Homeowner Needs A Safe Out Soon:
There are possibilities for staying in the home as a renter if you are the homeowner going through Foreclosure, and have been living in the home as a primary residence.
Whether you want to stay or not, and are looking for the best way out under your circumstances, keep reading to learn more about a few of your possibilities.
Deed-In-Lieu of Foreclosure:If you can't make your mortgage payments, and you don't qualify for one of the better options, this is better than just walking away from your loan. Basically, this amounts to giving the bank your deed in exchange for what you owe them. It may not get you off the hook for any second mortgages. This option can be quite lucrative for the bank, and usually cost them less than a foreclosure would, so they have come up with a few interesting incentives. Some banks are offering "Six Months Free," allowing you to save up a little before moving. Others are offering Cash For Keys, in exchange for moving out quickly without destroying the property. The government has just gotten into the Cash For Keys version of Deed-In-Lieu as part of HAFA beginning April 5, 2010.
According to J.P. Morgan (and just about everyone else), one in every four homeowners owe more on their mortgage than their home is worth on the open market here in the first quarter of 2010. Homeowners with an Option ARM are walking away from their mortgages at about twice the rate of homeowners with fixed interest rates. According to Bank of America, nearly half of their borrowers have second liens, effectively increasing the actual number of underwater homes in America.
If this sounds like you, and your American Dream is coming to an abrupt end, what effect will your choice of exit strategies have on your future?
What If I Just Walk Away?Law professor Brent T. White at the University of Arizona has written a paper "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis." In which he suggests that more people would walk away from underwater mortgages, even if they can make the payments, but for the shame, guilt and fear due to misinformation fed to the public by government, lenders and the media.
Just the same, the traditional stigma associated with FORECLOSURE seems to be vanishing with the times. There was a time when homeowners would do anything to avoid it. Now, with so many foreclosures out there, it has become a reflection of our economy. Things we would never have even considered in the past are becoming some of our only options today. We have even gone so far as to give it a new friendlier name, Strategic Default.
Just walking away from your home and the mortgage attached to it results in foreclosure. After a foreclosure, your lender has to sell the property for whatever they can get, and will then hold you responsible for paying whatever deficient amount is left. It is the only option you give your lender to recover their investment if you just walk away. Foreclosure costs the lender extra money; and in return, they show their appreciation by doing what they can to destroy what little credit you have left, for as many years as possible. Foreclosures stay on your credit report for seven years, so prepare to go without credit for a while. You can expect your credit score to go down at least 150 to 250 points depending on your circumstances. You may not be able to get a loan for the next few years, and possibly as many as five to seven years. Although private money is always available at very high rates of interest, it could be quite some time before you can buy another house in any traditional manner.
By the way, the average American credit score is 692. You can evaluate the impact of the foreclosure by subtracting 250 from your current credit score and comparing with this chart.
With the difficulty of getting credit post-foreclosure in mind, you may want to stay in your home as long as possible so you can save up as much as you can towards a future emergency plan. And if you do need a new vehicle, you may want to purchase while you can. Just be careful not to run up a lot of additional debt with bankruptcy in mind as the court will consider a big surge in spending just before filing bankruptcy to be fraud.
Another thing to consider is taxes. If your lender forgives the deficit amount mentioned above, the IRS will consider it as income! The Mortgage Debt Relief Act will only relieve you of that tax on foreclosures between 2007 and 2012 if it was your primary residence. Or if you can convince the IRS that you were insolvent at the time of the foreclosure, you probably won't have to pay the taxes. Otherwise, this is something to keep in mind.
Deed-In-Lieu of Foreclosure Options:So, if this hasn't talked you out of walking away from your home, then you need to consider one of the Deed-In-Lieu of Foreclosure options currently available:
Fannie Mae's Tenant-in-Place Rental Policy called "Deed For Lease"Fannie Mae's Deed-for-Lease Program (D4L), allows qualified borrowers (or their tenants) to execute a lease of up to 12 months in conjunction with their deed-in-lieu of foreclosure, allowing them to remain in their home as a renter. Borrowers interested in exploring this option should discuss it with their mortgage servicer. To qualify both the property and borrower (or tenant of the borrower) must meet certain general qualifications* such as:
For answers to frequently asked questions please see Deed for Lease (D4L) - Frequently Asked Questions.
Please note that consideration for a D4L is initiated by mortgage servicers. If you are a borrower interested in pursuing a D4L please contact your mortgage servicer. Servicers can find additional information at www.fanniemae.com/sf/servicing/d4l/.
* Notice: Fannie Mae has recently announced it has renamed the deed-in-lieu of foreclosure process as a 'mortgage release' and is using that term throughout the new servicing guidebook.
The government-sponsored enterprise said servicers are required to implement the policies for all loans under consideration for mortgage release on or after March 1, 2013.
* Inside scoop: Fannie Mae released a press statement in early March 2010 that it expected to continue to purchase seriously delinquent loans including ARMs in an effort to correct the market. They have kept their word and now control a large percentage of these loans. So even if you didn't start with a Fannie Mae home, you may have one now! You may want to use Fannie Mae's "Loan Lookup" tool to find out.
Citibank's "Foreclosure Alternatives Program"Many states have lengthened the time it takes to complete a foreclosure which makes the process more time-consuming and expensive for the lending industry.
On February 11, 2010 Citigroup Inc. announced plans through the ASSOCIATED PRESS to let homeowners on the verge of foreclosure stay in their homes for six months - if they turn over the deed to their property. This six month Forbearance combined with a Deed-In-Lieu of Foreclosure program is intended to help borrowers who don't qualify for a mortgage modification or a short sale.
Borrowers in Citigroup's program will still need to pay their utility bills. But Citigroup will pay at least $1,000 in relocation costs and will consider helping out with other expenses.
Citigroup's program, like other "deed-in-lieu of foreclosure" efforts, allows the homeowner to avoid a completed foreclosure. While you must still leave the home after six months, the program results in a less severe hit to your credit score (probably from 150 to 250 points depending on how many late payments and other factors were involved in getting you to here, but often repairable in four to five years.) Furthermore, you won't be responsible for the deficient amount on your mortgage or the six months of 'free' rent.
The HAFA "Home Affordable Foreclosure Alternatives" ProgramIf you have already tried the Home Affordable Modification Program (HAMP) without success HAFA was designed for you. To participate in HAFA, homeowners must still meet HAMP's eligibility criteria. But HAMP Program homeowners must be considered for HAFA within 30 days if they cannot meet HAMP's requirements or if they specifically request consideration for HAFA.
The first part of HAFA is the Short Sale option discussed previously under Short Sale. Your lender also has the discretion to accept a HAFA DIL (Deed-In-Lieu), which requires a full release of the debt and waiver of all claims against you. In return you must agree to vacate the property by a certain date, leave the property in broom clean condition and deliver a clear, marketable title.
The HAFA Short Sale Agreement (SSA) discussed previously contains optional Deed-In-Lieu (DIL) language that may be included or deleted by your lender prior to execution of the SSA. If the DIL language is included, the investor is obligated to accept a DIL in accordance with the terms of the SSA if the term of the SSA expires without resulting in a sale of the property.
Under certain circumstances your lender may agree to accept a DIL without requiring a marketing period. Typically, you are required to make a good faith effort to list and market the property first. Since the Short Sale has a minimal effect on your credit (likely 75 to 100 points,) and your recovery time is almost instant (likely six months to a year or two - allowing you to buy a more affordable home right away,) you have quite an incentive to succeed in your effort to sell.
The National Association of REALTORS® (NAR) has put together a summary of the new HAFA Program with an FAQ to help you better understand the process.
The following terms apply to a HAFA DIL:
Any other "Deed-In-Lieu" ProgramInspired by Citibank, the Mortgage Bankers Association (MBA) is working on a nine month Forbearance plan (rather than six months) because they don't feel six months is enough time to find a new job today, or to go through all the hoops for a loan modification. This program would not be for everyone, just those who are between jobs and actively looking for one. But it does have some intelligence behind it. They expect that your new job will likely pay around 75% less than your old job, and they expect it to take around seven months to get your first paycheck or two. You would also be expected to pay some significantly lowered portion of your mortgage payment along the way - no free ride. Just the same, this may be exactly what you need, and many other banks have come on board such as Wells Fargo & Co, Bank of America Corp, JP Morgan Chase & Co, and Citigroup Inc, (as these banks are already taking part in the HAMP Program and offering modifications on second mortgages) so we recommend you ask your bank about it and see if they are game.
Unlike a typical Forbearance, where you pay a lower payment for a while then try to catch it up later (delaying the inevitable unless you just happen to be only a very short time between two well paying jobs,) the Deed-In-Lieu of forbearance amounts to a 'stealth stimulus package' allowing you to get back on your feet quickly.
Bank of America's a plan to start lowering mortgage loan balances started in May of 2010. Their program is limited in scope, but you just might be who they were thinking of. Is your home severely underwater, your loan either sub-prime or a two year adjustable, and have you missed two payments? If so, Bank of America expects to forgive roughly $3 billion in principal on those types of loans through their new program. They are doing this because they made a settlement agreement with several state attorney generals following their purchase of Countrywide Financial (who was in the habit of making irresponsible loans at the time.)
Furthermore, in late March 2010, the government proposed using the FHA to back the other major banks in a similar program. So keep your eyes open, the mortgage business is changing very rapidly right now in an effort to stay afloat, and your boat may just be sailing in.
If the new changes inspire you to readdress Loan Modification (even with a second mortgage in tow,) either on your own or with professional help, we would like to be there for you.
A look at the futureAccording to Stan Humphries, chief economist at Zillow.com, there are just under 4 million homes for sale in America today. At best, about 350 thousand homes are selling every month. That suggests that it will take at least ten months to catch up the backlog of homes on the market today. No one knows just how many foreclosures are coming up in the next year, but some estimates approach 10 million. Add even a fraction of that "Shadow Market" to the existing market and it becomes clear that we will be in a housing slump for several years to come regardless of any wishful thinking by politicians in the news.
What does this mean to me as I'm losing my house? Please allow me to paint a picture that may cheer you up. Let's suppose you are currently behind on an $1800 monthly mortgage, your home is underwater so there is no equity at all, and combined with your other bills you are going further under at a rate of about $500 per month due to a reduced income. Sounds dismal doesn't it. Try thinking of it as an opportunity.
Your New American dream may be a rental! Suppose you give your home to the bank with a six month grace forbearance, then find a nice rental for around $750 a month. Instead of being $3,000 in the hole when you leave your house, you will be nearly $8,000 ahead and poised to save an additional $500 to $600 per month which you can put away for your future home. In about three to four years, (by which time your credit will be back in good shape) you will have around $25,000 to put down on a more affordable home - just before the market goes back up. By taking advantage of the current bargain basement rents and the over priced mortgages, you don't have to suffer while taking charge of your own future.
Of course these numbers are hypothetical averages across America and may need adjusting up or down relative to where you live, or want to live, but hopefully they make the point. All is not lost. We have the right to start over in America, and become whatever we know inside we can be!
If this sounds good to you, RealPropSolutions has many contacts that are looking to make their homes available on a Lease-To-Own basis. This may be the type of transition that will get you through this period of stress, and back into a reasonably normal lifestyle.
Hopefully, you have been able to find something useful in the above information.
When all else fails, then Bankruptcy becomes a real option.
The general rule of thumb is that if it doesn't seem fair to you, someone has probably already gone through the very same thing; so there may be either a law or a precedent already established in your favor.
For more options please refer to our Options Page.