Foreclosure and Short Sale
Consumer Resource Guide
By Debra Talley, SFR
Certified Short Sales and Foreclosure Resource
Overview
Homeowners and homebuyers in today’s real estate
market face unique challenges. Of special concern are issues arising out of the
possibility of foreclosure on their homes, and possible alternatives. While
foreclosure occurrence is relatively low in Northern Virginia compared to the
rest of the country, the rate and number of foreclosures in the state have
risen substantially.
We have created this Resource Guide to assist
you in meeting the challenges of potential foreclosure. It includes general
information about foreclosure and “short sales,” as well as articles,
publications and useful links.
What
is Foreclosure?
At the time of settlement, you signed paper work
agreeing that the mortgage company has a right to take ownership of the
property through a process called foreclosure if you stop paying your monthly
mortgage payments.
When you miss mortgage payments, in some cases
for as short a period as 45 days, you are considered in default on your
mortgage. Mortgage lenders can move your loan into collections, which can be
the start of the foreclosure process.
If you are having trouble keeping up with your
mortgage payments, or if you have received a notice from your lender asking you
to contact them, don’t ignore it. Contact your lender immediately to try to
work out your options.
Foreclosure
Law
General information about the foreclosure
process in Virginia can be found at: http://www.realtytrac.com/foreclosure-laws/virginia-foreclosure-laws.asp
Foreclosure
Timeline
* Pre-foreclosure
Period
After a borrower defaults on a mortgage or deed
of trust, the Virginia foreclosure process begins with the filing of a
complaint in court. The borrower is given instructions to appear in court
within 20 days and provide evidence as to why the foreclosure should not occur.
If the borrower cannot be located, this pre-foreclosure period of giving notice
to the borrower could last up to three months. If the borrower does not appear
in court within the required time frame, the court could rule that the borrower
is in default. Eleven days after the court rules the borrower in default, the
lender can submit a request that the county sheriff conduct a sale of the
property.
*
Notice of Sale/Auction
It usually takes 2-3 months for the sheriff to
properly advertise and give notice of the sale. The sheriff posts the sale
notice on the property and in other public places at least 14 days before the
sale date. The notice should include the date, time, and location of the sale,
as well as a brief property description and the location of the property. The
notice of sale is also delivered to the borrower at least 10 days before the
sale date. The notice of sale is published in two local newspapers chosen by
the sheriff, appearing no more than three times per week for two weeks before
the sale.
Generally, the sale is conducted by the sheriff
and takes place at the property or at the local courthouse. After the sale,
confirmation of the sale occurs within 1-3 months, and the sheriff transfers
ownership to the winning bidder. Prior to confirmation, the borrower may
contest the sale procedure, but the borrower has no right of redemption after
the sale.
Options
in Foreclosure Situations
From:
http://www.hud.gov/offices/hsg/sfh/econ/econ.cfm#4
Call
Your Lender!
(To get to the right person, you may need to ask
for the department that handles loss mitigation or workouts or asset recovery
or home preservation and be persistent.)
1. If Your Problem Is Temporary, discuss:
·
Reinstatement: The lender agrees to
accept the total amount owed to them in a lump sum by a specific date.
·
Forbearance: The lender allows you to reduce or
suspend payments for a short period of time after which another option must be
agreed upon to bring your loan current. A forebearance
option is often combined with a reinstatement,
for example, when you know you will have enough money to bring the account
current at a specific time in the future due to a hiring bonus, investment,
insurance settlement, or a tax refund.
·
Repayment
Plan:
You may be able to get an agreement to resume making your regular
monthly payments, in addition to a portion of the past due payments each month
until you are caught up.
2. If it appears that your situation is
long-term or will permanently affect your ability to bring your account
current, discuss
·
Mortgage
Modification: If
you can make the payments on your
loan, but you do not have enough money to bring your account current or
you cannot afford the total amount of your current payment, your lender may be
able to change one or more terms of your original loan to make the payments
more affordable. Your loan could be permanently changed in one or more of the
following ways: (i) Adding the missed payments to the existing loan balance;
(ii) Changing the interest rate, including making an adjustable rate into a
fixed rate; (iii) Extending the number of years you have to repay.
·
Claim
Advance: If
your mortgage is insured, you may qualify for an interest-free loan from your
mortgage guarantor to bring your account current. The repayment of this loan
may be delayed for several years.
3. If Keeping Your Home Is NOT an Option,
discuss:
·
Sale: If you can no longer
afford your home, the lender will usually agree to give you a specific amount
of time to find a purchaser and pay off the total amount owed. You will be expected to obtain the services of a
real estate professional who can aggressively market the property.
·
Pre-Foreclosure
Sale or “Short Sale”:
If the property’s sales value is not enough to pay the loan in full, the
lender must approve that they will accept less
than the full amount owed. This option can also include a period of time to
allow your real estate agent to market the property and find a qualified buyer.
(Ask if there is monetary help available to pay other lien holders and/or help
toward paying a few moving costs.)
·
Assumption: A qualified buyer may be allowed to
assume your mortgage, even if your original loan documents state that it is
non-assumable.
·
Deed-in-lieu: The lender agrees to allow you to
voluntarily “give back” your property and forgive the debt. Although this
option sounds like the easiest way out for you, generally, you must attempt to
sell the home for its fair market value for a least 90 days before the lender
will consider this option. Also, this option may not be available if you have
other liens such as judgments of other creditors, second mortgages, and IRS or
State Tax liens.
More
About Short Sales
A short sale is an “arrangement” between the current
owner of a home and the current mortgage lender holding the mortgage to accept
an offer for less than the total amount owed to pay off the home loan
(including other transaction-related expenses such as closing costs, property
taxes, transfer tax, and/or commission fees).
The lender determines if the seller is eligible
to sell the home at less than the outstanding debt due to a hardship and then
the lender accepts that shortfall as their loss. Simply owing more than the
home is worth is not considered a hardship. Hardships include divorce,
unexpected hospitalization and medical expenses, job loss, death of a family
member or similar catastrophic situation. Additionally, a budget must show that
the seller’s expenses exceed their income/assets, they are behind on their
payments and there is no way to repay the lender.
The buyer of a property in a short sale should
be aware of several key issues. The contract is usually contingent upon the
agreement of the seller’s mortgage lender to accept the net proceeds of the
sale as full payment for the underlying debt. This is often a long process,
which can delay an anticipated settlement date, and buyers and agents should be
prepared for this possibility. Ideally, the lender pre-approved the short sale
prior to advertising on a Multiple Listing Service. The sales contract should
also include a third party addendum, outlining that the contract is contingent
upon the agreement of the seller’s mortgagee to accept the net proceeds of the
sale as full payment of the underlying outstanding debt.
As always, if you are considering a short sale,
or any real estate transaction, whether you are a seller or a buyer, it is
important to seek competent legal and financial professional advice. Be sure
you deal with a real estate professional with specific training on short sale
transactions.
Foreclosure
Help for Homeowners in Virginia
·
The
NeighborWorks® Center for Foreclosure Solutions was
created to preserve homeownership in the face of rising foreclosure rates. In
conjunction with the Homeownership Preservation Foundation, national nonprofit,
mortgage and insurance partners, the Center has built a network among certified
foreclosure counselors around the nation. It conducts public outreach campaigns
to reach struggling homeowners with information about how to keep their homes.
For more information go to: http://www.nw.org.
·
Hope
Now is an alliance between counselors, mortgage
companies, investors, and other mortgage market participants who want to reach
and help distressed homeowners directly. For more information go to: http://www.hopenow.com.
The participating mortgage servicers are listed at http://www.hopenow.com/mortgage_directory.html.
·
The
U.S. Department of Housing and Urban Development (HUD)
has created “Tips for Avoiding Foreclosure,” which provides and index of broad
information on foreclosure assistance at http://www.hud.gov/foreclosure/index.cfm
and a more detailed guide, “Help for Homeowners Facing Loss of Their Home” at http://www.hud.gov/offices/hsg/sfh/econ/econ.cfm.
·
“Keep
Your Home. Know Your Loan.” Is HUD’s campaign to support approved
home mortgage counseling for families at risk of losing their homes. The
hotline is 877-HUD-1515 or use HUD Counseling Program’s till free number
(800-569-4287) or go to http://www.hud.gov
·
Fannie
Mae also has information on the new Streamlined
Modification program and useful tips for working with your lender. Go to http://www.fanniemae.com/aboutfm/borrower_resource.jhtml
·
Freddie
Mac has created a useful guide, “How to Avoid
Foreclosure.” Go to http://freddiemac.com/corporate/buyown/english/avoiding_foreclosure
·
A
printable workbook for Virginia residents can be found
at http://www.virginiaforeclosureprevention.com
Be
Alert for Foreclosure “Rescue” Offers!
Distressed homeowners are prime targets for
advertisements that promise help and rescue from their financial woes.
Homeowners who already are in default may make their situation even worse,
sometimes signing over the deeds to their home as part of a foreclosure
“rescue.” A typical story involves a homeowner who behind on their mortgage and
is contacted by an individual or company that offers to “refinance” the house or buy it to rent back to the
family, promising (verbally) that it can be repurchased at a later date.
Unfortunately, in either instance, the desperate homeowner basically signs away
the deed in a stack of paperwork without realizing it.
Not all programs that help homeowners keep their
homes are scams; there are some legitimate services. To avoid the scams,
consumers should follow certain steps.
1. DO contact your lender and try to
refinance the loan or work out a payment plan.
·
DON’T ignore warning letters from your
bank or lender. The problem will not go away, and will only get worse of you
ignore it.
2. Get expert FREE housing counseling, legal
and tax advice from trusted sources by calling the HOPE Hotline at
888-995-HOPE for referrals.
·
DON’T pay anyone up front who promises to
negotiate with your lender
·
Check the current license status,
credentials, reputation and experience of any person or company that you may
use, including people who claim to be real estate salespersons, financial
counselors, mortgage lenders and brokers, title companies, and attorneys.
·
Be careful of resources that utilize the
word HOPE in their name or advertising. Look for only these trusted sources: http://www.hopenow.com
and http://www.preservehomeownership.org;
and Housing Options and Planning Enterprises, Inc. http://www.hopeinconline.com.
3. Do not sign any documents under pressure
or duress. Take the time to read and understand the contents of any paper that
you are asked to sign!
·
DON’T sign any documents without
consulting with an attorney or counseling agency.
·
DON’T sign any agreement with blank lines
or spaces. Information could be added later that you did not agree to.
·
Do not make a verbal agreement. Get all
promises in writing and get full copies.
4. DON’T make a deal with someone who
solicits you uninvited by mail, internet, telephone, flyers or in person.
·
If an offer sounds too good to be true –
it probably is! Ask questions!
·
Never give your social security number or
discuss personal financial information with strangers.
5. DON’T sign over your deed to a
third-party or agree to any deal that supposedly allows you to rent the
property and buy it back later.
·
Do not pay your mortgage to someone other
than your lender without the lender’s prior written approval.