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What remedies are available to homeowners in financial distress?
- Credit Counseling – Many banks require you to meet with an FHA-approved credit counselor before they will consider any workout arrangements. We can provide you with a list of FHA-approved credit counselors located in Middle Tennessee.
- Getting Current on Loan – This is the most desirable outcome from the bank’s perspective whereby you reinstate your loan by paying off all delinquencies and fees.
- Forbearance Agreement – Sometimes the bank will negotiate with you a temporary stay—or reduction—of payments, which are typically added to the loan balance. Not only does this buy you time to get caught up or sell your home, the lender likes this situation because it turns your mortgage from non-performing asset into a performing asset in the bank’s loan portfolio.
- Loan Assumption – In some isolated situations, it is in the best interests of both you the homeowner and the lender to allow a third party buyer to purchase your house by formally assuming all responsibility for your loan. Beware of people who offer to take over your payments without the lender’s knowledge—they are misguided at best and con artists at worst. In order for a buyer to assume your loan, your lender must approve the new buyer and waive the “Due on Sale” clause in your mortgage.
- Pre-Foreclosure Sale (PFS) – See below for a definition.
- Deed in Lieu of Foreclosure – Sometimes the bank allows you the homeowner to simply sign ownership to your house over to the bank instead of going through the entire foreclosure process. In most cases this does almost as much damage to your credit as an actual foreclosure. However, it does save the bank time and money and allows you to put your house situation behind you more quickly.
- Bankruptcy – This can stop a foreclosure, but sometimes it does more damage to your credit than would occur of you actually lost your home. Seek the counsel of an attorney who specializes in this area to see if this is something you might consider.
- Foreclosure – If none of the above options work or you run out of time pursuing them, the bank will go through the formal process of selling your home to the highest bidder on the steps of the county courthouse.
What is a Pre-Foreclosure Sale?
Also known as a “short sale,” a pre-foreclosure sale occurs when a homeowner is in financial distress and a lender approves a sale of the home even though the property will sell for a price less than what is owed to the lender.
Why would a bank settle my mortgage for less than I owe?
The bank knows that if it takes your home from you through the foreclosure process, it will have to sell the property – banks are not in the business of owning or holding property. That process—from the initial foreclosure notice, to the foreclosure itself, through the final sale of the house by the bank to a third party—is extremely expensive and time-consuming. If you can bring the bank a fair price for your home right now, it is often in the bank’s best interest to save unnecessary time and expense by simply accepting the money it can get for the house right now and letting you off the hook for the loan balance not covered by the sale.
How might I benefit from doing a Pre-Foreclosure Sale of my home?
There are many benefits that come with avoiding foreclosure, not the least of which is saving your credit score from dropping like a rock. Your real estate professional can usually negotiate pre-foreclosure sale terms where your FICO score drops about 100 points, compared to an average drop of 250 or more when your home is foreclosed. No less important is the fact that a pre-foreclosure sale is much less stressful that a full-fledged foreclosure in that you maintain much more control over your situation.
Of what Pre-Foreclosure Sale hazards should I be aware?
- There may be tax implications to you when the lender “forgives” a portion of your loan. The Debt Forgiveness Relief Act of 2007 removes tax issues for most sellers, but we strongly recommend you consult your tax professional to learn what tax implications you may face in your unique situation.
- This can be an excruciatingly slow process, with some lenders taking several months or more to approve the terms of your sale. Failing to meet lender guidelines and deadlines for submission or required verification and documentation can extend the approval process even more.
- Your mortgage company will typically require you to continue making mortgage payments while the pre-foreclosure sale process moves forward. Some lenders are willing to negotiate workouts and payment plans that allow you to stay current while selling your home.
- Many real estate agents who don’t understand the pre-foreclosure sale process can be difficult to work with when they represent the buyer in your transaction. Fortunately, we have tools that help us explain the situation and set expectations for such agents and their clients.
How do I know if a Pre-Foreclosure Sale is an option for me?
- Your home is worth less than what is owed on the mortgage.
- You are unable to pay or catch up your loan payments and you have a demonstrable financial hardship.
- You are willing to submit all required verification and documentation to your lender within the bank’s timeframes.
- All subordinate lien holders are willing to accept little or nothing to release their interest in your house. We can help you negotiate terms with all of your lenders as a part of the pre-foreclosure sale process.
Our team has received special training in stopping foreclosures. We can help you determine whether or not you are a candidate for a pre-foreclosure sale.
What might disqualify me from doing a Pre-Foreclosure Sale?
- The home you are trying to sell is not your primary residence, although some banks will still work with you in this case if you can document significant financial hardship.
- You have the financial ability to pay your mortgage, supply funds to close the sale, or are in a position to refinance your loan.
- You have filed for bankruptcy protection—talk to your bankruptcy attorney if this is your situation.
- You are unwilling to submit all required verification and documentation to your lender within the bank’s timeframes—we can’t successfully negotiate on your behalf if you can’t or won’t provide paperwork your lender requests.
Even if a pre-foreclosure sale is not an option for you, we may still be able to help. Tell us about your situation and we’ll explore your options together.
Why is it so important to meet all lender deadlines during a Pre-Foreclosure Sale?
The person in the bank’s Loss Mitigation department who works on your file has hundreds of other files he is working on at the same time as yours. He can only allocate a certain amount of time to each case as he prepares the files for a review committee that approves or denies each proposed pre-foreclosure sale. If this worker has set aside 15 minutes to work on your file at 11am and the paperwork he ask for from you has not arrived, he will simply put your file at the bottom of his stack and move onto the next one. He is so overwhelmed with work that he does not have time to wait for your information to arrive if you miss your deadline by even a minute or two. If you miss your slot before the review committee, approval could be delayed weeks or even months. All because of a missed deadline.
What financial information will my lender require from me in order to approve my Pre-Foreclosure Sale?
All mortgage companies are different, but just about every lender will require the following financial information:
- Detailed financial statement – we can provide you with a form to fill out.
- Hardship explanation – this is where you tell the lender what caused your current financial situation.
- Recent checking and savings account statements.
- Recent federal tax returns.
- Proof of monthly household income, including: pay stubs, profit and loss statements if you are self-employed, leases, social security, alimony, child support, and disability statements.
What information about my property will my lender require in order to approve my Pre-Foreclosure Sale?
In order to approve the sale of your home, your bank needs certain documents and information to help make its decision, including:- Signed listing agreement – this allows us to put your home up for sale
- Sales contract signed by both you and the buyer, containing the stipulation that the sale is “subject to lender approval.”
- Estimated settlement statement showing all of the expenses the bank can expect to pay out of its proceeds from the sale.
- Proof of the buyer’s financing – i.e. bank letter, pre-approval letter, etc.
- Broker Price Opinion or appraisal – the bank orders this to get an independent opinion of what your home is worth. We support our initial asking price (and any subsequent price reductions) for your home by completely documenting how we arrived at that price through comparable sales, real estate absorption rates, and other market data.
- Title report – this shows that you will be transferring your home to the buyer clear of defects in the chain of title.
- Junior lien holder release agreements – these show that any subordinate loans have approved the release of their interest in your house as a part of the sale.
Why would John Jones Real Estate want to be in the Pre-Foreclosure Sale business?
Like any other company, we are in business to make money. We earn a commission when we sell your home. Fortunately, when we do a pre-foreclosure sale, the bank pays our fee out of the proceeds they receive from the sale of your home. Our commission is completely covered with absolutely nothing coming out of your pocket.
Additionally, we enjoy helping people avoid foreclosure through pre-foreclosure sales. We know that if we do a great job on your sale, you will tell your friends, family, co-workers, and neighbors how we helped you. Word-of-mouth advertising is still the best way there is to earn new business, and we will do everything we possibly can to earn your referrals.
Why should I choose John Jones Real Estate to help me with the Pre-Foreclosure Sale of my home?
- Compassion – we know what you’re going through. We have helped many families overcome the same kind of financial stress you’re currently experiencing.
- Integrity – we will always be straight up with you and let you know exactly what you’re facing and any options you may have available to you. Pre-Foreclosure Sales can be an extremely difficult process; anyone who guarantees a specific result is being less honest with you. However, we do guarantee that we will do everything in our power to produce for you the most favorable result possible.
- Know-How – We have special training in stopping foreclosures. We have tools many people don’t know about. John Jones Real Estate has a track record of helping people escape this horrible situation.