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Ways to Avoid Foreclosure If we all did the things we are capable of doing we would literally astound ourselves. -Thomas Edison

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Ways to Avoid Foreclosure

If we all did the things we are capable of doing we would literally astound ourselves.

 -Thomas Edison

Laura Hall, Broker

• DRE CA Broker # 01306395 since 2001• Started out in a retail broker shop• Former major bank wholesale mortgage

account executive• Relationship-based, not transactional• Committed to ethical client relations,

education and legal compliance• and… Major Laker fanatic!

Designations

NATIONAL MORTGAGE DELINQUENCY NUMBERS

National Numbers1st Quarter 2010

4.63% in Foreclosure9.38% in Default (30+ days late)14.01% TotalˆThat’s approximately 1 in 6 mortgages not being paid

Mortgage Bankers AssociationBased on 44.6 million mortgages

National Numbers, Prime Loans1st Quarter 2010

3.41% in Foreclosure6.89% in Default (30+ days late)10.3% Total

Mortgage Bankers AssociationBased on 44.6 million mortgages

National Numbers, Subprime Loans1st Quarter 2010

15.39% in Foreclosure25.76% in Default (30+ days late)41.15% Total

Mortgage Bankers AssociationBased on 44.6 million mortgages

National Numbers, FHA Loans1st Quarter 2010

3.93% in Foreclosure12.09% in Default (30+ days late)16.02% Total

Mortgage Bankers AssociationBased on 44.6 million mortgages

National Numbers, VA Loans1st Quarter 2010

2.63% in Foreclosure7.06% in Default (30+ days late)9.69% Total

Mortgage Bankers AssociationBased on 44.6 million mortgages

More than 7 out of 10 homeowners go into foreclosure without

VISIBLEintervention.

(You are the exception)

FORECLOSURE EXPLAINED

Foreclosure is a Process• Default

– Must miss a payment, default on payment is the only way a property can enter the foreclosure process.

– Can also be a missed payment to local taxing authority, a condo association or homeowners association.

• Legal Notice – The lender or foreclosing party must notify the owner that

they are entering into the foreclosure process. – Personal service of a document or if the owner cannot be

located through publication in a legal journal. • California = Notice of Default or NOD

Foreclosure is a Process

• Bank Sale or Auction Date – Homeowner informed of bank sale or auction

date – Foreclosing entity will gain control of the

property

• Redemption Period– California does not have a redemption period

POSSIBLE CONSEQUENCES

SHORT SALES AND FORECLOSURES HAVE LEGAL AND TAX RAMIFICATIONS. PREPARE A LIST OF QUESTIONS.

THEN, CONSULT AN ATTORNEY AND A TAX PROFESSIONAL REGARDING YOUR INDIVIDUAL

CIRCUMSTANCES.

Reasons to Avoid Foreclosure You will always have to disclose on any

mortgage application and many job applications

o Only credit item that even once it is off report still affects your rates

Credit scores will be lowered by 300+ points o most devastating credit issue you can have in

relation to future credit availability You will be ineligible for a government

insured loan for 5 to 7 years (only 2 years in a short sale)

Reasons to Avoid Foreclosure

You may end up with Deficiency Judgment * Many employers run credit checkso foreclosure is one of the top items that will put a

potential new hire in jeopardy

Many current employers run credit checks and a foreclosure can put a current position in jeopardy

Security clearances, government positionso Military and law enforcement and more

*Not applicable in some states*Not applicable in some states

Reasons to Avoid Foreclosure

Your tax liability in a foreclosure may be much higher than in a properly negotiated short sale since in most cases cancelled debt will be higher.

As your CDPE agent I will explore every option with you and work towards a resolution.

While it may not seem like it now, there will come a time when you look back on this situation and will want to know you did everything you could.

SOLUTIONS

Focus 90% of your time on solutions and only 10% of your time on problems.

    ~Anthony J. D’Angelo

FORECLOSURE PREVENTION RESOURCES

• HUD-approved counselors HUD.gov/foreclosure

• HOPE NOW ALLIANCE hopenow.com• NeighborWorks America nw.com• Making Home Affordable.gov• A list of resources supplied by the

California Association of Realtors tm is in your packet.

FORECLOSURE PREVENTION RESOURCES

• Helpwithmybank.gov• FreddieMac.com/avoidforeclosure/works

hops• Fanniemae.com• Irs.gov and ftb.gov for tax info• Fico.com for credit info

Reinstatement

• If reason for distress was temporary and resolved

• Can be done up to day of bank sale• You must be able to pay all the payments

and late fees due and your mortgage will remain the same

Your Options

Reinstatement Example

• Homeowner misses 4 payments on a $1,500 a month loan and the foreclosure process has been initiated.

Reinstatement Amount:

4 Month’s Payments @ $1,500/month $6,000Late Fees $300Legal Fees $1,200Processing Fee $250Total Reinstatement $7,750

Your Options

Forbearance or Re-Payment Plan

• If reason for distress was temporary and resolved

• Requires lender approval• You may be allowed to make your back

payments over time• Normally does not fully reinstate

mortgage until plan is competed

Your Options

Forbearance Example• 4 payments missed @ $1,500 a month loan and the

foreclosure initiatedReinstatement Amount:4 Month’s Payments @ $1,500/month $6,000

Late Fees $300Legal Fees $1,200Processing Fee $250Total Reinstatement $7,750

Bank Allows payments to be broken up over the next 12 months:

Total Reinstatement $7,750Reinstatement Payment 12 months $646 Current Payment $1,500Monthly Repayment $64612 Month’s Payments Each $2,146

Your Options

Forbearance Plan(there is a catch)

Typically your mortgage is not fully reinstated through a forbearance plan until all the payments are made in full. If a homeowners misses just one payment they can end up in the same stage of the foreclosure process they were in previously.

Sell the Property

• If you have equity, can sell and cure foreclosure

• Many sellers believe they have less time than they actually do

Your Options

Rent the Property

• Can you property rent for the mortgage amount or more?

• In many cases rent does not cover full expense of property ownership

• Also need to factor in insurance, taxes and vacancy

• Consider how unemployment affects rental market and quality of prospective tenants

Your Options

Refinance

• If you have sufficient equity and strong enough credit score

• Typically a short term solution since your payments almost always go up

Your Options

Mortgage Modification

• Requires lender cooperation• Modifies loan and often reduces payment• You will have to qualify with financial

information most of the time like a full doc loan

• MakingHomeAffordable.gov

Your Options

Mortgage Modification

• You must have verifiable means of income.

• You should be certain you can afford the modified mortgage payment.

• You can pursue a mortgage modification and prepare for a short sale simultaneously.

Your Options

Deed-In-Lieu of Foreclosure

• “Friendly” Foreclosure• Sign deed over to bank rather than go

through foreclosure process• May still be reported as a foreclosure• Typically only works with one mortgage

Your Options

Bankruptcy

• Will stall a foreclosure and if payments are lowered to where property can be afforded may save property

• Very difficult to sell property once in the process, requires trustee cooperation

• Will only stall a foreclosure – will not eliminate mortgage

Your Options

Servicemembers Civil Relief Act (SCRA)

• Provides temporary relief to military personnel

• Must show mortgage was entered into prior to beginning active duty

• Must still be owned by military member• Must show that service materially affects

ability to pay

Your Options

Short Sale

• A short sale can be negotiated if the homeowner has:– Financial Hardship– Monthly Shortfall on Financial Worksheet (or

pending shortfall)– Does not have significant assets to assist in

paying down the mortgage

Your Options

Definition • A homeowner is ‘short’ when:

When a borrower owes an amount on his property that when combined with closing costs and commission is higher than current market value.

• A short sale occurs when: A negotiation is entered into with the homeowner’s

mortgage company or companies to accept less than the full balance of the loan at closing. A buyer closes on the property and the property is ‘sold short’.

What a Short Sale is Not

• If you do not have a financial hardship then you will most likely not qualify for a short sale (a.k.a. strategic default)

• A short sale is only for those who meet all requirements

Two Major Consequences• Cancellation of Debt Tax Liability

– “Phantom Tax”• Mortgage Forgiveness Debt Relief Act of 2007

• Special IRS Section

• Deficiency Judgment– Lender Collection Rights

• Other Issues

Mortgage Forgiveness Debt Relief Act of 2007

• Originally HR3648• Prior to passage any debt forgiven was

“cancelled” and was required to be claimed as 1099 income

• Signed into law on December 20th 2007

MFDRA Details, Phantom Tax • January 1st 2007 to January 1st 2012

• Eliminates Phantom Tax.

• Debt must have been debt incurred to acquire a principal residence.

• Cancelled debt up to $2,000,000 is eligible.

• Sets forth rules for determining the allowable amount of the exclusion for taxpayers with non-qualifying indebtedness and taxpayers who are insolvent.

• Debt from a second (non acquisition) mortgage or HELOC is not eligible (unless used to improve basis of property).

• Debt from a cash out refinance is not eligible (unless used to improve basis of property)

• Cancelled debt from investment properties and second homes is not eligible.

Ask about IRS Publication 4781 and IRS Form 982

Deficiency Judgment• In 100% of Foreclosures the homeowner is

exposed to a Deficiency Judgment • In some Short Sales lender waives right to

Deficiency• In almost all cases a short sale will result

in lower possible deficiency judgment

A Quick Overview

• Took effect April 5, 2010• Aids eligible homeowners by pre-approving

short sales before listing and releasing them from future liability of mortgage debt

• 1st Lien Non-Fannie or Freddie Mortgages Apply

• Used as a follow up if HAMP modifications are not possible

Requirements• Loan is eligible if all the following conditions are

met:– Property is borrower’s principal residence

• Exception: 90 day rule– Loan is a 1st lien mortgage– Originated before Jan 1, 2009– Mortgage is delinquent or default is reasonably

foreseeable– Current unpaid balance is equal to or less than

$729,750– Borrower’s total monthly mortgage payment exceeds

31 percent of borrower’s gross income

Incentives• $3,000 to Borrowers for Relocation Assistance

– Will be deducted from gross sale proceeds at closing

– May classify as taxable income• $1,500 to Servicers for administration and

processing fees• Servicer may not charge borrower any processing

fee and MUST pay all out-of-pocket expenses• $2,000 to Investors for subordinate lien holder

payoff– For every three dollars spent to release liens

buyer or investor is reimbursed one dollar – capped at 6,000

Highlights

• Lender waives rights to deficiency judgment• Servicer must assess the property value and

cannot charge the borrower in advance– May be added to outstanding debt if transaction

is not completed

• Servicer must review title and cannot charge the borrower in advance– May be added to outstanding debt if transaction

is not completed

Highlights continued

• Servicer must notify borrower of short sale and deed-in-lieu as foreclosure avoidance alternatives

• It is a requirement that the property be listed with a licensed real estate professional

Home Affordable Foreclosure Alternatives Program: Overview

• HAFA alternatives are available to all HAMP-eligible borrowers who:

• 1) do not qualify for a Trial Period Plan;• 2) do not successfully complete a Trial

Period Plan; • 3) miss at least two consecutive payment

during a HAMP modification; or, • 4) request a short sale or deed-in-lieu.

Causes for Termination• Borrower’s financial situation improves• Borrower or broker fails to act in good

faith in listing, marketing and closing the sale

• Significant change occurs in property condition or value

• Misrepresentation or fraud• Litigation is initiated or threatened that

would affect title (i.e. divorce)

Participating Lenders

• Lenders and loan servicers participating in HAFA must sign a servicer participation agreement with Fannie Mae to participate in HAMP by October 3, 2010

• For a full list of servicers participating in HAMP, visit Making Home Affordable's Participating Servicers List.

THE SHORT SALE PROCESS

YOUR INVOLVEMENT

SHORT SALE PROCESSOwner Involvement

• Complete or provide all necessary documentation– Signature Authorization (FORM A)– Short Sale Disclosure (FORM P)– Hold Harmless (FORM C)– Homeowner Document Checklist, Provide all Documents (FORM E)– Homeowner Financial Worksheet (FORM F)

• Keep property presentable and ready to sell• Homeowner Property Checklist (FORM G)

• Be available to communicate with mortgage company if necessary

A CDPE Stands Apart• 2 days of extensive training from the premier short sale experts in the

nation• I understand every foreclosure avoidance option available to you• I have been shown, form by form, how to process a short sale

completely, correctly, and ethically• I’ve been thoroughly instructed on how to effectively deal with banks

and lenders • Every month, I’m updated on industry and policy changes and receive

updated documents and forms to stay informed and relevant• I’m involved in a network of nearly 20,000 agents who specialize in

assisting distressed homeowners• This means I have up to date information on what is happening on the

front lines, what banks and buyers are looking for, which foreclosure-avoidance tactics are working and which ones aren’t

• CDPEs have an unprecedented level of name recognition among lenders • On average, CDPEs double or triple their number of successful short

sales, and cut the process time in half.

Thank You For Your Time!Laura Hall, Broker

[email protected] (554) 6637

CA DRE# 01306395