The Truth About Loss Mitigation, Short Sales and Foreclosure

In the past homeowners were urged to refinance or try to sell the home (if there was any equity). But stricter lending guidelines and declining market values eliminate most of these opportunities. Thus homeowners facing rising obligations and foreclosure are forced to consider other options.

Today owners are being solicited for a short sale prior to auction. Unfortunately many providers are not reputable and may only seek to steal any existing equity and displace the owner from the home. But are short sale transactions by legitimate real estate agents the best option available?

There is a proposal to add a "lien" notation to the credit report of all borrowers who elect a short sale that would limit or virtually prevent them from obtaining future financing. This is in direct contradiction to the temporary deficiency forgiveness promulgated by the stimulus legislation most real estate professionals rely upon.

Other homeowners simply fail to act at all or wait until it's too late to obtain a favorable solution as a result of the conflicting information. This will severely impact the homeowner as one of the GSE's (Fannie Mae) has increased its foreclosure seasoning requirement to obtain new financing after a default to five years for a purchase and up to seven years for a cash-out refinance.

Let's face it foreclosures and short sales have a negative impact on both the homeowner and the local community. To better serve these homeowners and maintain local property values we should have a better understanding of all the options available and the resulting consequences:

1. REFINANCE

Pro:

Owner Maintains Home

Con:

80% do not qualify and new payments are higher than original payments

Comment:

Usually a temporary solution that may cause a larger long-term challenge

2. SALE

Pro:

Preserves credit and possibility of accessing existing equity

Con:

Lack of equity/timing limit opportunities and owner is displaced from home

Comment:

Dependent on existing equity and marketability of the home.

3. BANKRUPTCY

Pro:

Extends the foreclosure proceeding for a period of time

Con:

Costly stall tactic that tarnishes credit/leads to foreclosure 60% of the time

Comment:

Misconception is mortgage is protected by bankruptcy - only arrearage.

4. SHORT-SALE

Pro:

Preserves credit (through 12/31/08 with current Stimulus Package provisions)

Con:

Lack of timing/access to lender limits opportunity/owner is displaced from home

Comment:

Dependent on existing equity, marketability and lender accepting short payoff

5. DEED in LIEU of FORECLOSURE

Pro:

Lender may waive deficiency judgment rights

Con:

Owner is displaced from home/credit is damaged/possible tax ramifications

Comment:

A voluntary foreclosure with no real benefit - a step above foreclosure

6. FORECLOSURE

Pro:

None

Con:

Owner is displaced from home and credit is severely damaged

Comment:

Worst of all possible outcomes for homeowner

7. LOSS MITIGATION

Pro:

Multiple solutions to keep owner in home

Con:

Difficult for homeowner to negotiate with Lender

Comment:

The best solution if owner wants to retain the home

A. LOAN MODIFICATION

Possibility of lower fixed rate payment and reduction in principle.

B. REINSTATEMENT

Repayment plan that enable arrearage to be made up over time.

C. FORBEARANCE

Temporary suspension/reduction of payments prior to a repayment plan or modification.

D. PARTIAL CLAIM

No cost/rate/payment 2nd mortgage - paid after 1st mortgage is completed

Preventing a foreclosure or a pre-auction short-sale has a positive effect on the homeowner, the local community, the lender and the economy as a whole. (Short sales are obviously the best solution when a modification can not be reached or the owner does not wish to retain the home).
While Realtors and Loan Officers may miss out on traditional transactions (sale/mortgage) they can participate in a revenue opportunity with a Foreclosure Prevention Loss Mitigation Company.

Be part of the solution and not part of the problem...

Help stem the tide of foreclosures, preserve local property values and supplement your income with loss mitigation. Many professionals have already explored this opportunity by referring prospects they can not service. It can be a win-win-win situation for all parties and has certainly caused a number of broker/owners to rethink their current business plans.

About the Author: Brian Brass

For more information on how to become a referral partner, a certified consultant or to incorporate loss mitigation into your current real estate/mortgage business plan call (800) 704-8285 free info 24/7.

Consultant Website: http://www.LossMitigationIncome.com

Homeowners to avoid foreclosure call (800) 861-9457 or visit http://www.FreeForeclosureHelpSite.com

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