A Griffith Listing

Real Estate Services by Jon Griffith

9 Ways to Prevent Foreclosure

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Reinstatement

Bring your loan current.  Contact your lender, let them know you’re going to get caught up, and you’ll be able to remove the Notice of Trustee’s Sale and your home won’t go to auction.  Make sure you and your lender are on the same page, and that you get everything in writing.

Forebearance

Contact your lender and work with them to come to a temporary repayment plan.  Keep in mind that this also needs to be in writing.  Bank collectors are not friendly people and what comes out of their mouths is usually not true.  Forbearance is a temporary solution, and it will ultimately benefit the lender over you, but for now, it may relieve a cash-flow problem.

Refinance

Find a better deal.  The ability to do this hinges on your ability to qualify, and the value of your property.  If you owe more than it’s worth, you won’t be able to refinance without bringing the new loan to value ratio within an acceptable range.  This will mean coming out of pocket to bridge the gap.  Not many people can do this, so it may not be an option for you.

Loan Modification

It’s possible, but not likely.  Over 60% of those who attempt to modify don’t even qualify.  The rest manage to arrange something with the lender, but rest assured, it will be in the banks best interest, not yours.  Loan modification doesn’t usually solve the long term problem.  Prinicpal modification is extremely rare.  Don’t bet on it.

Sell the Property

If your payments are too high, sell the house.  If the home is worth more than you owe, you’re going to solve a huge financial burden in your life and you’ll have some cash left over.  Most people in this situation don’t think to down-size, but if you have equity in your home, and your income is such that you’re headed towards financial difficulty, sell the house.  Downsize and live within your means.

Rent the Property

Renting out your property may be a good option for you, but I would encourage you not to carry unnecessary risk in your life.  Renting out, while you’re renting, is a risky proposition because there are costs associated with being a landlord.  If you’re in foreclosure, you still need to be current with your lender to stop the auction process.

Short Sale

Even if you owe more than the property is worth, you can sell the home.  Most lenders will allow this to avoid the extensive costs of foreclosure.  It’s in their best interest to do so, and if you haven’t caught the tone of this message, I’ve been quite clear about the banks.  They typically only do what’s in their best interest.

Deed in Lieu

This is when you voluntarily hand over the keys to your house, much like when you voluntarily hand over the keys to your car.  The problem with this is that it doesn’t solve the problem.  When you hand it over, the bank, who is not in the real estate business, will have to pay the associated costs of selling the house, and that means that every penny that doesn’t cover your loan is a penny they’ll chase after legally.

Bankruptcy

Stupid.  Bankruptcy is something that you should only consider if you’re forced into it. It will slow the process down, but it will not prevent foreclosure.

Give Your Specialist Room To Work

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The process of selling a home short of what you owe is simple in concept, but very difficult emotionally because it involves you and your home, and your prospect of foreclosure, and your finances.

As a short sale expert, it’s my job to first market your home, and second, negotiate with the lender so you don’t have to.  Banks listen to us because our job is to circumvent their B.S. and we’re not emotionally invested in the financial situation, even if he had finest lending solution for all and because we know the market and they don’t.  We are invested in you and your success through this process.  We know the facts and we get the job done where the job can be done.  Banks don’t really listen to their customers.  In fact, they’ll use tactics to frighten you into emptying your retirement accounts to stay afloat until all of your money is gone and you’re truly realizing the hardship that was inevitable anyway.  They know that most Americans feel held hostage by their “credit scores” and they’ll use that to keep you paying your mortgage even in the face of financial hardship.  As long as they get their money…

It’s best that you allow your Certified Distressed Property Expert the room to do the job you have hired them to do.

Through the process, you will be hounded by your lenders, you will be called, you will receive letters that may cause you to freak out.  You may even start searching for alternate solutions in desperation.  Don’t do this.  It’s critical that you give your short sale expert room to work.  There’s a process involved and deviation from that process is the first thing that will slow the process and in some cases prevent success.

Sometimes the job cannot be done.  You need to know this.  A short sale is how we attempt to prevent foreclosure.  Banks do it because it saves them money.  Foreclosure is expensive for them, and they don’t want to own houses, they want to play with money.  However, the clock is ticking, and there is no guarantee that we will be able to achieve an agreement with the lender.  We do it all day long, and have been very successful at it, but nobody can guarantee that it will work.

What I can guarantee is that if you aren’t 100% trusting of your realtor, and you find yourself seeking alternative solutions, of which there are none by the way outside of finding someone else to start all over again, then you’ll be saying to your agent, “I don’t think you’re able to do the job, so I’m going to have someone with more clout, more experience, or more legal knowledge tackle it.”  As a result, your agent may resign the listing to take on more loyal and trusting clientele.

A good agent will know when he in over his head, and a good agent will resign from the job if he recognizes that he can’t solve your short sale problem, whether it’s truly unsolvable, or it’s because you aren’t giving him or her the room needed to do the job.  If you feel like you need to seek outside help, such as an attorney, then feel free to do so, but I would encourage you to read my story about “Attorney Negotiated Short Sales are Still Just Short Sales” so you understand why they offer this service.

Attorney Negotiated Short Sales are Still Just Short Sales

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What does it take to negotiate a short sale?  That’s easy.  It takes a home owner who wants to sell their home.  It does not require a lawyer, a REALTOR, or any other special entity.  There is no requirement for certification, licensing, or any special degrees that are required to talk your lender into accepting a payment for less than you owe.

The Path of Least Resistance

Attorneys don’t have any more power to negotiate your short sale than you do.  What they do have the power to do is charge you a retainer up front to do exactly the same thing that you can do.  Now, as a short sale expert, I can tell you that you do not want to be the one handling the negotiations.  It is time consuming.  You’ll be on the phone constantly with your lender hounding them for information.  You’ll be taken away from your work, your family, and your peace of mind.  You’ll make roughly 60-90 phone calls and will be bullied by them.  Regardless of the fact that you could do this yourself, you would be crazy not to hire someone else to do it for you.

So Who Do You Hire?

Well, that’s completely up to you.  But hiring an experienced Realtor is your best and least expensive avenue.  Through the process you are going to have questions that need to be answered.  You’ll have questions that involve deficiency judgments.  That’s when the bank holds you responsible for the difference between what you owe, and what the home sells for.  Those questions are answered by an attorney.  You’ll have questions about your tax liabilities.  That’s what your CPA is for.  Then you’ll have questions about selling your home and negotiating with the lender.  That’s what we’re here for.

So Who Negotiates With the Lender?

The Realtor handles this for you.  Why?  Because he or she is paid at close of escrow and does not charge you up front.  If you hire an attorney to negotiate your short sale, you will pay a retainer before anything comes of it.  If the lender doesn’t agree to the sale, you cannot recover that money.  CPA’s just don’t do this type of work, so you wouldn’t ever hire them for anything other than tax advice.

Why are Attorney’s Selling Negotiation?

Because there’s a market for it.  But you still need a Realtor to list your property and negotiate a contract price on your behalf.  Also, because the attorney gets money up front.  They also give you no guarantee that they will succeed.  Just because they’re an attorney does not give them any more ability to negotiate with your lender than anyone else.  They aren’t “forcing” the banks legally to accept less than you owe, but because they’re “attorneys” there’s some sort of mystical magical power that people think they have as opposed to a Realtor.  They’re just doing what your Realtor has been thoroughly trained and is well-qualified to do for you.

Note:  It is absolutely critical that your Realtor know how to manage a short sale.

If you’re going to sell short, don’t you want someone who has your best interest in mind?  I don’t charge an up front fee to do the same job better than they can.  Take the path of least resistance, and least financial risk.  Leave the legal issues up to the attorneys.  Leave the sale negotiation up to us.

For more info please visit harcourtlegal.com.

Realtor Questions: What To Do When the 2nd Requires a Personal Note

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Today I was asked a question by an agent who represented a buyer on a short sale listing that I negotiated recently. She is currently representing the seller, and was curious to know how to handle the following scenario.

The 1st has approved the sale of her client’s home short of what is owed, and the 2nd has also given the go-ahead under the condition that the owner pay the balance to the 2nd.  Here’s the question:

Q: I have a question that has just arisen with my current short sale. The 2nd guarantor loans lien-holder has approved the short sale; however, my client just got notified that she’ll still have to pay back the full balance. Is there any recourse or because it’s an “unsecured” debt, they have the right to request that. Please advise, thank you soo much.

Here’s my answer, and remember that I am not a CPA, nor am I a Tax Advisor, nor an Attorney:

The following objective information is based on my observations in the marketplace and cannot be considered tax or legal advice. Please consult an attorney or tax advisor if you are concerned about these very real details.

The second lien holder has a right to request whatever they want, however, since the property is headed towards foreclosure, and I assume that this is the case, the 2nd knows that they will get nothing out of the deal.

There are many variables that contribute to the expected requests of the 2nd. For instance, was the 2nd part of the original purchase on an 80/10/10 or other “creative” product? In other words, was it purchase money, or was the 2nd taken out later as a HELOC. In the case of a HELOC, it’s more likely that the 2nd will require the owner to sign a note for the balance of the loan in order to remove the lien.  A HELOC is not only tied to the property, but to the person, so it much more closely resembles an unsecured debt, because the money that can be drawn from that line of credit can be done so in the form of cash to be used on anything you choose.

Since the HELOC is tied to the person, even in the case of a foreclosure, there is a high likelihood that the lender will have legal recourse and will probably pursue you in the future for the balance.  In the case of unsecured credit extended to an individual such as a credit card, personal loan, or HELOC, it’s commonplace for lenders to settle for less than the balance, but only after exhausting all in-house and 3rd party efforts to collect on past due balances.  This is the key in settling for less than you owe.  The balance must be past due enough that the lender sees there’s no other option but to accept a fair settlement.

They’re basically saying, “hey, we will allow you to sell the house, we’ll release the lien, but you still owe us the money, so in order for us to release the lien, you need to sign a personal guarantee that you’ll repay the loan.”

There is a moral issue in this scenario.  If the money that is owed on the 2nd was not purchase money, and it was cash out of the house used to finance other purchases, other real estate, cars, boats, toys, gambling, food, or whatever, then the borrower has a moral obligation to repay these debts in a reasonable time frame, if not on the pre-determined schedule presented by the lender.  If the borrower refuses to pay, they are opening themselves up to legal problems, and will have an 800 pound gorilla in their financial future until it’s cleared up.

If the 2nd was purchase money, then you’ve reached a point where you need to continue to negotiate with the lender, because current tax laws may protect the buyer from a deficiency judgment, and debt forgiveness may actually become a reality on that loan.  Many times, in fact in most cases, the approval process is drawn out until the final hours prior to trustee sale.  The thought process behind this is for the 2nd to wait as long as they can before letting the debt go for pennies on the dollar.  In that time period, some home owners’ situations improve and they are able to get back on track.

In every case that I have dealt with, the 2nd, in a purchase money mortgage, gives in, because they won’t get anything if they play “spiteful lender.”

Have a question for me?  Ask!  I love helping you understand the process, because it helps the entire industry to be educated about how Short Sales work.

Understanding 16 Causes of Financial Distress

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It is estimated that most American Families can only maintain their current living expenses for 60 days or less when their income is interrupted for any reason.

My financial counselor, Dave Ramsey, provides a 6 step plan to lending visit website financial success.  The first step is to sock away $1000.00 in an account that’s very easy to draw upon in times of emergency while you work hard at step 2.  The reason it’s only at $1000.00 is because the debt that you may be carrying, which is knocked out in step 2, needs your full financial attention before you build your full emergency fund of 3 to 6 months living expenses.  That’s step 3.

If your monthly expenses are $2000.00, then you need to have $6000.00 – $12,000.00 in reserve just for emergencies. This money should be in an account you have quick and easy access to, and should be used ONLY for true emergencies.  A prom dress is not an emergency and niether is a vacation.

If you don’t have this, you are like most Americans with a mere 60-days worth of reserves.  To make matters even worse, a majority of those people will rely on credit card limits to continue to carry them past the 60-days, which will send them diving into a spiral of financial defeat.

That is distress.  So, what are some of the causes of financial distress?  Hopefully the following 16 points will give you a greater understanding of what causes the distress that you may be right in the middle of.

1.  Payment Increase or Mortgage Adjustment

Currently, this is the most common reason for financial distress.  Billions of dollars of bad loans were written during the most recent real estate boom, and many of them were “creative products” designed to bring borrowers who couldn’t normally afford to buy a home into the home-buying game.  Now that those products are adjusting, the result is typically a payment that the borrower can no longer afford.  The tragic part is that the terms of the loan make it clear that the adjustment is part of the plan, yet most home owners do nothing to prepare for the change.

2.  Loss of Employment

No income?  No payment.  If you lose your job, in most cases, unless you’re fortunate enough to receive a severance package, you are without income immediately.  This will suddenly become a source of seemingly insurmountable stress.

3.  Business Fails

For the self-employed, your income depends on your skills as an entrepreneur, and the market you’re in.  Without a solid contingency plan for your business finances, the loss of your business also means the loss of your income.

4.  Unexpected Damage to Property

“It will never happen to me.”  Sure it won’t.  When there’s damage to your home, it will cost you.  When your credit insurance company fails to provide for the full amount of your claim, you’ll be left filling the gap, which in many cases exceeds 60 days reserves.

5.  Death of a Spouse

One of the most devastating life experiences is the loss of a loved one, especially if they were the primary income earner in the family.  This is why it is critical that you have a plan in place and have proper life insurance for your situation.  If your primary wage earner dies, it’s just like losing your income, instantly.

6.  Death of a Family Member

When a family member who is not earning income dies, it is emotionally devastating and the ripple effects will spread throughout every area of your life, affecting your work, your business, and your relationships.  This can produce undue stress and affect your earning ability.  It may even lead to needing to support survivors which will increase your costs.

7.  Severe Illness

No insurance for that cancer diagnosis?  Good luck covering your costs with 60-days reserves.  Illness can lead to extremely high medical debt and loss of income during recovery.  Disability insurance and health insurance are two very important planning products that you need to consider to avoid distress as a result of severe illness.

8.  Inheritance

Believe it or not, an inheritance isn’t always a blessing, especially if it’s happening in the midst of grieving from an unexpected family death.  If you inherit a home that isn’t paid for, you inherit the debt and the expenses of keeping it up as well.  Your 3 to 6 months of reserves will need to be much higher now.  Even if the property you inherit has significant equity, carrying the cost of maintaining it and paying the remainder of the mortgage may lead to foreclosure.

9.  Divorce

This is an extremely common reason for distress.  It can be an emotional and expensive situation to be in.  Spousal support, child support, attorney’s fees, etc., can all lead up to distressed finances.

10.  Separation

One step below divorce is separation, and it can strain a 2 income earning household as housing costs will typically double, and now the person left holding the big house will no longer be able to afford it.

11.  Relocation

Sometimes your employer will require that you move, which may mean you’ll have two households to maintain.  Again, your costs just doubled, and even though you may be able to rent out your current residence, in this market, it’s unlikely that you’ll be collecting more in rent than you’re paying in mortgage payments.  Your relocation may end up adding an entire household’s worth of expenses.

12.  Military Service

Except for relief provided in very specific situations by the Servicepersons Civil Relief Act (SCRA), military service can lead to unexpected financial issues.  There are thousands of service personnel who have had their periods of active duty unexpectedly extended and are now suffering a tremendous amount of financial pressure.

13.  Insurance or Tax Increase

With only 60 days of expenses on hand, if that annual tax bill goes up, or an unexpected increase in insurance premiums occurs due to a claim, you’ll be draining that reserve much faster, and that can cause distress.

14.  Too Much Debt

Mortgages, Credit Card Debt, Auto Loans, Student Loans.  These are all weighing millions of Americans down.  If you graduate, you now have additional payments to make if you haven’t deferred your student loan payments.  Your credit card rates may be unexpectedly increased, etc.

15.  Reduced Income

There’s always the possibility that your commissions will be less than they were last year due to the economy, or your company may scale back and reduce bonuses or even reduce your salary.

16.  Incarceration

How are you going to make a living from the slammer?

Many of these are no-brainers, but the key to avoiding the distress that results from any of these is to have a plan, make sure you have the right insurance in place, pay off all of your debt, and keep a healthy emergency fund of at least 3 to 6 months living expenses socked away.

Most of these are things that “will never happen to me.”  Well, that’s just not true.  You never know what will happen from one day to the next, but you can be sure that if you have a plan, you will not find yourself looking for a way out of foreclosure.

For more info please visit: Ciya.com.

How Much Should a Short Sale Cost?

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What could be worse, in times of financial hardship, than receiving news from your real estate agent that his or her services will cost you, out of pocket, before any work begins?

Now that would be adding insult to injury.

In a normal real estate transaction, the cost to sell a home is typically on the shoulders of the home-owner who has hired a listing agent to market the home.  A rate is negotiated, and the resulting fees are split evenly between the listing broker, and the selling broker, and these fees are drawn from the proceeds of the sale of the home at closing.

A short sale is a different beast altogether, because it’s assumed that the homeowner has fallen on hard times; specifically that they owe more on the house than it will sell for (see the article “What Does It Mean to Be Upside Down in Your House”)  When the amount you get at sale is less than what is owed, the seller either needs to come to the table with cash out of pocket to bridge the gap, which most cannot do, or seek out the approval of the lender to release the property for less than is owed.  Sometimes the lender will ask the seller to sign a personal note for the difference.  This is commonly asked, but rarely agreed to.  This happens all day long and for good reason.  Banks aren’t in the real estate business.  They’re in the money business.

The prime time  for a short sale to be approved by a lender is when it’s clear to the lender that the home is headed for foreclosure, or there’s an inevitable need to sell due to other unforeseen circumstances.

In the event of a short sale, whereby the seller has no money left over when the house sells, how do the REALTORS® receive compensation for their work?

That’s easy.  Fees are built into the transaction and paid for by the lender releasing the note.  The banks know that it takes time and expertise to properly sell a home, and since they aren’t in the real estate business, they’re more than happy to partner with REALTORS® to ensure the job gets done.  Selling your home short of what you owe lightens the blow on the property values in the neighborhood which is an additional plus for the banks, as they may own multiple properties near your home.  Save one, save many.

So, on a house that sells for $120,000.00 that has a payoff of $150,000.00, the bank will subtract the broker fees and closing costs from the final sales price, resulting in an even lower net payment to the bank.  In this example, it’s possible that the bank will only receive a payment of $105,000.00, maybe more, maybe less.  It all depends on what they’re willing to take.

What this ultimately means is that you, the home-owner, receive top notch professional representation at ZERO OUT OF POCKET COST to you.

There are implicit associated costs when you sell your house for less than you owe, but they come in the form of a temporarily affected credit rating, and potential tax consequences.  The impact upon your credit score if you foreclose is far greater than if you sell short.  What does zero cost mean to you?

It means my services are completely free of charge to you.

But what if we don’t want our credit to be affected?

The only way to protect your credit from the effects of a short sale (which are far less damaging than foreclosure), is to sell the home and cover the difference between what it sells for and what you owe, so the lender will report your account as “Paid in Full.”  Either cash at sale or a note for the deficiency will accomplish this.

If you have any questions about the process of preventing foreclosure, whether you’re just now considering it might be a possibility, or you’ve already received a Notice of Trustee sale, please contact me today: (602) 312-3262