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Q: What Happens When I Miss My Mortgage Payments?

Foreclosure may occur. This is the legal means that your lender can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, a deficiency judgment could be pursued. If that happens, you not only lose your home, you also would owe HUD an additional amount.

Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. So you should avoid foreclosure if possible.

Q: What Should I Do?

1. DO NOT IGNORE THE LETTERS FROM YOUR LENDER. If you are having problems making your payments, call or write to your lender’s Loss Mitigation Department without delay. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help.
2. Stay in your home for now. You may not qualify for assistance if you abandon your property.
3. Contact a HUD-approved housing counseling agency. Call (800) 569-4287 or TDD (800) 877-8339 for the housing counseling agency nearest you. These agencies are valuable resources. They frequently have information on services and programs offered by Government agencies as well as private and community organizations that could help you. The housing counseling agency may also offer credit counseling. These services are usually free of charge.

Q: What Are My Alternatives?

You may be considered for the following:

Special Forbearance. Your lender may be able to arrange a repayment plan based on your financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.

Mortgage Modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem and can afford the new payment amount.

Partial Claim. Your lender may be able to work with you to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage current.

You may qualify if:

1. your loan is at least 4 months delinquent but no more than 12 months delinquent;
2. you are able to begin making full mortgage payments.

When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full.

The Promissory Note is interest-free and is due when you pay off the first mortgage or when you sell the property.

Pre-foreclosure sale. This will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage loan.

You may qualify if:

1. the loan is at least 2 months delinquent;
2. you are able to sell your house within 3 to 5 months; and
3. a new appraisal (that your lender will obtain) shows that the value of your home meets HUD program guidelines.

Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily “give back” your property to the lender. This won’t save your house, but it is not as damaging to your credit rating as a foreclosure.

You may qualify if:

1. you are in default and don’t qualify for any of the other options;
2. your attempts at selling the house before foreclosure were unsuccessful; and
3. you don’t have another FHA mortgage in default.

Q: How Do I Know if I Qualify for Any of These Alternatives?
Your lender will determine if you qualify for any of the alternatives. A housing counseling agency can also help you determine which, if any, of these options may meet your needs and also assist you in interacting with your lender. Call (800) 569-4287 or TDD (800) 877-8339.

Q: Should I Be Aware of Anything Else?

Yes. Beware of scams! Solutions that sound too simple or too good to be true usually are. If you’re selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty. Be especially alert to the following:

Equity skimming. In this type of scam, a “buyer” approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The “buyer” may suggest that you move out quickly and deed the property to him or her. The “buyer” then collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose. Remember, signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.

Phony counseling agencies. Some groups calling themselves “counseling agencies” may approach you and offer to perform certain services for a fee. These could well be services you could do for yourself for free, such as negotiating a new payment plan with your lender, or pursuing a pre-foreclosure sale. If you have any doubt about paying for such services, call a HUD-approved housing counseling agency at (800) 569-4287 or TDD (800) 877-8339. Do this before you pay anyone or sign anything.

Q: Are There Any Precautions I Can Take?

Here are several precautions that should help you avoid being “taken” by a scam artist:

1. Don’t sign any papers you don’t fully understand.
2. Make sure you get all “promises” in writing.
3. Beware of any contract of sale of loan assumption where you are not formally released from liability for your mortgage debt.
4. Check with a lawyer or your mortgage company before entering into any deal involving your home.
5. If you’re selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state’s Attorney General, the State Real Estate Commission, or the local District Attorney’s Consumer Fraud Unit for this type of information.

Q: What Are the Main Points I Should Remember?

1. Don’t lose your home and damage your credit history.
2. Call or write your mortgage lender immediately and be honest about your financial situation.
3. Stay in your home to make sure you qualify for assistance.
4. Arrange an appointment with a HUD-approved housing counselor to explore your options at (800) 569-4287 or TDD (800) 877-8339.
5. Cooperate with the counselor or lender trying to help you.
6. Explore every alternative to keep your home.
7. Beware of scams.
8. Do not sign anything you don’t understand. And remember that signing over the deed to someone else does not necessarily relieve you of your loan obligation.

Act now. Delaying can’t help. If you do nothing, YOU WILL LOSE YOUR HOME and your good credit rating.

(source=hud.gov/foreclosure)

This contract is for an astronaut to buy a condo on Mars. I think he qualifies, but I’m not sure who we can get to do the appraisal….

….is Han Solo available?

Since the first mortgage balance will be less than 100% of the sale’s price, there is a lower inherent risk to the first mortgage lender who in turn is willing to approve a buyer who would otherwise not qualify for a no-money-down first mortgage.  This dramatically increases the pool of potential buyers and that leads to a quick sale in today’s market. 

Typical minimum credit score requirements for a no-money-down loan are 580 or above; but, with the assistance of a 5% (5% of the sale’s price) “seller held second”, a buyer can purchase a home with a 550 credit score.  With a 20% seller held second, a buyer with a 500 credit score can buy a home no-money-down.  With a 35% seller held second, there are no credit score requirements for the buyer.

After closing, the buyer will have two monthly mortgage payments, one payment to the first mortgage holder and a second payment to the seller.  The second mortgage is typically structured as an interest only with a five-year balloon.  At the end of the first year, the buyer can refinance the first and second mortgage into one new first mortgage and at that time the seller will recoup the “seller held second”.  In the meantime the seller will receive interest only payments from the buyer.

To offer a “seller held second”, a seller will need to have sufficient equity in the property.   Also, sellers need to understand that there is a risk of default by the potential buyer.

A Lease Purchase is coupled with a Purchase Contract at the get go. Simply it couples a Lease Contract with an Option to Purchase Contract creating a Lease To Purchase Contract. The same “rent credits” and option window dates are specified in the agreement and in practice the option monies typically are greater indicating more of a commitment from the buyer to make this a more probable purchase in the end.

The whole idea, if the home is not selling through normal avenues and you have a potential buyer in front of you, albeit not ready at the moment to buy, then why not explore this avenue if you need immediate payment relief. Many buyers have short term job histories or other credit challenges and this one or two year period gives them the opportunity to fix and improve their credit history and gives them a better chance to qualify for a loan down the road. A good rent history with on time payments with no
30-day lates will go a long way towards qualifying for a new loan upon exercise. It is important to note that all payments must be by personal check or bank certified checks which can be produced to demonstrate the required on time payments history with no lates. Many lenders will not accept a Verification of Rental payment with such a close relationship with the seller. It is not considered an arm’s length transaction and therefore not acceptable. The checks are required or it’s a no go on the financing qualification upon exercise.

Dale M.

Lis Pendens (Latin for “suit pending”) is a written notice that a lawsuit has been filed concerning real estate.  A property that has a lis pendens filed against it in county records is about to become a foreclosure.  If you are the mortgagor on such a property then take courage; it is not too late to redeem your house with the help of a “Foreclosure Bailout”.  

A Foreclosure Bailout is a mortgage loan based solely on the equity in your home.  The property must have a Loan-To-Value (LTV) of 70% or lower to qualify.  There are no credit or income underwriting criteria to be met.  Through a Foreclosure Bailout, the existing delinquent mortgage is paid off and you begin again with a new loan.  These loans, also referred to as “Hard Money” (or “Hard Equity”) loans, carry an interest rate of 10% to 15%, and can be made by institutional lenders or non-institutional lenders.  A non-institutional lender, also called a private lender, is an individual person and not a licensed entity.  The preferred source for a Foreclosure Bailout loan is an institutional lender that is licensed and regulated by the State in which the property resides.  In either case, make sure the monthly payments are paid on time each month with your personal check.  After twelve on-time payments (as evidenced with cancelled checks), you will most likely qualify for a refinance with another lender for a more favorable interest rate.

In this day and age there are many people that would like to buy your home at a discount and sell for a quick profit.  There are also many people unaware of the current value of their home.  You can put the property address in zillow.com to determine an approximate value of your home and then multiply it by 70% to estimate the maximum loan amount allowed on this program.  If the balance owed on your existing mortgage is less than the result then you may save your home through a Foreclosure Bailout.

With the permission of the court, you may close out a Chapter 13 bankruptcy by originating a new mortgage on your primary residence as high as 90% Loan-To-Value (LTV).  LTV is calculated by dividing the new mortgage amount by the appraised value of the property.  The LTV for a homeowner currently in a Chapter 13 will vary depending in part on the number of payments that have made since filing date.  The more on-time payments that have been made, the lower the risk to the lender and the higher the LTV allowed. 

Other factors that are typically considered for a loan of this type are mortgage payment history, credit score, income and debt ratio. 

Although real estate values have soared and some mortgage lenders offer relaxed underwriting guidelines for this program, many debtors currently in the throes of a Chapter 13 are unaware that they may qualify for a Bankruptcy Buyout.  

However, through a bad divorce situation, the borrower’s credit would not allow for any of construction money, even though the borrower owned the vacant land free and clear.

After examining the loan scenario, it was decided that the borrower would need a year or two to clean up his credit and pay off outstanding collections and derogatory information by paying or settling the outstanding balances. It was going to take at least $15,000 in cash to settle up on the credit issues. The current lending climate for mobile home financing had for the moment dried up. So the situation played it self out where the only workable asset was the lot.  Now normally, a lender will not do a cash-out refinance on a lot loan, let alone with a borrower with challenged credit.   Here the situation was no help on the mobile home and land and few if any lenders that would have an interest in doing a cash-out on a lot loan.

The borrower expressed his strong interest in moving ahead. Using my contacts with 90+ lenders I was able to find a “Hard Equity” lender (Asset Value Based with No Credit Consideration and as a given, a higher rate) who will do a 50% Loan-to-Value on land. With the lot now worth $70,000 that means, if the lot appraises out and has no sink holes and such, then the deal is possible.  Again, the borrower has a strong interest in cleaning his credit up and putting the financial house in order so that a construction perm loan can then be feasible with a higher credit score. I don’t recommend this for anyone unless the need is extremely high. After chasing all the various loan programs, this “Hard Equity” loan proved to serve the customer’s immediate needs.

Bottom line, the borrower is going to clean up his credit, raise his credit scores and position himself to get a Construction/Perm (One loan which constructs the home and then gets modified into a permanent loan) loan in two years or less. With an experienced loan officer on the case all options are checked to see if the deal can be done. The borrower had gone to several banks and credit unions and was turned down flat with no further effort. It’s just the nature of the banking business; if the scenario doesn’t fit the cookie cutter requirements, they have to turn the borrower down with a Written Decline.

In my practice, when working with borrower challenges, I check all the possible alternatives and may just end up working with the borrower for a few months to coach the borrower in cleaning up his credit so we can do what he wants to do.

Thanks and kind regards,

Paul B.