Why Real Estate Agents And Investors Need to Know the Available Options to Homeowners That Are In The Process of Foreclosure



Whether you are a licensed real estate agent or an active real estate investor you will come across homeowners that are in the process of foreclosure and need to understand what options they have available in order to best assist them.  More and more properties that are listed for sale, on many state and county multiple listing services, are properties that currently require a short sale or reduction in debt. Knowing this, it will greatly benefit you to be well versed in the many possibilities for aiding these homeowners.  Below are some of the options that are currently available and what is needed to qualify for each one:

• Loan Modification or Repayment Plan

• Refinance

• Bring Loan Current

• Bankruptcy

• Selling property

Loan Modification or Repayment Plan

When you are speaking with a homeowner in default you need to first ask them if they have approached their lender and inquired about a repayment plan (loan modification or forbearance plan). If they haven’t, explain to them what each plan is comprised of and also that each and every lender has different qualifications for each:

Loan Modification – A loan modification is when the lender modifies the current mortgage in order to work with a homeowner. The purpose is to help make the loan more affordable. Usually it is in the form of an interest rate reduction, a principal reduction or extending the loan term.

Repayment Plan – A repayment plan is an agreement between the borrower and the lender to catch up the mortgage arrearage over a period of time.  Typically, the lender will require the borrower to make a lump-sum payment up front towards the arrearage.  This amount is often times 50 percent of the total amount they are behind.  The remaining balance is then divided up over the next 6 to 18 months, and is to be paid on top of their regular mortgage payment!  The foreclosure will be put on hold while the borrower is making payments under the forbearance plan and will be dismissed once the forbearance is completed. However, if the borrower defaults on payments during the forbearance plan, the lender may proceed with the foreclosure immediately, without notice and without re-starting the foreclosure process from the beginning.

Essentially what usually ends up happening is that the bank will negotiate an agreement that helps them but still leaves the homeowner with only a temporary solution. Either of these options takes many hours of communication and back and forth information exchanges in order to accomplish. When the homeowner contacts their lender, they will be asked for a “hardship letter” and most of the other documents requested in a “typical” short sale package (you can visit www.ManageMyShortSale.com for a complete list of what is included in a short sale package).

When their lender receives the paperwork, they usually tell each homeowner that they’ll get back to them in between 1 to 3 weeks.

Refinance

Another available option for clients looking to keep their house is to refinance. When speaking with your potential client ask if they have tried this option.  Keep in mind that if they do qualify for this option it is typically more costly for them due to a very high interest rate. Also, lenders are now requiring homeowners to have upwards of 40 percent equity in their home for people in foreclosure to get pre-qualified and there are still no guarantees. (This option is almost non-existent in today’s economy and homeowners are more and more understanding of this fact.)

Loans to Bring Current

In some cases the homeowner may have a friend or family member that can loan them the money to bring their loan current.  If they don’t have anybody they can turn to for a small loan to help them out of foreclosure, then ask if they have a 401k they can borrow against to bring their loan current.

Bankruptcy

If no other options have panned out, ask them if they have considered bankruptcy.  Let them know that with bankruptcy they still need to qualify and if they want more information on that they should consult a qualified bankruptcy attorney to discuss if bankruptcy is a good option!

Bankruptcy, in addition to all the above options, is one of the many possibilities that need to be explored for any of your clients wanting to save their home.  The bottom line is that for all of these options, your clients still need to be able to afford their house.  If they can’t then the only viable option would be to sell their property.

Listing an Over-Debted Property

This is becoming the norm in today’s foreclosure ridden environment.  If you are an active real estate agent or investor you better be educated on what a short sale is and how to deal with them. Short sales are a huge part of my business, 99% to be exact!  I have agents and investors in my area that are still behind the curve and are still fighting the fact that they need to know how to do short sales in order to supplement some lost commissions. Do yourself a favor, don’t be one of them!

For more real estate industry articles and videos visit www.RealEstateBusinessMentors.com or visit www.AskBobLachance.com for any real estate questions.