For those who regularly help homeowners to save or sell their homes in order to avoid foreclosure, it often seems as if the stars have to be aligned just right in order to get to a solution that works for both homeowner and lender. Fortunately, with all the attention cast on the problem lately, it does seem easier to get help than in the past when the problem affected many fewer homeowners. Still, it is never an easy process.
Homeowners in line for foreclosure are very often in a state of disorganization, depression and denial. These three “d’s” threaten to sabotage any effort to stop foreclosure. If the homeowner constantly avoids opening the letters from the lender, or avoiding their calls, they will not know what the lender needs in order to consider mitigation.
Once the homeowner and the lender do begin to communicate, there will be paperwork to fill out. The lender will expect a letter outlining the hardship and what the homeowner requests will be done about it. Along with that letter, they’ll ask for an income and expense statement, pay stubs, tax returns, and bank statements. A homeowner in a state of disorganization or depression is going to find this hard to accomplish, even with the persistent prodding of a Realtor, investor, or home redemption specialist.
Sometimes when the lender sets a deadline and asks for regular reports from the homeowner, the cycle of disorganization can be broken long enough for the homeowner to get this information together. Sometimes a little assistance from a home redemption specialist or investor will help. For instance, if the homeowner is having a hard time writing down a hardship letter, a professional skilled at assisting these cases can provide a template that can be filled in with the relevant information. Experienced foreclosure specialists can also review the family budget with the homeowner, or take a look at bank statements in order to help come up with a realistic income and expense plan. They can help with photocopying tax records and bank statements for the homeowner.
Sometimes the reason for failure has to do with unrealistic expectations on the homeowner’s part. A homeowner is not going to be able to go “cold turkey” on paying the mortgage and expect to get out with no further expenses. The lender will expect the homeowner to pay a share of the expenses to sell the home, back taxes and other liens, and legal fees. During the current recession the government may ignore the taxes owed from the amount of the loan that the bank forgives, but this is generally an expense the homeowner will bear whenever a home is sold through a short sale.
Frequently, pre-foreclosure sales fail when the homeowner cannot, or will not, pay these expenses. This is perhaps false economy, since when the home is foreclosed upon there will be legal and court fees, as well as tax liens that the court or trustee will impose upon the homeowner. The court may also order a deficiency judgment, and the homeowner will have very little latitude to argue against it at that juncture.
Sometimes the failure to stop a foreclosure is because of difficulty finding a buyer for the home. In areas where there is a glut of property on the market, buyers have their pick and it is often difficult to unload a foreclosure property. Buyers often view foreclosure homes as risky because there may be clouded titles lurking about, and the process can be long and drawn out. Homes that are sold “as is” may contain hidden flaws that will require expensive repairs after the home is bought.
Sometimes the Realtor or investor is inexperienced and does not do a good job of marketing for a buyer. It’s important to interview prospective real estate agents or investors who offer to help the homeowner out of the problem. They should have previous success in handling short sales.
In recent months, lenders have become more open to writing loan modifications and allowing forbearance agreements to allow time for a sale to take place. At times a modification to the loan is not going to help the homeowner. Lenders like to see budgets that can realistically be met with at least $300 to spare each month to allow for emergencies. If the homeowner cannot show a positive cash flow budget, then the modification request will probably be denied.
Sometimes lenders simply have a policy that does not allow loan modifications or settlements of any kind. Mortgage insurance helps to protect lenders against loan failure; they’ll get paid whether a loan fails or not. This doesn’t give lenders much incentive to settle with a homeowner short of foreclosure. Now we know, some mortgage speculators even placed side-bets that riskier mortgages would fail. These investors certainly have even less incentive to help homeowners avoid foreclosure.
To be fair to most lenders today, the workload experienced in loss mitigation offices is so high that it is often impossible to get back to homeowners in a timely fashion. Delays drag out the process leading to more legal fees and other costs that get tacked on to any settlement. Whether the long, drawn-out process is because of lender staff shortages, or because lenders benefit financially from drawing out the process, the result is the same in making it less likely that a solution can be found the longer the default situation goes on.
Lenders who require stiff deficiency judgments end up forcing many homeowners into bankruptcy. This delays, but rarely permanently halts, a foreclosure. What it does stop is the homeowner’s will to cooperate in a settlement short of foreclosure.
Most foreclosures can be prevented if there is some level of good will and a willingness to work through the complex issues that surround a mortgage crisis. It is always best for the homeowner to settle or sell short of a foreclosure, and it most cases it is also financially best for the lender to get a settlement, even when it means selling the house short or putting a homeowner’s missed payments at the back end of the loan. It is certainly best for the economic health of a community to see that lenders and homeowners are coming together on a plan that will help all sides.