Foreclosure Exit Strategies Maja Kazmierczak Senior Loan Modifica;on Specialist April 29, 2015
Overview Short Sale Deed in Lieu of Foreclosure Selling Foreclosure
Short Sale What is a short sale? When the bank that holds the mortgage agrees to a sale of the mortgaged property where the proceeds of that sale will not sa;sfy the total amount due on the mortgage 2015 MassachuseKs Office of the AKorney General
Short Sale This happens when a person owes more on their home than what the property is worth Missing payments Defaults, added fees, arrears Taking out too much Changes in the real estate market and house values
Short Sale Avoids foreclosure Normally, sought when all home reten;on op;ons have been exhausted Normally, cannot be reviewed for modifica;on and short sale at the same ;me Can nego;ate a move out date and/or a closing date
Short Sale The homeowner can be offered an incen;ve for comple;ng the short sale These amounts can vary between servicers and investors Also individual circumstances can vary the amount or the fact that an incen;ve is offered at all A ;me limit can be given for the short sale to be completed Can be in different forms Can nego;ate the incen;ve
Short Sale The lender is usually willing to cover many costs associated with the short sale AKorney fees Closing costs Real estate agent s commission Recording fees Title fees
Short Sale The process is a long one with a lot of required documents Most servicers and investors require a hardship and financial informa;on from the owner There can be a lot of going back and forth with offers and counter- offers Most sellers have a seasoned real estate agent and an akorney helping them through the process
Short Sale Other things to be aware of: Requiring that the property be placed on the market If there is an auc;on date, may need a wriken offer from a buyer or signed P&S The seller cannot profit from the sale The servicer must get investor approval Arm s length transac;on Seller normally cannot stay in the home a_er the closing
Short Sale Watch out for the pi`alls! Do not go into a short sale without knowing the facts
Short Sale Deficiency The amount that is s1ll owed on the mortgage a7er the sale Example: The borrower owes $300,000 on a mortgage and a7er all is said and done $250,000 is what is le7. The borrower can be held responsible for that $50,000.
Short Sale Deficiency (Cont.) Because the bank is allowing the property to be sold for less than what is owed, there can be a deficiency issue The bank may go a7er the homeowner for the deficiency amount
Short Sale Deficiency (Cont.) BUT during nego1a1ons the seller can ask the bank to forgive any deficiency Get that in wri1ng!
Short Sale The owner can be denied the op;on to move forward with a short sale Offers can be rejected The arrears may be too high There is a bokom line of what the lender needs to receive from the sale Liens can cause problems
Short Sale There may be tax consequences The forgiveness or cancella;on of a debt can always trigger tax consequences Check with a tax expert Credit repor;ng Short sales are reported Can have a nega;ve impact on a person s credit
Deed in Lieu of Foreclosure What is a Deed in Lieu of Foreclosure? (DIL) When a borrower signs over their interest in a property to the lender who in exchange releases the borrower from their mortgage debt obliga;on
Deed in Lieu of Foreclosure Avoids foreclosure Also sought when all home reten;on op;ons have been exhausted The borrower needs to be in default The investor needs to approve the DIL The lender usually covers costs
Deed in Lieu of Foreclosure The lender may ask for financial informa;on The borrower may need to prove a hardship There will most likely be an agreement that needs to be signed by the par;es The borrower will need to sign a deed conveying their interest in the property to the bank Make sure the DIL has been completed and the deed recorded
Deed in Lieu of Foreclosure The homeowner can be offered an incen;ve for comple;ng the Deed in Lieu These amounts vary between servicers and investors Also individual circumstances can vary the amount or the fact that an incen;ve is offered A ;me limit can be given for the DIL to be completed A ;me limit can be given for a move out date Can nego;ate the incen;ve and move out date Usually there is a broom clean requirement
Deed in Lieu of Foreclosure There are things to watch out for with DILs as well
Deed in Lieu of Foreclosure There may be a deficiency The bank may go a_er the homeowner for the deficiency amount This can be nego;ated in the DIL agreement Tax consequences There may be forgiveness of the debt which may have tax consequences Credit Repor;ng DILs appear on credit reports and may have nega;ve impacts Liens can be an issue Borrowers may need to consult an akorney and/or a tax expert
Selling Don t forget about a good, old fashioned sale Especially if there is significant equity! That equity will be lost in a foreclosure
Foreclosure Can be inevitable Try to keep the homeowner calm Talk them through what is going to happen at the auc;on Do not have to leave on the date of the auc;on Explain they can nego;ate move out dates and cash for keys Go through the evic;on process Point them to programs and resources that offer assistance
Foreclosure Besides losing the property, there are other issues to deal with Deficiency amounts Credit Repor;ng Tax consequences Evic;on Finding Housing
Other Resources There are many agencies that aid in housing/ mortgage issues and have specific programs in regards to short sales, DILs and foreclosures Legal Aid Mass Bar Associa;on Dial- a- Lawyer: 617-338- 0610
Transi;on Out of the Home Once the homeowner no longer owns the home, where to now?
Transi;on Out of the Home Many agencies, including HUD approved agencies offer transi;onal assistance including: Social services Fuel assistance Assistance in finding housing Financial counseling
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