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My House is at Risk…

Kevin MacGillivray

My House is at Risk…

WHAT ARE MY OPTIONS?

Kevin MacGillivray

In today’s economy, many homeowners are facing tough challenges, choices and decisions when it comes to their home. Whether it’s loss of income, loss of equity, a bad loan or any other reason, many people find themselves in the stressful position of having to do something about their current situation because their house is at risk. If you are one of these people, it’s time to take action. But what should you do? Let’s review some options and see what works for you.

Refinance

Refinancing is the process of paying off an existing loan by taking out a new loan and using the same property as security. Homeowners may refinance to reduce their mortgage expense if interest rates have dropped, to switch from an adjustable rate to a fixed rate loan if rates are rising, or to secure long-term financing if your loan is a short-term loan. There are two main drawbacks with refinancing. First, there is no certainty that an application for refinancing will be approved—loans are much harder to qualify for now and the guidelines are much stricter. Secondly, refinancing generally resets the repayment period, that is, if one refinances a 10-year loan into a 30-year loan, one would pay the new loan for 30 years instead of the 20 years left on the old loan.

Loan Modification

A loan modification is a permanent change in one or more of the terms of a mortgagor’s loan. This allows the loan to be reinstated and results in a payment the mortgagor can afford. There are many loan modification programs out there, as well as a lot of confusion. To date, very few loan modifications have been done, with some estimates as low as only 3% completed nationwide. Many companies promised results and very few have delivered. In order to qualify for most loan modifications, your home must already be at risk, meaning that you must already be behind on your mortgage payments and subject to foreclosure. Many people have entered into programs hoping for a loan modification, only to be turned down months later, while they were far behind on their payments and left with very few options. If this has happened, then a short sale is probably the best option. With the extremely low number of finished loan modifications, the chances of getting one done on your house is very small.

Short Sale

Short-pay transactions, or “short sales,” are transactions where the seller owes more on his or her home than the home is worth. Short sales are a way for homeowners to avoid foreclosure on their homes and still be able to pay off their loans by settling with the lenders. A lender may accept a short sale when the borrower is in severe financial straits and market conditions make a short sale the best choice to mitigate the lender’s damages. This saves the lender the costs of foreclosure and the borrower avoids having a foreclosure on their credit report. By entering into the short sale programs you can stop harassing calls from the bank, and stay in your property until it sells and closes. Also, your credit takes a lesser hit than with a foreclosure and in some instances you can receive up to $1,500 to relocate. In a typical short sale, the lender will pay all closing costs and any commissions due; the seller pays nothing. Every bank handles short sales differently and contacting a realtor is a good way to get started. First, you’ll need to get a market analysis to see what your property is worth and what makes sense for you. If a short sale is the right option, then you or your realtor need to contact the bank, ask for the short sale department and begin the process. Once started, short sales take anywhere from three-to-eight months to close, so have patience and in the meantime, you live in your house.

There are many types of short sales, and some can come with liability from the bank or the IRS, so make sure to look into the tax consequences as well. Many lenders have the incentive to negotiate a short sale with a distressed borrower. When a lender takes back a property pursuant to a foreclosure sale, the lender will be responsible for a variety of costs, such as property maintenance, HOA fees, utilities and taxes, and might risk destruction of property by vandalism. A short sale is often the more desirous, cheaper option for the bank.

Foreclosure

Foreclosure is the legal process where a lending agency assumes ownership of a property from a defaulted mortgage borrower. When a homeowner has late payments that violate the terms of their mortgage agreement, a mortgage company has the right to begin foreclosure proceedings. During the period of foreclosure, the lender is generally obligated to provide 90 days for the borrower to bring their mortgage out of default. After that time, if the mortgage remains in default, the lender will post a notice of foreclosure auction. The auction will be held no sooner than thirty (30) days after the notice is published. Both short sale and foreclosure will have a negative effect on your credit. Foreclosure, however, is far more damaging than a short sale. In a foreclosure, it is estimated a homeowner will lose as much as 300 points from their FICO score, with the entry of “foreclosure” to describe the status. Damage estimates vary on short sales, but generally range between an 80-120-point FICO reduction. The short sale will be entered into your credit report, but will be less damaging than the foreclosure entry. A homeowner can also do a deed in lieu of foreclosure as a last resort before foreclosure, but a short sale is usually a better option.

There are other options available, and I would encourage everyone to do as much research as possible and to contact a professional Realtor to help you decide which option is right for you. Today’s economy is very challenging and navigating it successfully is very difficult—people need help and they need answers.

I have been in the real estate profession for over 20 years and am Co-Owner of San Clemente Realty; we are short sale experts and will gladly help you with the process and answer any questions you may have. To get a free market analysis for your property and a free professional consultation about your options contact me, Kevin MacGillivray, at (949) 466-0072, or email me at calshortsales@hotmail.com. The property analysis and consultation are completely free and with no obligations on your part. You have nothing to lose but your property, so before you do, call me and let’s review your options!

Kevin MacGillivray

San Clemente Realty
949.466.0072 | Email: calshortsales@hotmail.com

This does not constitute legal advice. If you are in need of legal advice please consult with an attorney.