The foreclosure notice is customary and sent to borrowers who default in payments. However, before the foreclosure notice is sent, the borrower is sent notifications requesting that payments are brought up to date.

There are several options available depending on the situation, some are described below.

If the borrower wants to keep the house:

1. A loan modification might be an option, by speaking with the lender.  Search on www.MakingHomeAffordable.gov for details, or  www.financialstability.gov/roadtostability/homowner.html
2. For urgent assistance, contact the Homeowner’s HOPE Hotline at 888-995-HOPE
3. To contact the lender directly, borrower will need their account number and then ask for the Loss Mitigation Department.

NOTES:

• Loan Modification may be difficult to achieve if there is no income or the Income/debt ratio = loan-to-value (LTV) is low.
• Depends on the lender (borrower may or may not be up to date on mortgage payments), but the lender should be able to reduce monthly payments, to help avoid foreclosure. Borrower gets to keep the house and the lender avoids having to go through the foreclosure process.
• Mortgage payments should only be about 31% of gross income.  Most of the time this is accomplished by reducing the interest rate, allowing the borrower to pay off more of the principal.
• The decrease in monthly payments will only be for a certain period of time, generally five years, after which, the monthly mortgage payment should slowly increase to the original monthly amount.
• If a borrower is unable to make monthly mortgage payments on time, they may be eligible for a reduction in the principal balance.
• Over the 5-year modification period, the borrower could cut $5,000 from the total amount owing.
• In order to be eligible for this program, the amount of money left owing on the house without interest needs to be less than $729,750.
• The program is designed to help people who have their homes as the primary residency.
• After December of 2012, this part of the mortgage assistance program will cease.

The steps to pursuing a loan modification:

1. Contact the lender to make sure that they are participating in the mortgage assistance program.
2. Go to the government website at http://www.FinancialStability.gov for more information;

The Mortgage Assistance Program – Overview

• The program is designed to help borrowers where the home has lost a considerable amount of value.  
• To be eligible for mortgage refinance, the current loan must be owned by either Freddie Mac or Fannie Mae.
• To check if his current loan qualifies, go to http://www.FinancialStability.gov and follow the Fannie Mae and Freddie Mac links.
• Under normal circumstances, the needs at least 20% equity on the home to be eligible for refinance, but, this program helps people with no equity and even those who find themselves with negative equity.
• If the value of the property has dropped too low, the borrower may not qualify for this part of the Mortgage Assistance Program. Unfortunately, this has been the case in many areas.  To qualify, the borrower cannot be under-water by more than 5 percent.  Even the smallest amount of equity increases the chance of qualifying.
• To qualify, the borrower must have been, for the past year, consistently making monthly mortgage payments within 30 days of the due date.  (In other words, borrower must be up to date with monthly payments).
• If the loan is more than $417,000 then the chances are that the borrower will not qualify for refinancing.  This is what is called a jumbo loan.
• In June of 2010, the mortgage refinance option is scheduled to expire.

If the borrower does not qualify or is unable to get a loan modification or mortgage assistance program, the other option is a short sale.

Short Sale is a process where the borrower works with a real estate agent and the lender to sell the property for a price that is lower than the debt.

• The lender’ Loss Mitigation Department provides information about the short sale requirements, information is usually provided online.
• Lenders would consider the short sale based on hardship and full financial disclosures.
• The property must be put up for sale requiring a third-party approval.
• Each lender requires a short sale package to be submitted by the borrower to start the process.
• His real estate agent must receive signed authorization from the borrower to enable her or him to work with the lender.
• Once the package and the agent’s authorization have been received by the lender, the lender activates a file.
• The lender will order a BPO (broker’s price option) to assess the value of the property and a negotiator may be assigned at this point.
• Once a contract is received, the contract is submitted to the lender for approval along with a HUD containing all closing costs to be absorbed by the lender.
• Closing costs include agents’ commission (those involved in the transaction), sellers’ closing costs, and sometimes the buyers’ closing costs, depending on contract.
• The agent actively works with the lender’s negotiator to get the short sale approved.
• The negotiator would issue a short sale written approval satisfying the full amount of the mortgage with the proceeds of the short sale.
• If a “satisfaction of mortgage” is not received, then the lender may require the borrower to sign a promissory note for a balance amount to finalize the short sale.
• The promissory note is signed at closing as part of closing documents.
• Closing can be done at a title company or lawyer’s office.
• This is a lengthy process, but a good real estate broker knowledgeable of the short sale process can guide him and work the short sale with the lender.
• It is always a good idea to seek legal advice in any case.

I hope this helps to shed some light on the options.

Monica Richter

Florida Homes By Monica

http://www.floridahomesbymonica.com/

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