The Most Used Methods of Resolving a Foreclosure
by: Dave Dinkel
The three most frequently used methods to resolve foreclosure are loan reinstatement, forbearance agreement, or loan modification. While there are numerous other specific ways to stop foreclosures, these three are used most frequently. 1.) Loan reinstatement is where a lender has started the foreclosure process and the homeowner finds a way to pay back or "reinstate" the entire deficiency owed. The deficiency amount includes back loan principal and interest payments, accelerated interest costs, attorney's fees, assorted processing and collection expenses, and late penalty charges. This technique requires the maximum amount of money all at once. Ironically, lenders recently indicated that pre-payment penalties may be included into final judgments in the near future. When the homeowner's reason for the delinquency is resolved, he usually asks the lender to take partial payments because he can't get the entire deficiency amount together. However, the lender will not accept partial payments and the foreclosure will proceed if the full reinstatement amount isn't paid. The reason for this is simple, the lender knows that the homeowner's chance of getting out of, and staying out of foreclosure is less than 1 in 8. So the lender does not want to drag out the inevitable, the loss of the home to foreclosure. 2.) A forbearance agreement between the lender and the homeowner stipulates that the homeowner must make additional monthly payments for a specific period to make up the reinstatement amount that he couldn't pay in full. As simple as it sounds, it may be unaffordable for the homeowner who could barely afford the original loan payment. The lender will usually ask that the homeowner pay the reinstatement amount over a three or six month period. If the monthly loan payment was $2,000 per month and he was 3 months in arrears, the new monthly payment for a three month period would be at least $2,000 + $6,000/3 = $4,000 per month. For a six month repayment schedule the new monthly payment would be $2,000 + $6,000/6 = $3,000 per month. In some instances the lender may ask for an additional cash payment before they will start the increased monthly payments. After the 3 or 6 months, the loan payments revert to the original amount or $2,000 in the above example. The foreclosure does not stop with the signing of the forbearance agreement but simply is put on hold until the homeowner completes making all the increased payments. When you speak to your lender try for 12 months and don't accept less than 9 months unless you can truly afford it! Ask them to review your financial statement, which they should readily send you and remember that the lender has already pulled your credit report and knows where you work, possibly how much you make, how many other monthly payments you have, and other information in the public records. They have also done a price analysis on your home and probably had a Broker's Price Opinion (BPO) completed. Essentially they know what answers you should be giving them, so be forewarned. This method of reinstatement takes as much money as the loan reinstatement except it is spread over 3 - 6 months or, hopefully, more. 3.) A loan modification program was the most common method of foreclosure resolution for decades. It involved the lender issuing a new loan agreement where the deficiency amount was added to the loan balance and paid in identical monthly payments but for many more months, at the end of the loan. The monthly payments remained the same and if the home was sold, the balance of the reinstatement amount was paid from the proceeds of the sale. This method of resolution requires no up-front cash and the same monthly payment as before the foreclosure. Another type of loan modification was to very slightly increase the monthly payments over the remaining term of the loan. So the homeowner has a choice of either extended but identical payments (as above), or slightly higher payments for the original term of the loan. Either option repaid the lender his money back plus interest. It was an affordable win-win for the lender and the homeowner, but is seldom offered anymore unless the lender knows the property is not worth taking back by foreclosure and he hasn't sold the loan into a mortgage pool. Loan modification programs are usually not available unless there is a hardship involved such as a job loss, death or illness. But it is worth asking your lender about it if you are in foreclosure because the market conditions and massive loan defaults puts pressure on the lenders to be more cooperative with homeowners. Your best option is to talk to your lender and as early as possible so you have time to resolve your problem.
About The Author
Dave Dinkel is the author of http://www.StopMyForeclosureMess.com "32 Ways to Quickly Stop Foreclosure and has helped thousands of foreclosure victims for nearly 33 years. If you are facing foreclosure, visit http://www.StopMyForeclosureMess.com StopMyForeclosureMess.com for guaranteed solutions.
Tuesday, July 15, 2008
Ever have to pay ?
Will You Ever Have to Pay a Deficiency Judgment From a Foreclosure?
by: Dave Dinkel
When a foreclosure is finished and the home is sold or assessed by an appraisal, for the loss on the mortgage, the deficit amount the bank will not get back from the mortgage balance and expenses due, is called a deficiency. In most states, the lender has an option to get a judgment in this amount against the borrower and this is called a "deficiency judgment". In addition to the loss of the homeowner’s home he also has the potential of having to repay this judgment in the future. Even if the bank accepts a "deed in lieu of foreclosure" they can still get a deficiency judgment against the borrower. The borrower is the one responsible for the mortgage or deed of trust payments and he may or may not be the homeowner. If the homeowner has a co-signer, the co-signer will be as legally responsible as the borrower to pay back the deficit due. Depending on whether the foreclosure is judicial or non-judicial, and the specific terms of the mortgage, the bank may not be able to seek a deficiency judgment. These laws vary state-by-state and should be reviewed carefully to determine which applies to the reader. The bank doesn’t just have the amount of the unpaid loan balance due but also legal fees, accelerated interest payments, back principal payments, in some cases pre-payment penalties, and other expenses as part of the judgment amount. This is why a homeowner who has had his mortgage a couple of years could owe more than he borrowed originally. As an example, the homeowner borrowed $200,000 in June of 2006 and in January of 2008 he goes into foreclosure and the final judgment against him could be $218,000! This is because of the additional expenses and the fact that he pays mostly interest in the first 10 years of his mortgage. The largest loss the lender has is his loss of the ability to loan about 7 - 10 times the unpaid mortgage balance. This is because the Federal Reserve requires the banks to put cash into a non-interest bearing account to cover potential losses. Since the bank can no longer use these funds to get additional loans from the Fed, he is losing tremendous loan power. This loss of revenue to the lender can not be passed on to the homeowner or borrower. The major factors in deciding whether the lender will pursue a deficiency judgment are whether the lender feels he can collect the judgment and the cost to collect it. In the process of working with the homeowner, the lender pulls his credit and can see what other outstanding bills he has and whether they are being paid timely. The lender can not see what assets the homeowner has but can sometimes see where he works. The homeowner will be asked to fill out a Net Worth Statement ("NWS") which will disclose these assets to the lender. This document is a major part of the decision to pursue the judgment or not. If the lender has no reason to believe the homeowner has extensive assets, they will issue the IRS Form instead. A note of caution - falsifying the NWS can be bank fraud in some states so be careful if you intend to return the NWS to the lender. The deficiency judgment is determined by the court-approved "Final Judgment" amount in most states. However, in some states, the property must be sold or an appraisal done to determine the "expected" net loss. If your state does this procedure by appraisal, contest the appraisal and have the judgment lowered if you believe it was not correct. The lender usually chooses not to get a deficiency judgment and instead report the loan deficiency amount on IRS Form 1099. The result to the homeowner is a "phantom income" requires him to pay income taxes on this amount. In this situation the final cost of the guarantor’s foreclosure is the amount of income taxes he pays the IRS instead of the entire deficiency judgment. This is a substantial savings to the homeowner and the lender also benefits because there is no collection on his books that is counted as a liability. Unless there is suspicion of fraud in the original loan, the lender will issue a 1099. In December of 2007 legislation was enacted that allows a maximum exemption amount a homeowner who resides in his property can write off for this deficiency amount. Carefully weigh your rights and options when you make a decision to allow your home to be lost to foreclosure, as there are solutions besides foreclosure and deed transfer to the lender. Do not be paralyzed with fear that the lender will follow you forever to collect the deficiency judgment, as you have a number of options to fight this including attacking the validity of the original loan.
About The Author
Dave Dinkel is the author of http://www.StopMyForeclosureMess.com "32 Ways to Quickly Stop Foreclosure and has helped thousands of foreclosure victims for nearly 33 years. If you are facing foreclosure, visit http://www.StopMyForeclosureMess.com StopMyForeclosureMess.com for guaranteed solutions.
by: Dave Dinkel
When a foreclosure is finished and the home is sold or assessed by an appraisal, for the loss on the mortgage, the deficit amount the bank will not get back from the mortgage balance and expenses due, is called a deficiency. In most states, the lender has an option to get a judgment in this amount against the borrower and this is called a "deficiency judgment". In addition to the loss of the homeowner’s home he also has the potential of having to repay this judgment in the future. Even if the bank accepts a "deed in lieu of foreclosure" they can still get a deficiency judgment against the borrower. The borrower is the one responsible for the mortgage or deed of trust payments and he may or may not be the homeowner. If the homeowner has a co-signer, the co-signer will be as legally responsible as the borrower to pay back the deficit due. Depending on whether the foreclosure is judicial or non-judicial, and the specific terms of the mortgage, the bank may not be able to seek a deficiency judgment. These laws vary state-by-state and should be reviewed carefully to determine which applies to the reader. The bank doesn’t just have the amount of the unpaid loan balance due but also legal fees, accelerated interest payments, back principal payments, in some cases pre-payment penalties, and other expenses as part of the judgment amount. This is why a homeowner who has had his mortgage a couple of years could owe more than he borrowed originally. As an example, the homeowner borrowed $200,000 in June of 2006 and in January of 2008 he goes into foreclosure and the final judgment against him could be $218,000! This is because of the additional expenses and the fact that he pays mostly interest in the first 10 years of his mortgage. The largest loss the lender has is his loss of the ability to loan about 7 - 10 times the unpaid mortgage balance. This is because the Federal Reserve requires the banks to put cash into a non-interest bearing account to cover potential losses. Since the bank can no longer use these funds to get additional loans from the Fed, he is losing tremendous loan power. This loss of revenue to the lender can not be passed on to the homeowner or borrower. The major factors in deciding whether the lender will pursue a deficiency judgment are whether the lender feels he can collect the judgment and the cost to collect it. In the process of working with the homeowner, the lender pulls his credit and can see what other outstanding bills he has and whether they are being paid timely. The lender can not see what assets the homeowner has but can sometimes see where he works. The homeowner will be asked to fill out a Net Worth Statement ("NWS") which will disclose these assets to the lender. This document is a major part of the decision to pursue the judgment or not. If the lender has no reason to believe the homeowner has extensive assets, they will issue the IRS Form instead. A note of caution - falsifying the NWS can be bank fraud in some states so be careful if you intend to return the NWS to the lender. The deficiency judgment is determined by the court-approved "Final Judgment" amount in most states. However, in some states, the property must be sold or an appraisal done to determine the "expected" net loss. If your state does this procedure by appraisal, contest the appraisal and have the judgment lowered if you believe it was not correct. The lender usually chooses not to get a deficiency judgment and instead report the loan deficiency amount on IRS Form 1099. The result to the homeowner is a "phantom income" requires him to pay income taxes on this amount. In this situation the final cost of the guarantor’s foreclosure is the amount of income taxes he pays the IRS instead of the entire deficiency judgment. This is a substantial savings to the homeowner and the lender also benefits because there is no collection on his books that is counted as a liability. Unless there is suspicion of fraud in the original loan, the lender will issue a 1099. In December of 2007 legislation was enacted that allows a maximum exemption amount a homeowner who resides in his property can write off for this deficiency amount. Carefully weigh your rights and options when you make a decision to allow your home to be lost to foreclosure, as there are solutions besides foreclosure and deed transfer to the lender. Do not be paralyzed with fear that the lender will follow you forever to collect the deficiency judgment, as you have a number of options to fight this including attacking the validity of the original loan.
About The Author
Dave Dinkel is the author of http://www.StopMyForeclosureMess.com "32 Ways to Quickly Stop Foreclosure and has helped thousands of foreclosure victims for nearly 33 years. If you are facing foreclosure, visit http://www.StopMyForeclosureMess.com StopMyForeclosureMess.com for guaranteed solutions.
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