I am finding more homeowners being faced with some sort of hardship. Whether it is job loss, an illness in the family, or simply loss of equity, California homeowners are in distress and need to find alternatives to foreclosure. With government sponsored programs failing miserably, I aim to educate homeowners on the most viable option available when facing foreclosure. This page will touch on the top 5 common mistakes that homeowners should avoid when facing foreclosure, particularly when they attempt to short sell their homes. Also included are alternative strategies and ways to avoid falling further into the pitfalls of foreclosure.
1. The threat of losing your home is stressful and an extremely emotional time for your family. You know that ignoring your problems only makes them worse, yet the thought of doing nothing and walking away is tempting. “If you wait to take action, fewer options will be available. You have certain rights and can take certain actions; however, you only have a limited amount of time to assert those rights or take those actions.” say Freddie Mac Experts. Foreclosure is usually not the best solution so researching foreclosure in your area and looking into a range of alternatives to foreclosure will allow you to make an educated decision that suits your family needs.
As the trustee sale date approaches, it becomes more of a challenge to receive a postponement. Lenders have implemented certain guidelines that make it more difficult to avoid foreclosure if you decide to act at the last moment. Also, the large number of homeowners in default today has led to an increase in the lenders workload, making communication at the last minute extremely difficult for all parties involved.
WHAT SHOULD YOU DO?
• Start working on a solution today, being proactive and identifying your problems and solutions is the first step.
• If your Trustee Sale date is already pending, it is important to work with a company that has experience in postponement.
• Work with professionals who have a proven track record of success.
2. As stated in the aforementioned text of Mistake 1, Foreclosure is a stressful and emotional time for you and your family. Although having friends and family giving you advice may be comforting, it can also be counterproductive as family, friends and trusted acquaintances are usually not well informed of the intricacies of the foreclosure process and what needs to be done to effectively avoid foreclosure. Avoiding foreclosure is a complicated process that requires experienced professionals to help you navigate through it.
Experts generally agree that a short sale is the best alternative to avoiding foreclosure, but it is an extremely complex transaction. It is important to create a back-up plan in the event that the short sale is unsuccessful, and work with a team of specialists who are experienced with the short sale process and fully understand your needs and expectations.
If you are successful with the short sale it is important to have an experienced professional who is well versed in California’s Anti-Deficiency Statutes, review your approval letters and correctly inform you of your possible deficiency and tax exposure. Just as importantly, you must preserve your options in the event the short sale is denied. Family, friends and real estate advisors who are not experienced with short sales may have the best intentions in mind while attempting to help you out of your situation, but could potentially do more damage than actual help.
WHAT SHOULD YOU DO?
• Unfortunately, the short sale process is fairly new to the average real estate agent in California. The average agent only closes a small percentage of their short sale transactions.
• Qualified and successful professionals are out there; it just may take a few phone calls and trusting your intuition until you find the professional who is well-educated and the correct fit for your needs.
• Use and trust your instinct to help you make the best decision. Scam Artists will tell you what you want to hear. A true professional will never over-promise. Be weary of anyone who guarantees you anything or asks for a fee upfront.
3. As I have talked about in the past, the short sale is often the best alternative to foreclosure. With that being said, not understanding other negative effects that could possibly come with a short sale can end up hurting you as well. The negative effects I am talking about are the potential threat of deficiency and tax implications. Although the deficiency and tax implications of a short sale can be reduced, if not completely avoided all together, by simply finding a professional who is well versed on the foreclosure process as suggested in alternatives to mistake 2. It is important to educate yourself on these issues, or at least address them with a professional before the short sale is complete.
A mortgage deficiency is the difference between the amount the borrower owes the bank and the amount paid for the property by the buyer. If this debt is not forgiven by a full settlement, the lender could pursue the borrower for the deficient balance after the sale takes place and the transaction is complete. It is important that a professional identifies and explains to you your exposure and how they aim to negotiate with the bank to obtain not only a lien release, but also a full settlement for the entire balance owed on the property.
If debt is forgiven, the borrower may be responsible for income taxes related to the amount reported on a form 1099. One way the borrower could be exempt from taxes is The Debt Relief Act of 2007; more information can be found on the IRS website. Also, speaking with a tax professional can help you identify other options, such as filing for insolvency to avoid the tax burden.
WHAT SHOULD YOU DO?
• Research and understand your tax implications by visiting the IRS website or by contacting a tax professional
• Read your approval letter. Does it release you from the deficient balance? If you cannot locate the verbiage yourself from within the approval letter, make sure you review it with a foreclosure professional.
4. A loan modification seems like it would be the solution of choice, given that it appears to allow you to stay in your home for a lower monthly mortgage payment, but that is rarely the case. To qualify for a loan modification, you typically have to re-qualify for the loan, meaning your financial situation must not have changed, as you must still have stable income. This is why the majority of Loan Modifications fail. Recent Loan Modification Statistics show that less than 1% of loan modifications actually become permanent after a “time trial period” that reduces your payment temporarily. Furthermore, over 75% of homeowners who attempted to modify their loans fell back into foreclosure 3 months or less after they pursued the loan modification and were denied.
Statistics show that California property values, on average, have dropped over 50% since 2006. With the yearly historical appreciation percentage rate being between 3% – 4%, does it really make sense to modify your mortgage? Even if you could qualify for a loan modification, considering the long term, would you be able to afford the loan payments with the modified terms? It is important to consider the modification terms over the long term. Many modifications fail because, when the loan payments adjust, they oftentimes become unaffordable.
WHAT SHOULD YOU DO?
• Make sure a Loan Modification is the best solution to all of your problems by exploring all possible alternatives to foreclosure before paying out-of-pocket fees.
• Have a professional give you an opinion on how much your property is worth in today’s market and quantify how much equity you have lost before attempting to continue to pay on it.
• Consider a short sale if the loan modification does not make sense.
5. One of the biggest mistakes a borrower can make is not paying the Homeowners Association (HOA). The HOA will often place a lien on the property after missed payments. This makes the sale of the property much more difficult at closing. Transfer of title will not be allowed until the lien has been paid off. Essentially, they require payment of the previous missed payments plus hundreds, if not thousands, of late charges and attorney’s fees.
The majority of lenders will not pay the past due HOA dues as in the event of a foreclosure the lien holder in 1st position is not liable to pay the HOA lien as all subordinate liens will be wiped off the property’s title as a result of the foreclosure.
WHAT SHOULD YOU DO?
• Even if you’re not paying your mortgage, continue to pay HOA dues unless you absolutely have no choice.
HOW TO GET HELP?
In today’s market it can be hard to find a reputable agent which is going to look out for your best interests. Below are some key characteristics to look for in a Realtor if you are seriously contemplating avoiding foreclosure via a short sale.
• Experience – Has the Realtor been around for a while and how experienced and knowledgeable are they on the short sale and foreclosure process?
• Low or No Cost – You should not be paying to have the short sale service performed for you as the real estate agent should be making their fee off of the commission which comes out of the net proceeds paid to the bank.
• Trust Your Judgment – If it doesn’t feel right than it most likely isn’t. Trust your judgment when shopping agents and companies to represent you.
• Remember- You are not losing your house, you are selling it.
When Average Won’t Do
I encourage you to think about what is important to you when you’re choosing a realtor during this process. I am a Certified Home Affordable Foreclosure Alternative Specialist (HAFA) as well as a Certified Distressed Property Expert (CDPE) and have a thorough understanding of complex issues in today’s turbulent real estate industry and knowledge of foreclosure avoidance options available to homeowners. CDPEs can provide solutions, specifically short sales, for homeowners facing market hardships. With a 97% success rate for selling distressed homes, I know living through financial difficulties poses a challenge for any family, so why make the process of finding a qualified real estate professional difficult too? My past clients can speak upon my level of expertise. Please review their Testimonials here. You can also view a short Listing Presentation here. If proven performance, ability, experience, market knowledge, expertise and an advanced system that can sell your home as quickly as possible, are the qualities you are looking for in an agent, please contact me on my mobile 831.247.0477 or fill out this Contact Form at your earliest convenience. I look forward to talking with you!
Visit my CDPE profile for more helpful information. You can also start your short sale research by visiting some of these reputable websites: