I want to touch upon a subject that has come up a few times in the news recently, namely, fraud in the foreclosure prevention arena.
If there is one thing we know about scam artists its that they like to target people who can least afford to be scammed (except those Nigerian kings - they're happy scamming anyone). This certainly applies to those going through the foreclosure process.
One of the most popular scams is when a "loan modification company" informs the homeowners that they need an upfront fee in return for their help in reducing the mortgage payment. Typically, these scammers will promise interest rates down to zero percent and principal reductions. If this is the case run - don't walk away because 95% of the time you are being blatantly scammed. The reason is loan modifications take a ton of paperwork and most people don't qualify. If you do qualify for a loan modification that almost always only affects the interest rate - it is extremely rare to get a principal reduction on a loan modification.
The worst thing about this fraud, however, isn't the money that you are out up front its the time that you have lost. Often times the homeowner thinks everything is going along swimmingly only to find out as their house goes to auction that they have been scammed. Once the house is in auction that's all she wrote and the house goes to the highest bidder. Not only is the homeowner out their initial investment but they have lost the chance to avoid having a foreclosure on their permanent record.
Wednesday, January 26, 2011
Tuesday, January 25, 2011
Introduction
Hello all,
Thank you for taking the time to read this. The goal for this blog is to raise awareness of the options available if you or someone that you know are facing foreclosure or otherwise in some sort of financial hardship and are contemplating options available. I am a firm believer that there are much better options than foreclosure and that just about everyone can avoid foreclosure and the associated negative impacts, provided they know their options - and act accordingly.
With that said, what are the other options and how are they better than foreclosure? Other options include loan modifications, loan forbearance, loan re-financing and assigning the mortgage subject-to. However, as my sharp readers are no doubt aware (due to the equally sharp title of this blog) short sales are one of these options - and I believe, the best option at this moment.
I will go into the in's and out's of each of the different options in future blog posts, however, in this introductory post I want to briefly discuss short sales and contrast them with a foreclosure.
A short sale is any time that the owner of the mortgage agrees to take less than the remaining outstanding principal amount as payment in full for the property. For example, a homeowner owes $200,000 on their mortgage and through negotiation we are able to reduce that amount to $120,000. After the bank accepts payment for that $120,000 we have completed a short sale! The concept is very easy - it becomes a little murkier when 2nd mortgages or Home Equity Lines of Credit are also involved, however, the concept is exactly the same and the results are usually just as positive. We will discuss those issues in later posts in greater detail.
A foreclosure is when the owner of the mortgage repossesses the house by forcing the homeowner (or phrased more correctly, the former homeowner) to leave.
So what's the difference? To start there is the public image. In most states a foreclosure begins with letters and harassing phone calls at home and work and progresses to brightly colored notices which are posted on your house. If no agreement is reached then you are physically removed from your home (provided you do not leave earlier on your own accord). The property is sold at auction and if taken back by the bank will be marketed as an REO or bank-owned real estate. In short, everyone in your neighborhood will know and everyone else who checks the public records will know, since a foreclosure is a public record, that you were foreclosed upon. That means potential future employers, landlords and lenders will all know that you have a foreclosure on your record. Often times that can lead to you not receiving a job offer or to you being denied an apartment or rental home. This might seem like discrimination and you would be right! Of course, discriminating in this way is legal and there is nothing to stop people from doing it.
In contrast, a short sale has none of those drawbacks mentioned above (although, if pursuing a short sale at the last minute, there will still be a public notice of default, or notice of trustee sale related to the ongoing foreclosure process). A short sale is recorded as a regular real estate transaction and there will be no public record of a short sale. There will be no repercussions from future employers or from future landlords unless disclosed - and even then it typically isn't viewed in near the same category as a foreclosure because it shows that you took a proactive stance towards solving a problem that many people, especially in our current economic environment, are facing. In terms of credit score, a short sale will typically be listed as a paid/settled account - not good, but nowhere near the hit you would take from a foreclosure. I have known short sales where the seller only lost 60 points from their credit - in a foreclosure that would be an impossibility.
Thank you for taking the time to read this. The goal for this blog is to raise awareness of the options available if you or someone that you know are facing foreclosure or otherwise in some sort of financial hardship and are contemplating options available. I am a firm believer that there are much better options than foreclosure and that just about everyone can avoid foreclosure and the associated negative impacts, provided they know their options - and act accordingly.
With that said, what are the other options and how are they better than foreclosure? Other options include loan modifications, loan forbearance, loan re-financing and assigning the mortgage subject-to. However, as my sharp readers are no doubt aware (due to the equally sharp title of this blog) short sales are one of these options - and I believe, the best option at this moment.
I will go into the in's and out's of each of the different options in future blog posts, however, in this introductory post I want to briefly discuss short sales and contrast them with a foreclosure.
A short sale is any time that the owner of the mortgage agrees to take less than the remaining outstanding principal amount as payment in full for the property. For example, a homeowner owes $200,000 on their mortgage and through negotiation we are able to reduce that amount to $120,000. After the bank accepts payment for that $120,000 we have completed a short sale! The concept is very easy - it becomes a little murkier when 2nd mortgages or Home Equity Lines of Credit are also involved, however, the concept is exactly the same and the results are usually just as positive. We will discuss those issues in later posts in greater detail.
A foreclosure is when the owner of the mortgage repossesses the house by forcing the homeowner (or phrased more correctly, the former homeowner) to leave.
So what's the difference? To start there is the public image. In most states a foreclosure begins with letters and harassing phone calls at home and work and progresses to brightly colored notices which are posted on your house. If no agreement is reached then you are physically removed from your home (provided you do not leave earlier on your own accord). The property is sold at auction and if taken back by the bank will be marketed as an REO or bank-owned real estate. In short, everyone in your neighborhood will know and everyone else who checks the public records will know, since a foreclosure is a public record, that you were foreclosed upon. That means potential future employers, landlords and lenders will all know that you have a foreclosure on your record. Often times that can lead to you not receiving a job offer or to you being denied an apartment or rental home. This might seem like discrimination and you would be right! Of course, discriminating in this way is legal and there is nothing to stop people from doing it.
In contrast, a short sale has none of those drawbacks mentioned above (although, if pursuing a short sale at the last minute, there will still be a public notice of default, or notice of trustee sale related to the ongoing foreclosure process). A short sale is recorded as a regular real estate transaction and there will be no public record of a short sale. There will be no repercussions from future employers or from future landlords unless disclosed - and even then it typically isn't viewed in near the same category as a foreclosure because it shows that you took a proactive stance towards solving a problem that many people, especially in our current economic environment, are facing. In terms of credit score, a short sale will typically be listed as a paid/settled account - not good, but nowhere near the hit you would take from a foreclosure. I have known short sales where the seller only lost 60 points from their credit - in a foreclosure that would be an impossibility.
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