Distressed Home Owners
Whether the homeowner’s distressed position is caused by their own actions or by factors outside of their control, I go over their situation and explain to them that the future can be bright in spite of their recent setbacks.
I inform them that outside of sudden money—lottery winning, financial windfall etcetera—there are limited options that they have that can quickly change their situation!
Among the primary options are for them to:
1) Budget and live within their means (See Options Below)
2) Bankruptcy to regain their footing and live within their means (See Options Below)
Also if you exhibit any of the habits listed on our “home buyer” page it is best to own up to it. Many of us have those same qualities to a lesser or greater degree. The key is for you to realize it and decide to do something about it in a positive way.
The key to your future success and that of your family's is to do your best to avoid getting into a distressed home-ownership position again!
Over the years I have found it unwise to try and correct a situation that was built on a faulty foundation. You want to make the right decision right from the start. This can not be OVER-STRESSED enough.
The key is to get it right on the front end, or if that is not possible—at least from this point on.
Wisdom is the ability to use prior useful knowledge—regardless of where it came from to your best advantage and benefit from this point forward—and throughout the rest of your life. This will help improve your future living conditions and circumstances.
If you find yourself in a position where you are forced, or feel you have to sell—you are more than likely a distressed home owner.
Whether internal forces (caused by your behavior) or external forces (caused by factors beyond your control) are the culprit, there is no need to panic or stress yourself out.
Just as you were able to purchase your first home you will also be able to purchase another home.
However, you will now be even more wiser after having gone through the home ownership experience. You already know what home ownership consists of—from mowing the lawn to replacing appliances and the like to paying taxes and insurance.
The key difference on your next purchase is to do it the right way up front and minimize the possibility of getting into a difficult situation again.
It may take a few years and you may have to scale back on your living expenses to a certain degree, but it should only be temporary if you are truly determined to regain your footing.
I have found that Distressed Homeowners often have difficulty when trying to negotiate a loan modification or get other concessions from lenders. Most lender representatives that I have negotiated with lack the understanding of the home modification process in any detail.
They are often difficult to work with
(incompetent for lack of better word) and it is in your best interest to not
get into a distressed situation as dealing with lenders and their
representatives can be time consuming and stressful.
Why Doesn’t Your Company Assist Distressed Homeowners?
It basically comes down to a choice. Do we want to spend our time helping homeowners who want to do it the right way or do we want to be bogged down assisting those who have gotten into a difficult situation regardless of cause.
We choose to utilize the time efficient option of assisting clients on the front end. Since inception (2002) we have been assisting home buyers and sellers with added value services such as personal cash flow analysis, personal income statements and balance sheets and statement of net worth.
We are the only real estate brokerage company in Georgia and one of the few in the Country (United States) who can say that.
This approach has helped many obtain and keep their homes even during these trying times.
We have found this formula to be very effective and we choose to utilize our time more effectively by assisting those who want to buy and sell their home the right way on the front end.
However, we realize that these are difficult and stressful times for homeowners, therefore, we will list below strategic options for you to consider if you are currently in a distressed home ownership situation.
Keep in mind however, that we do not offer services to help get you out of your distressed situation nor do we offer legal advice—we operate on the front end (strategic advice prior to buying and selling your home) with the services we offer.
Having said that, the budgeting and bankruptcy options are outlined below:
(Re-arranging your finances—By doing any or a combination of the following it can help improve your cash flow position)
By doing a streamline refinance—if you qualify you can get your rate adjusted lower for $300 to $500 with the same term. You may be able to combine the 1st and 2nd mortgage in the "refi"— if the lender agrees.
By refinancing, if you qualify—you may be able to get payments at a level that you can live with assuming you adjust your budget and are able to live within the budget parameters. Your term and interest rate would change.
Get More Income:
By increasing your current household income you may be able to solve your situation.
Do a Loan Modification—You can pursue:
Forbearance to Modification—Interest Rate Reduction—Principal Reduction—Combination of Interest Rate and Principal Reduction—Term Change—Principal reduction with 1st and 2nd
Keep in mind that with a modification with many lenders you don't have to be behind on your payments—but you must be able to show that you are in an imminent default position.
Basically, that means your monthly cash flow or budget has to be negative or very low—or you must show that you will otherwise have difficulty making your monthly payment.
Fair Market Value Sale
Deed-in-lieu (Friendly Foreclosure)
Lease w/Option to Purchase
Homeowner stays as long as possible and does not make monthly payments and when lender forecloses some are in a position to pay cash for their next home or they decide to rent in future.
Their home value more than likely has fallen significantly and they feel hopeless that the value will increase to an acceptable level in the future.
They look at the major hit to their credit as a minor inconvenience compared to the loss in value of their home and their current loan to value and down payment that they made.
(By doing a chapter 7 or 13 you can drastically improve your cash flow position in many situations)
Chapter 7 allows you to get creditor calls to stop, possibly wipe out certain debt, possibly stop you from losing assets such as your home and car, help you get lawsuits dismissed and possibly other legal maneuvers. You would normally not have to make payments to your creditors if the debt is discharged through Chapter 7 Bankruptcy.
Chapter 13 allows you to get creditor calls to stop, stop foreclosure, stop car repossession or possibly recover car if it has not been sold, possibly wipe out certain debt, possibly stop you from losing assets such as your home or car, help you get lawsuits dismissed, stop wage garnishment and possibly other legal maneuvers. Your payments to your creditors would normally be reduced to a lower amount if they were included in a Chapter 13 Bankruptcy.
Note: All of the above may have credit and other legal consequences therefore you should obtain competent legal and professional advice.
If The Above Options Are Not Appropriate You May Want To Consider These Other Government Programs
HAMP (Home Affordability Modification Program)
You can be delinquent on your mortgage, mortgage lender may reduce payment by decreasing the interest rate to as low as 2%.
You can have a 1st and 2nd mortgage and possibly qualify.
Maximum mortgage loan limits are applicable.
If your loan servicer determines that a principal forbearance is required to get your monthly mortgage payment to an affordable level, the principal forbearance amount would be subtracted from the amount used to calculate your monthly mortgage payment, but you would "still" owe the money.
You would have a balloon payment that accrues no interest and would be due when you you paid off your loan, refinanced or sold your home.
Your lenders primary goal is to reduce your payments so that they are no higher than 31% of your gross monthly income. In some cases they may reduce the principal amount either permanently or add a balloon payment at the end.
The program is scheduled to end on December
31st, 2012—so it is imperative that you submit all paperwork and qualify on or
before this date. Look for other programs to be implemented in the future to help relieve home owners.
HAFA (Home Affordable Foreclosure Alternative Program)
The HAFA program consists of the following:
1) UP (Unemployment Program)—3 month reduction or forbearance in payments
2) Short-Sale Program—cash given to homeowner in this scenario of up to $3,000 for relocation
3) Deed-In-Lieu Program—cash given to homeowner in this scenario of up to $3,000 for relocation
The unemployment program mainly buys you time and is not a permanent solution to your situation.
By utilizing the Short Sale or Deed-In-Lieu program you will not retain your current residence.
You will mainly benefit by getting cash once you leave the premises as a result of a short sale or deed-in-lieu (friendly foreclosure).
HARP (Home Affordable Refinance Program)
You must be current on your mortgage for the past 12 months.
You cannot refinance for more than 125% of the value of your home.
You will get market interest rate if you are eligible.
Mortgage Loan must be a Fannie Mae or Freddie Mac Loan originated before December 31st, 2009.
Maximum mortgage loan limits are applicable.
FHA and VA Loans not eligible.
You must qualify for the program on or before June 10th, 2011.
HHF (Hardest Hit Fund)
Although not highly publicized, the Hardest Hit Fund was established in February of 2010 by the Obama Administration to assist States that were hardest hit by the market downturn and housing crisis.
At least 18 States along with the District of Columbia was included in the Hardest Hit Fund. The Funding ranges from approximately 20 million for Washington DC to almost 2 billion for the State of California.
If you live in the State of Georgia and you "are or were" unemployed, underemployed or were self-employed and suffered a loss of earnings due to the market downturn you may be eligible for relief.
In Georgia the full program launched on April 1st 2011 and is scheduled to end on 12/31/2017 or when funds (over 300 million) are depleted.
The processing is done on a first come-first serve basis and once funds are gone they will stop taking applications.
The process can take up to three months to finalize so apply early and comply with all of their requests and if you qualify you can get relief of varying amounts based on your particular household financial position.
Bad Service with other Real Estate Professionals
We are frequently asked by potential clients to get them out of a difficult situation that they are in due to the actions of a previous real estate professional and/or loan officer. This question usually comes up after they discover that they have made a bad purchase or received a bad loan.
First, I always point out that I am not licensed to give legal advice. I then inform them that they are in an ugly situation but probably too late to undue the situation.
Although we provide many services, there are many things that are unspoken or unwritten that we perform and many things that we do as a complimentary service that a potential client can benefit from that will prevent them from getting into a bad financial situation.
In addition we offer many services that those in the Real Estate profession don’t perform.
If my potential client still has the documents (sales contract and loan documents) I ask him/her to bring them in. On these documents I show them where they signed and agreed to the terms. In most cases it is difficult if not impossible to reverse the damage that has been done after a contract or loan has been accepted and you agree to the terms.
Don’t put yourself in a situation where you later have to ask—did I get a good loan or make a good purchase? That means not purchasing a house unless you understand what you are buying and what you are paying along with all the other technical jargon.
Before signing your name ask your real estate professional and/or loan officer relevant questions (see Realty 1 Strategic Advisors—Questions to Ask brochure) about the documents that you are about to sign.
Better yet before signing your name ask your real estate professional and/or loan officer to write down right in front of you on one page what he/she considers the most important things that you should know.
If he/she merely tells you to read the documents you might want to choose someone else to represent you.
Also, begin your home search with a clear vision of why you’re buying and how long you intend to be in the house. You must communicate this clearly to your Real Estate agent and Loan Officer to help them better determine the kind of home and mortgage product that is right for you.
Make sure the realtor provides changing market information (timely information) and is not afraid of technology such as e-mail, text messaging and other technological breakthroughs that can make your home purchase less stressful.