You enter the pre-foreclosure stage by missing your first mortgage payment. This is a window of opportunity to modify your loan at a lower interest rate, or cut your losses with a short sale.
You can see if you qualify for a loan modification on your own. Various organizations are available to help you, and I strongly encourage you to try them first. At HUD.gov, you'll find a list of organizations that can counsel you during pre-foreclosure for FREE.
First, they'll evaluate whether you may qualify for a loan modification. They'll check your income, all your monthly expenses and the mortgage payment you can afford. The process is very detailed, and they'll even mail you a statement listing your options.
HUD and the federal HOPE for Homeowners program are doing a terrific job of providing you all this work for FREE.
If HUD has determined that you are eligible, now you can do your loan modification. All the information that HUD has collected is ready to submit to your lender.
As the loan modification business booms nationwide, so does the opportunity for scams. In California from November 2008 through January 2009, we saw $3 million to $4 million in foreclosure rescue fraud--people taking upfront fees from homeowners, and then vanishing.
No one should charge any upfront fee for your loan modification. Check with your local Realtor before agreeing to anything. Now more than ever, your Realtor is the only person you should trust. We are regulated by the state Department of Real Estate, and any malpractice will affect our licenses.
Even for legitimate loan modifications, the fees can range anywhere from $2500 to $5000--when you can do it yourself.
If you don't qualify for a loan modification due to financial stress, then you have the option to do a short sale of your house. That means your lender allows you to sell your house for less than the loan balance, and the lender takes the loss.
From the time you miss your first payment, the short sale process could take anywhere from 1 to 3 months. During that time, you can reinsert your loan.
If you cannot make it work, then your case will be moved to the foreclosure department. The process depends on the state you live in. In California, a Notice of Default is mailed to you, published and recorded against your property. At this stage, you can no longer negotiate your loan. Your lender is requiring a payoff.
Our local board of Realtors in Motnerey recently discussed this during a meeting with our state commissioner, Jeff Davi. He mentioned that 55% of loan modifications done in this stage end up as short sales. Visit HUD.org and talk to your Realtor to connect with an organization that can help you through this.
The loan modification window is called "pre-foreclosure." It is the time during which you can negotiate to change the terms of your loan. And YES, and YOU CAN DO IT yourself. If you don't qualify for a loan modification, you may be eligible for a short sale.
At this stage, I strongly suggest that you check with a tax adviser and attorney. You might be best off filing bankruptcy to get rid of your debt so you can make your house payment. Most of them will give you a free 20-minute consultation.
I have seen many short sales in which owners are dumping their investment properties--but it's supposed to be for primary residences only. Be careful. Check with your tax adviser and an attorney.
We are now in foreclosure. This means that you're unable to reinsert your loan and you will need to pay it off.
How to pay off your loan? Several options are available. The first is a short sale, if you qualify. As we do more and more short sales, it seems that lenders/investors are dumping these loans into collection agencies, a.k.a. debt collectors.
Working with them can be really chaotic.
Your second option is to file bankruptcy if you're planning to keep some of your properties and, of course, your primary residence. It seems one of the Obama plans could give courts the power to reduce your loan amount. You also have the option of surrendering any of your properties to your lender.
And the last option is to just let it foreclose.
Take action! It is a very painful time to go through, but it is for a better life. We have been living above our financial means for all these years, and now is the time to get your life back. But you'll need to talk about it and go through counseling. Don't isolate yourself! A lot of homeowners are being traumatized by this credit crisis.
I am experiencing this hard, painful decision on my own. Mistakes were made, and we will rebuild. Surrendering my home is not quite as hard because I had an interest-only loan: It's like paying a $4300 rent when I can rent the same house for $1700.
Is a loan modification better than short selling or foreclosing your home? Just look at it this way: If you have an interest-only loan, it is just like paying rent!
Christian Viollaz is a real estate broker in Monterey, California. He is sharing all his knowledge on short sales, foreclosures and loan modifications. Christian is asking you to take FREE action on your own loan modification. Is it a real solution or temporary fix? Come visit carmelforeclosures.com Christian's website, and share your experiences.
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