their servicers are great, most consumers do not understand and or did not know the dreadful impact credit counseling causes to your credit and or credit score. Credit counseling services are great for people who really lack organizational and financial skills and don’t have financial and budget discipline. We here at FRG even refer some clients to reputable credit counseling firms. First, not all credit counseling firms are reputable. Even though most are non-profit, doesn’t mean they are controlled by Government and or can not be fraudulent. The internet is full of credit counseling service companies who have been fined, shut down and found to be providing inadequate services. Credit counseling affects your credit much the same way as a Chapter 13 filing. Your credit is shut down for the entire time you are in the program making it difficult to get any credit including buying cars, homes or even necessities like air conditioners. As a whole, the credit counseling industry reports more than 70% of the people who sign up for a credit counseling service end up failing and or discontinuing the service prior to completion. Usually, credit counseling firms are successful in lowering your interest rate with most cards. The reason your credit counseling services shut down your credit just like in Chapter 13, is it prevents you from getting additional credit so that the lenders have a better chance of getting their money back you currently owe them.

 

32.   How does debt arbitration affect my credit score?

If you have had a temporary and or permanent hardship and currently going thru foreclosure, debt arbitration is a good alternative to credit counseling. There are many horror stories with both credit counseling and debt arbitration companies. Both industries have many companies who are simply not reputable and do not fulfill their promise of services. Most of the negative comments about debt arbitration come from a few clients of debt arbitration companies who were sued during the debt arbitration process. However, when you are in foreclosure your credit is already being impacted by late payments on your mortgage. Most people experiencing foreclosure usually have maxed out their credit cards and have borrowed all they can from their family to try and remain in the house. Unfortunately, this amassed amount of credit card debt begins to create a financial situation most consumers are not able to escape. In addition, your credit report begins to show your delinquency on your mortgage which gives credit card companies incentive to make deals in order to prevent the debt you owe them from being erased with a Bankruptcy case especially if you haven’t filed bankruptcy previously. A foreclosure also means that one of the credit cards strongest weapons of filing suit to place a lien on your home is gone. Credit card companies also realize if you are going thru a foreclosure and they file suit during the process or even after, they realize such a strategy is usually the final step in pushing you into a bankruptcy situation. When you are going thru a foreclosure and your credit cards are maxed out, your credit score is already taking a big hit. The quickest and fastest way to increase your credit score is to get rid of your debt and start making timely payments on your bills. Debt arbitration can help many consumers become debt free in one year or less. Debt arbitration companies also can negotiate many lenders to report your credit as paid as agreed once your negotiated amount is settled. If you consider doing Debt Arbitration, it is best to do when you have a major financial crisis like a foreclosure pending. Debt arbitration has been able to reduce consumer credit card debt as much as 80%. All financial situations are different but good negotiators can achieve 20-60% payoffs on your credit card debt.

 

33.   Is credit repair legal?

Since we get this question so many times, we thought we would go ahead and give you our opinion. Yes. Every consumer has the right to challenge their credit profile under numerous state and federal laws including the Fair Credit Reporting Act. Most people will find errors on their credit profile if they look hard enough. There are many law firms that use this right you have to challenge your credit profile. Creditors have 30 days to respond and verify the accuracy of what they are reporting to your credit profile. If they do not respond within 30 days, the credit reporting agencies generally are required by law to remove any challenges you make to your profile. With the current financial crisis, unfortunately many lenders and creditors don’t have enough resources or staff to verify all the credit challenges. This means many challenged marks on your credit are removed. An example of some items that can be challenged are when some lenders or creditors in the past may have marked your account 30 days late when you didn’t make your payment on time. However, most consumers are unaware that your payment can only be marked 30 days late if you didn’t pay the amount until 30 days after your final due date. In answering if credit repair is legal; if credit repair was illegal, attorneys would not be able to promote their law firms as providing these services and would be disbarred. However, you should only use credible credit repair companies if you decide to engage in such services.

 

34.   What is the best way to improve my credit score after a financial crisis?

The three main things that can increase your score is to make sure you don’t have any mistakes on your report, reduce the amount of debt you owe and make timely payments on your bills each month for at least 6 months to a year.

 

35.   Why do some job applications request if I have had a foreclosure in the past or base my employment on my credit score?

Unfortunately, there are more unemployed people looking for jobs. So many applicants have similar skills. Many employers are also screening potential employees with drug testing and even financial stability. CNN recently reported many companies are now making a decision to hire or not to hire you based upon your credit score. A foreclosure on your credit profile or a low credit score screams instability and can prevent you from gaining the job. If you are attempting to be hired in management a company might interpret a foreclosure that you would not be able to manage their business. A salesperson needing to travel could be interpreted you wouldn’t be able to charge travel expenses to your credit card if you didn’t have credit. Even if you answered no on your job application, many states are now making all of their court cases including foreclosure suits open to the public and searchable on the internet meaning your foreclosure could be on the internet forever. Simply put, you should never allow your home to go to foreclosure when you have much better options that will not damage your credit score as bad.

 

36.   Will the suit to recover debt like a wage garnishment or lien attachment be placed on my credit report?

Yes. It becomes a public record. So you end up having a foreclosure placed in your public section in your credit record as well as having a debt not paid as agreed, both which are negative to your credit score. Then if the debt is sold to a debt collector at any time, the debt collector also places a collection claim on your credit profile which is a third additional negative mark. A combination of those marks against your credit profile could drop your credit score 350 – 450 points depending upon your unique situation or if your credit is already bad make it more difficult to increase your credit score.

 

37.   How can I find a place to rent when I move out since my credit might be worse?

The key to finding a place to rent when you have a bad credit score is to show your bad credit score is a result of a recent temporary hardship. You need to have a very well documented and detailed hardship letter written (same as you use with a lender) to submit to the rental location. Tip: Most of the employees of the rental company simply go by guidelines and just reject you on your credit score. Request the employee to submit to the management for an exception based upon temporary hardship. Request if you can speak to the manager directly, but only after you have completed your hardship letter. Click here to get more information on how to develop the right hardship letter containing your information the lender or rental management want to see.

38.   If I have multiple rental properties will I get separate foreclosure marks on my credit record for each additional foreclosure or will I get one foreclosure mark and if so how will effect my credit?

Yes. You will get a separate foreclosure mark on your record for each foreclosure. In addition, you will receive an additional negative mark on the loan where it is usually marked “Not Paid as Agreed”. If your debt is sold to a debt collector then you will get an additional negative mark on your credit in the collections section. If the debt collector sues to collect them you will get a fourth (4^th) negative mark on each home/rental property foreclosed. If you have more than one rental or secondary homes, allowing the rentals or homes to proceed thru foreclosure could ruin your credit for years. It is expected many lenders will be going after deficiency balances left on foreclosure properties especially if it is an investment property which is why you really want to consider short sales.

SHORT SALE: (Foreclosure Specialist, Cost/Fees, Earnest Money Deposits, Pricing the Home to Sell)

39.   What is the cost of doing a short sale?

There is never a cost of completing a short sale for sellers or homeowners in a foreclosure situation. FRG is reimbursed by the lender for our fees in most deals. In all other deals, the seller’s and buyer’s agent split the cost of our fees making this a free service to sellers/homeowners who are facing foreclosure.

40.   Will I have to pay Real Estate commissions and or closing costs on the short sale?

No. In a short sale, the lender pays the seller’s closing costs and real estate commissions. As previously stated there is no cost to a seller/homeowner to do a short sale.

41.    Why have many real estate agents not been successful in short sales and what type of real estate agent should I use?

Over the past years, pre-foreclosures and or short sales were not a very big market. Therefore, many real estate agents didn’t want to spend the necessary time to become educated and sufficient in selling these types of properties. The real estate investor focused on this market buying homes from homeowners and then flipping the home to make a profit. In addition, in past years short sales were not priorities for lenders, so getting them approved was not high on their list causing many buyers to walk due to the length of time they would take. Situations like this created a bad taste for real estate agents. Some real estate agents who tried to negotiate their own short sales didn’t realize the amount of work required to do short sales and became frustrated with the process. Most real estate agents who did negotiate their own short sales found little success and lost money and time in the process. Many real estate agents trying to do their first short sale on their own found out they ran out of time and their clients homes were foreclosed and auctioned causing frustration with their clients. Today real estate agents who are experienced and specialize in short sales endorse short sales, as the best opportunity to get most value for a home. Also, successful and high volume real estate agents who specialize and understand the requirements of short sales hire loss mitigation/arbitration “short sale” companies who are specialists to manage and complete their short sales.

 

42.   Why should I require the buyer to have an earnest money deposit in order to accept a contract?

Because it is the single most important step in getting qualified buyers who will not walk. It will also keep investors who focus on equity stripping from wasting your time that put out many offers. A qualified buyer who really wants the home will put down an earnest money deposit to keep other potential buyers from buying the home. The second reason is it

assures you the contract will get the preferred attention lenders need to give to your contract. Many lenders focus on contracts with earnest money deposits first and foremost. Lenders have been burned so many times by real estate investors who put contracts on three or four homes and then cancel the remaining contracts when they find another home they might want. With the upcoming volume of short sales, having an Earnest Money Deposit should be important. Earnest money deposits scream to the lender this is a legitimate deal that has an opportunity to close.

 

43.   If I get a contract is it guaranteed the lender will accept it?

No. This is the reason it is really important working with a company like FRG who knows how to properly package short sales for lenders so you have the best chance of completing your short sale. However, lenders today realize lengthy foreclosures are very expensive and are more inclined to accept reasonable offers for homes when the short sale package is presented properly to the lender with return on Investment Financial Analysis Overviews.

 

44.   What is the best way to price a short sale home in order to get a contract?

The best way to price a short sale home is to first figure out approximately what the lender will be accepting in order to prevent the homeowner/seller from having to pay deficiency balances. The next thing is to determine current market value including making adjustments for repairs, foreclosure costs and other important data. Than complete a Return on Investment for the lender. The most successful way to sell a short sale home is to implement a 6-week pricing strategy. The 6 week pricing strategy needs to be implemented reducing the price each week until you get a contract. Each week the price is changed in the MLS means every real estate agent utilizing the particular MLS will see your property. This means your home will have a very high marketing exposure in a short period of time. If you don’t get a contract within 4 weeks then the property valuation needs to be adjusted. This rapid change of price over a 6 week period creates urgency because the real estate agent representing the buyer knows if the price is reduced again the following week some other agent’s customer is going to buy the property.

45.   How much has my home dropped in value since the housing market collapsed?

It depends upon your location. Every market has experienced different levels of decrease in valuations. In some Florida counties and or neighborhoods some properties have dropped as much as 40-70% in value from peak valuations in 2006. In order to get a FREE valuation on your home including a 6-week pricing strategy that lenders will most likely accept without making you pay large deficiency balances click here.

46.   How does a 2^nd lien affect the short sale process?

It makes the negotiation much more difficult. Some lenders accept the usual and customary of $2,000 - $3,000 from the first lien holder to pay off the debt and other 2^nd lien holder’s counteroffer with higher payoffs. Some lenders want acknowledgements or debt letters signed stating you still owe the money. Other lenders want additional money down and or a note signed for the deficiency balance. Someone not trained in how to present proper short sale offers and who is not trained in high level negotiation techniques can cause sellers/homeowners to have to pay large upfront payoffs and or sign large deficiency balances. This is one of the reasons you want to use a specialized negotiation company like FRG to negotiate your short sales. You don’t usually get second chances in foreclosures.

47.   What is an acknowledgment agreement that lenders sometimes want borrowers to sign?

Many attorneys believe an acknowledgement agreement is one of the best things that could happen in your case. An acknowledgement agreement does not specify any terms or conditions except it acknowledges you had the debt. With no terms or conditions in the agreement, basically the lender has a new contract simply stating you owe money to the lender. In contract law in most states, the contract almost always goes against the party who wrote the contract for interpretation. In acknowledgment agreements the agreement never specifies when you will pay the debt back or that you have to pay a certain amount each month. The borrower could simply say I was going to pay it back 20 years from now or when you had the money to pay it back. The problem a lender may experience in this situation is, it will be difficult for the lender to take you (borrower) to court for violating an acknowledgement agreement. In order to file suit against you under most state laws, you have to violate the terms of the agreement. The main reason lenders are asking for acknowledgement letters is there is a lot of paper changing hands’, meaning lenders are selling their mortgage notes to other lenders and or debt collectors. Some investors who are buying these contracts are requiring these acknowledgement agreements. Acknowledgements also make these purchasing transactions more secure by having the borrower validate the amount owed. You would be surprised to know how many investors have bought contracts that had already been paid or even sold to other investors. In addition, many of these lenders are requesting insurance reimbursement for your deficiency balance and there is a lot of room for error and fraud scams. Therefore an acknowledgement agreement provides documentation the lender did try and collect the amount before the insurance company just hands over the cash to the lender for insurance claims.

 

48.   Can a second lien holder require me to sign a note for a deficiency balance?

A first and second lien holder can require borrowers to sign notes for deficiency balances. If you are financially stable, have the money and have a good paying job it is hard to get around having to pay something. If you have a true hardship, deficiency balances can be negotiated. When properly negotiated and having a thorough completed short sale package with Return on Investment justifications, most first lien holders do not ask for deficiency balances usually unless Private Mortgage Insurance is involved. The key to not having a deficiency balance is how you present the short sale package and the hardship letter. If you do it wrong the first time it is difficult to change. This is why it is important to use experienced specialized short sale negotiators like FRG to do your short sales.

49.   What if I refuse to sign or agree to sign any deficiency note/debt?

Usually your short sale will not get approved. Even if you don’t sign the deficiency note/debt, and the lender did not forgive the deficiency, usually the lender will still come after you when the foreclosure is complete unless you filed Bankruptcy. Signing the deficiency note or not signing the deficiency note doesn’t really change your position, because you still owe the money.

50.   If I agree to pay a deficiency balance and still can’t afford it or have another hardship will I be able to renegotiate?

Just because you sign a deficiency balance note doesn’t mean you will have to pay the entire amount. All bad debt is negotiable. Usually after you sign a deficiency balance note, the debt is sold to other investors or debt collectors for $.20-$.60 on the dollar. Some lenders have even offered borrowers to pay 75% of the debt as a payoff after a deficiency note was signed. If you still have a true hardship situation some lenders and debt collectors will take similar approaches to negotiating lower payoffs just like you did when you did your short sale. The process starts all over again and your debt is then sold again at a lower percentage.

51.    What are usually the terms to signing a deficiency balance if one is required?

They are all different. Again the key to having zero deficiencies or low deficiency balances is how good the short sale is packaged, how good your hardship letter is written and how good your short sale negotiator is. Your best protection is utilizing the best short sale negotiation companies like FRG.

52.   What is the difference in a temporary and or permanent hardship?

A temporary hardship is temporary like a short hospitalization, loss of job, economy, etc. A permanent hardship means your current financial position will not change and or will not likely improve. Examples are becoming disabled and or retirement and major medical issues that will not change.

53.   Why is a hardship letter important in helping determine if the lender will request a deficiency balance?

Even though lenders have specific guidelines to follow they still have regular people reading your hardship letters to determine if you qualify. If you are still making a large income and are complaining that you can no longer afford to go to the gym or afford your BMW car payments, you will have a tough time convincing someone of a hardship. The problem is most people don’t spend enough time to properly create a hardship letter that accurately reflects your entire hardship. FRG provides its clients a hardship development package that shows you how to write a hardship letter accurately reflecting your current hardship situation. Click here to receive a Hardship Development Package. It includes sample letters and different items lenders consider hardship that must homeowners forget to document.

54.   Can I short sale the property myself as a For Sale By Owner or can I use a real estate investor to short sale my property?

In previous years you could short sale your property as a “For Sale By Owner” and or use a proclaimed real estate investor. However the market has changed and many lenders are now requiring a seller to list the property with a real estate agent/broker before they will approve the short sale. The main push behind this has been the Federal Government. Many lenders are no longer allowing simultaneous and or double closings. The Government and Lenders have begun to realize they have been leaving a lot of money on the table for short sales where real estate investors might have the seller assign the deed to them, quit claim or sign a contract in order to buy the property at a much lower price. Then the real estate investors turn around and sell your home to someone else at a much higher price and close both transactions on the same day. Therefore, many lenders have just started requiring sellers to sign sworn affidavits that there are not multiple closings or that anyone else will be receiving cash upon closing within a time period (2 days up to 6 months varying on the lender). If the loan is backed by the government, transactions as described in this paragraph could be considered illegal and or a violation of law under Federal and State laws making the entire transaction rescindable. Investors who buy properties and add value to the property by investing in rehabbing the property usually do not have to worry about breaking these laws.

 

55.   Once I decide to do a short sale should I continue or will I have to make payments to the lender during this time?

Usually lenders expect homeowners not to be making payments when the homeowner is participating in a short sale. First, it confuses the lender’s management systems by making your loan paid to date which takes your account out of the loss mitigation departments for most lenders. Secondly, if you are still able to make payments, the lender will question if you are having a true hardship. Anyway, almost all homeowners who are doing a short sale typically are not making payments on their loan. FRG has never experienced a lender requesting any seller/homeowner to make payments while in their short sale program.

 

56.   I received a letter from the insurance company that I need to pay my homeowner’s insurance. Should I pay it?

This is a personal decision you should make based upon your unique circumstances. You should consult with your financial advisor and or attorney. However, here are some things you should consider: If you are not living in the home and you have no personal belongings there, usually the lender will have insurance on the home to cover the cost of the home. If you still live in the home and your home policy covers your personal belongings, then it might be a good idea to keep the insurance or at least modify the insurance program to cover your personal belongings similar to renter’s insurance which is much less expensive.

 

57.   I received a tax bill for property taxes, should I pay it?

Again, this is a personal decision you should make. However, most homeowners in foreclosure and or who is completing a short sale do not pay property taxes. Lenders typically expect to have to pay property taxes on short sales.

 

58.   I received a demand letter from my Home/Condo Association for fees, should I pay them?

No. Again, if you are in a true hardship position the lender will not expect you to pay or be able to pay. Lenders expect to pay the cost of Home/Condo Association fees. FRG has letters we send to you HOA to inform them of your position and to negotiate settlements on your behalf.

 

59.   Do I have to be past due on my mortgage to qualify for a short sale?

Not in today’s market. Previously most lenders required you to be behind on your mortgage before they would consider a short sale. Today, lenders are beginning to realize the faster a distressed property is discovered and addressed the more money they will save on carrying costs and are therefore willing to consider short sales even if you have not had any late payments. However, you have to have a verifiable hardship that is compelling.

 

60.   Why should my lender agree to accept less money than I owe for the property?

It is a financial decision providing a better return on investment for the lender. A landmark study by Craig Forcardi of the Tower Group in 2002 found an average cost to a lender to complete a foreclosure is $58,759.00. Considering cost of living has increased significantly since 2002 and market value of homes has decreased 25-50% compared to market values showing increases during the 2002 study, study figures are probably a lot higher today. However, assuming an average foreclosure is taking 12 months to complete, the carrying costs for an average home is $5,000/mo. If the lender sells the home in 90 days or 3 months, the lender saves almost $45,000 in carrying costs. In today’s market, the market is flooded with so many foreclosures and REO’s, a foreclosed home owned by the bank can sit on the market for 3-18 months which costs the lender additional carrying costs. With so many REO’s, lenders are now in the same position as homeowners where they are upside down and have a large deficiency in value of their portfolios. Lenders are in need of cash today to stay afloat and prevent Government intervention or takeover. Finally, lenders may soon be bailed out by Government money by sharing in the loss of the loan if it is sold via short sale verses allowing it to go to foreclosure. Current Government propositions under FAP (Foreclosure Alternative Programs) incentive lenders to complete short sales by paying them thousands of dollars to do the short sale as opposed to the foreclosure process. The Government realizes if so many homeowners go thru the credit destroying process of foreclosure, the U.S. will have a lot of citizens with no credit and unable to buy cars, homes and other items which would keep the economy in a downspin.

 

INVESTMENT PROPERTY, SECONDARY HOME, COMMERCIAL PROPERTY:

 

61.    Can I do a short sale on a secondary home or an investment property (rental property)?

Yes. Click here or Call FRG at 877.221.0459 to get more information.

62.   Can I do a short sale on a business or commercial property?

Yes. Click here or Call FRG at 877.221.0459 to get more information.

 

63.   Will I have to pay a deficiency balance on secondary homes, investment properties and or business/commercial properties?

It depends upon the lender, hardship letter and financials. If you are having a true financial hardship FRG is successful most of the time in securing short sales where no deficiency balance notes are required. Sometimes second liens and or Private Mortgage Insurance usually request some type of payment and or note but can be negotiated for very little.

64.   Is it better to do a short sale on all my rental investment properties at once or do them one at a time?

It is better to do them all at once. If two properties are completed with successful short sales several months prior to starting your third property, the third property will be more difficult to complete since your new financial status would be improved including having a lot of debt removed.

 

 

DISCLAIMER: Some of the information provided here is for educational purposes only and is derived from industry experts, informational news and websites. You should consult with your Attorney, CPA, Financial Advisor and or Real Estate Agent for any questions you may have that are legal and or financial in nature.