One of my most popular questions is regarding the foreclosure process and what are the steps leading up to foreclosure. While it is important to understand that timeframes between each step vary from state to state and lender to lender. Some states are judicial and some are non judicial states. GA is a non judicial state meaning the bank does not have to file a lawsuit or go to court in order to foreclosure on the property. It would also be helpful to put a disclaimer right here that states: Always contact an attorney, tax professional or retain a real estate professional for specific advice about your situation.
Now that legalities are out of the way, let’s get started with the steps to foreclosure:
1. DELINQUENCY – A Delinquency occurs when you are up to 30 days late on your payment
2. DEFAULT – The loan goes into default once payments are OVER 30 days late. At this point the lender will contact you to see if this is a short or long term problem and will work accordingly.
3. LOSS MITIGATION – Once the bank realizes that the default is a long term problem (job loss, ARM adjustment, illness, etc) then the lender will offer the homeowner some options to avoid foreclosure to include:
Loan Modification
Forbearance (grant a few missed payments)
Negative Settlement
Deed in Lieu
Short Refinance
Short Sale
4. FORECLOSURE – If Loss Mitigation fails then lender will foreclose, evict borrower and put property up for auction
5. REO (Real Estate Owned) – If the property is not sold at auction then it will revert back to the lender as a REO which is then prepped and sold on the market
There are some new terms being thrown around in both real estate and at water coolers around the country and I want to assist homeowners with what they mean.
The Obama Administration is attempting to assist homeowners stay in their homes by budgeting $75 Billion dollars in funding to help reduce foreclosures. The first program to be discussed is HAMP which is the Home Affordable Modification Program. This program temporarily allows eligible homeowners to lower their mortgage payments to 31% or lower of their pretax income through a loan modification.
Technically the adjustments are labeled as “temporary” however do become permanent once the homeowner makes 3 consecutive on time mortgage payments. As an additional bonus, if you make all of your loan payments on time for five years you will also receive a $5000 credit on your first mortgage principal balance. To qualify:
The home must currently be a primary residence meaning this is not a rental/investment property
Your first mortgage must be less than $729,750
There must be some kind of hardship (divorce, job loss, chronic illness, ARM adjustment, etc.)
The mortgage must have been obtained prior to January 1, 2009
The mortgage payment must be more than 31% of the mortgagee’s gross income.
If these qualifications are met, you must contact your service provider (who the mortgage is serviced with ie. Bank of America, Wells Fargo, Suntrust, EMC, etc) to see if they participate in the program.
Next is HAFA – the Home Affordable Foreclosure Alternatives Program. This program began very recently on April 5, 2010 and is designed for homeowners who meet the above terms for HAMP but cannot keep their homes. This program ends on December 31, 2012.
In summary, HAFA is designed to provide incentives to homeowners to short sell their properties as opposed to allowing the property to go into foreclosure. The following are some outlines of the program:
Borrowers must be HAMP eligible however unable to keep their home
Allows homeowners to receive pre-approvals for short sales (including the minimal acceptable net proceeds the bank will accept for a short sale)
Allows homeowners to be fully relieved of responsibility for the first lien. What this means is that the first loan cannot ask the homeowner/seller to be held liable for the loss, sign a promissory note or bring additional cash to closing. It is important to note that this does not cover any additional liens such as second loans, home equity lines of credit, etc.
Provides financial assistance for homeowner relocation costs (up to $3000); $1500 for service providers to process the short sale; up to $2000 for investors who allow a minimum of $6000 short sale proceed distribution offered to a subordinate lien holder (2nd mortgage)
Loans must be conventional loans, the HAFA program does not apply to FHA or VA (both government backed loans)
What does this mean to home owners, home buyers and Realtors? The HAFA program is set up to assist in streamlining the short sale process (which in some instances there is nothing “short” about it). Shortening approval processes, higher short sale approval success, guaranteeing Realtor’s commissions and eliminating future liability for Seller’s first liens.
If you have any questions regarding any of these programs OR want to discuss the possibility of avoiding foreclosure with a short sale, please contact us for more information.
