ZenithPropertySolutions.com/blog » Deed-In-Lieu of Foreclosure

Attention Maryland Homeowners in Financial Distress! Treasury just made Short Sales a lot simpler…

Owen McGab Enaohwo — Thu, 03 Dec 2009 03:51:34 +0000

An Obama housing initiative that I can totally agree with

On November 30th 2009, the Treasury department came out with a new set of guidelines called “Home Affordable Foreclosure Alternatives – Short Sale and Deed-in-Lieu of Foreclosure” or HAFA for short. It is the new addition to the Home Affordable Modification Program (HAMP) (HAMP is meant to help homeowners get their loans modified but in my view the HAMP plan has not been successful because most lenders were unwilling to reduce the principal amount owed by the borrowers especially when home values have dropped significantly – now enough of my opinion on HAMP and back to HAFA the reason you are reading my blog post).

The scheduled effective date for HAFA is April 5, 2010 but smart servicers and lenders will be wise to implement the program before that time (with enough pressure from homeowners, I am sure the wise lenders will not wait till then, so learn as much as you can about HAFA and start calling your lender to task). Once HAFA is in full effect, homeowners will be accepted into the program as long as all the requirements are met and the paperwork is received on or before December 31, 2012 (Hence I have more than enough time to start working on providing you a solution as your Real Estate Agent especially if you reside in Maryland).

So what is HAFA proposing as the foreclosure alternatives for Homeowners?

Simply put, Treasury has proposed that lenders (and/or servicers) offer Short Sales or Deed-in-Lieu (DIL) as the alternatives to foreclosure for homeowners who are unable to be approved for a HAMP modification request, a HAMP modification was offered and not accepted by the homeowner, the homeowner falls out of a HAMP modification or the homeowner requests for a short sale or DIL. The HAFA program is meant to streamline the use of short sales and DIL by lenders and make the entire process a lot simpler and quicker!

So what are the benefits of HAFA for Maryland Homeowners in financial distress?

• It provides additional alternatives for homeowners besides HAMP

• Allows for pre-approved short sale terms even prior to listing the property with me.

• Allows lenders to use the same paperwork they previously collected from homeowners who must have tried to qualify for HAMP

• Stops lenders from reducing my commission as your listing agent (I guess this point is truly to my own benefit)

• Requires that lenders fully release homeowners from future liability of the debt or pursuing any deficiency judgments as a result of the short sale or DIL

• It standardizes the entire short sale and DIL process, the documents to be used and the timeframes. The paperwork will include making using of a Short Sale Agreement (SSA), the Request for Approval of a Short Sale (RASS) or the Alternative Request for Approval of a Short Sale (Alternative RASS – which is used in cases whereby the homeowner gets the home listed and has a buyer’s contract even before the lender sends out their own pre-approved short sale notice). (lets just hope that lenders can now be more efficient and effective)

• Once determined that a short sale is possible lenders are required to give at least 120 days to the homeowner to sell the property using a real estate agent (hint – me)

• Even though the foreclosure process can continue, lenders cannot move forward with the final foreclosure sale until the marketing period has expired (hint – you wont have to worry about this when I am your agent, I will sell it quickly)

• Lenders have only 10 days to approve or disapprove a short sale or DIL

• The program offers $1500 to homeowners as a moving incentive for them to consider a short sale or DIL

• It stipulates that all junior liens be offered up to $3000 maximum for a full release of their dept, hence no time wasting negotiating back and forth with junior lien holders (no more money out of pocket demand from junior lien holders whatsoever)

What are the requirements need to be qualified for the HAFA program?

• The property must be your principal residence

• The mortgage loan is the 1st lien and must have been originated before January 1, 2009

• The mortgage is delinquent or future default can be foreseen

• The current unpaid principal balance (UPB) is equal or less than $729,750 (for 1 unit properties)

• Your total monthly mortgage payment must exceed 31% of your monthly gross income

• You may be required by your lender to keep making payments during the short sale marketing period. If there is a payment, it cannot exceed 31% of your monthly gross income (now is it only me that thinks most folks considering a short sale already exceeds 31% of their gross income – LOL)

• The property if sold as a short sale cannot be sold to a relative; it must be an Arms Length Transaction. Also the buyer may not receive funds from the transaction and cannot sell the property for at least 90 days after closing

Well there you have it, this is my summary of the new Short Sale and DIL guidelines set by the Treasury Department in their HAFA program. Feel free completely educate yourself on this program and read the complete guidelines and rules by going to this link http://budurl.com/EntireHAFAGuideLines. Until all the lenders wise up and start moving towards making use of this new program, I will still have to get short sale negotiated and approved the usual way. So if you are a Maryland Homeowner in financial distress and you can no longer afford your mortgage payments call 866-205-6352 so I can help you get mortgage relief ASAP!

(P.S I know this was a long post but please leave your comments on my blog; it lets me know you find my post useful, thanks)

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Short Sale VS Foreclosure VS Deed-In-Lieu of Foreclosure; which of these represents the best choice for a homeowner in distress

Owen McGab Enaohwo — Wed, 21 Oct 2009 08:52:57 +0000

The entire foreclosure process can be very stressful for homeowners; some get so depressed, that they do nothing about it. While others who are proactive sometimes end up being given the wrong advice or make decisions that are not well informed. If you are a homeowner dealing with this situation, you will have to make a decision on whether to get your property sold as a Short Sale usually at the discount approved by your lender, or give the property back to them as a Deed-In-Lieu of Foreclosure or just let them complete the Foreclosure. You need to decide which of these three options is the best for you both in the short and long term? Deciding which option to take might be tough especially if you do not know how each will affect your credit and ability to buy a home in the future.

Short Sale VS Foreclosure VS Deed-In-Lieu of Foreclosure

A short sale transaction occurs when a lender agrees to a discounted payoff on the loan balance, due to the financial hardship experienced by the homeowner and/or a decrease in the resale value of the property. A short sale is the best option if you are facing foreclosure because it is a lesser financial loss. You get to avoid foreclosure, reduce the adverse effects on your credit and increase your chances of getting a loan to buy a home within a shorter period of time.

Foreclosure occurs when a lender sells or gets back a parcel of real property, after the owner failed to conform to their mortgage or deed of trust agreements. The estate becomes the absolute property of the lender. The foreclosure process generally starts with a formal demand for payment in the form of a letter called Notice of Default (NOD) issued from the lender. It varies from state to state but in most cases the lender usually issues this notice when the homeowner has been 3 months irregular on their mortgage payments. The notice is typically a warning that they will sell your property if you do not make your payments current.

Deed in Lieu of Foreclosure is the alternative to a foreclosure. This is a settlement, which is voluntarily made, and in good faith in which the borrower surrenders their house to the lender and moves on with nothing owed. The main advantage for the borrower is that it immediately releases them from the debt associated with the defaulted loan. The borrower also avoids a painful and time consuming foreclosure. The main advantage for the lender is a reduction in the time and cost of repossessing the property. In most cases a lender will only accept a deed in lieu if there are no other liens attached to the property or these liens can be significantly reduced. The reason is because they do not want to be responsible for the other liens that are attached to the property; this is why most lenders will push for a foreclosure instead because it removes all junior liens.

How does each of the three options affect your credit and the length of time it will take to buy another home?

Short Sale:

This the best option for a homeowner facing foreclosure due to its reduced adverse effects on their credit and their ability to get a loan to buy another home in a shorter period of time.

Short sale credit reporting options are:

• Paid Settlement – In which, credit score will drop 50-150 points.

• Paid, As Agreed – in which, won’t hurt the score at all as long as the borrower is paying regularly.

• Unrated – In which, may drop a few points.

Fannie Mae & Freddie Mac guidelines states that the waiting period before you can buy a new home is 2 years from the date the proceeding is completed. And there is no exception for extenuating circumstances.

Foreclosure:

This is the least advantageous of all of the three options; it will remain in the credit report for 7 years from completion date and the credit score will drop from 50-250 points. Another disadvantage is that when Deficiency Judgment or Tax Lien is filed the credit score may drop an additional 100 points.

Fannie Mae & Freddie Mac guidelines state that the waiting period is 5 years from the date of foreclosure completion proceedings.

Below are requirements in addition to the 5 years up to 7 years after completion date:

• Purchase of a primary or principal residence is permitted, 10% minimum down payment and the minimum credit score is 680.

• Purchase of a second home or property investment is not permitted.

• No cash-out refinance is permitted.

Extenuating circumstances are acceptable such as loss of employment and severe medical crisis and if approved the waiting period is 3 years from the date of foreclosure completion proceeding. The same additional requirements are applied as above except the minimum credit score of 680 is not required.

FHA Guidelines state that the waiting period for a foreclosure is 3 years from the foreclosure completion proceedings. However if foreclosure is a result of extenuating circumstances such as serious illness or death the lender may grant an exception.

Deed in Lieu of Foreclosure:

Credit scores will carry the same serious effects as Foreclosure because most lenders report a deed in lieu of foreclosure as foreclosure. However the reality is that what is reported can actually be negotiate with the lender. It will remain on the credit report for 7 years from settlement completion.

Deed in Lieu credit reporting options:

• Paid Settlement – In which credit scores can drop up to 150 points

• Paid as Agreed- Credit scores show a dropped over 100 points due to default in payment but with this option borrower could purchase a home in a short period of time.

Fannie Mae & Freddie Mac guideline state that the waiting period for a Deed in Lieu of Foreclosure is 4 years from the date of completion proceedings.

Additional requirements after 4 years up to 7 years from completion date:

• Greater than 10% minimum down payment required for the transaction or purchase of investment property, principal residence or a second home by a borrower.

• There is a limited-cash-out and cash-out refinance are permitted if eligible and meet the requirements.

• Extenuating circumstances, physical condition such as medical crisis or other factors such as loss of employment that caused a borrower to choose the option Deed In Lieu of Foreclosure, the waiting period is 2 years from the completion proceedings.

In summary, the guidelines stated above clearly show the advantages for you to choose to short sale your property compared to allowing it to go into foreclosure or deed in lieu because the adverse effects to your credit is reduced and also, you will just have to wait 2 years to get a loan to buy another home instead of 4 years with the deed in lieu option or 5 years with the foreclosure.