Are you an underwater homeowner who is fed-up with foreclosure? If so, hold on to your seat as real estate investing expert, Dwan Bent-Twyford, shares 10 things you can do to buy time in your home and live free for the next 24 months.
Having personally helped over 1,200 homeowners get a fresh start, Twyford has seen it all. These are the current 10 options distressed homeowners have. Twyford say to use caution before committing to any options as many of these options seem good in theory but they are meant to help the bank, NOT the homeowner. Twyford offers her advice on which options to try first:
PRA – Principle Reduction Alternative. This is the “newest shiny object” as banks have suddenly opened their eyes to the fact that it is cheaper from them to reduce the amount a homeowner owes and get them back on payments than it is to foreclosure, let the house sit empty while it sells, and ultimately selling it for a discount anyway. Twyford usually tells homeowners to try this option first. If a homeowner can get 30% to 40% of their mortgage forgiven plus get a lower interest rate they may be able to stay put and own a home with a little equity and a payment they can afford.
Loan Modifications. There are MANY new loan modifications on the market today: HAMP, HAFA, In House, and so on. Twyford suggests trying the HAMP if the PRA doesn’t work. She says HAMP’s take a long time and don’t usually work. The reason Twyford suggests this type of loan modification is because it helps the distressed homeowners live free for several more months while they try to get back on their feet. If the homeowners are able to work out a loan modification and can make the first three payments on time the foreclosure process is stopped completely. Should the homeowners fall behind again the bank has to start the foreclosure process completely over again.
Forbearance Agreement. This one is a little trickier Twyford says. The bank takes the payments the homeowner is behind, divides them into 12 (if this is the months negotiated) equal payments and adds this amount to the current mortgage payment. If the homeowners are $3,000 behind in mortgage payments and the current payment is $1,000 the bank now expects the $1,000 plus the $250 as the new mortgage payment. If the homeowners can’t afford the $1,000 how does the bank expect them to pay the new payment of $1,250. “The downside to this option,” says Twyford, “is that the house “stays in a state of foreclosure” and if the homeowners miss just one payment the bank can move for a fast foreclosure.”
Subject-To. A Subject-To means that the homeowners deed their home to someone else who will bring the payments current and continue to make payments as the new owner. Once the property is “deeded” to someone else the homeowner no longer owns it, but their name is still on the mortgage so if the new homeowner falls behind it hurts the current homeowners’ credit. This is a risky move unless you know the person you are giving the house to and you are confident they will continue to make on-time payments. If this new person makes on-time payments for five years it rebuilds YOUR credit as the mortgage is in your name. If the new owner flakes off and loses the property to foreclosure it goes on your credit as well.
Short Sale. Twyfords favorite choice for all parties. An investor, like Twyford, agrees to buy the home for a discounted amount. The investor negotiates with the bank to accept less than what is owed as full payment. The investor then buys the home and sells it to a second investor for a profit sharing that profit with the homeowner. The homeowners have money to relocate, the property shows as “satisfied” on the homeowners credit report, and the investor who ultimately bought it has a nice fixer-upper. Shorts sales are quick, they help the homeowners credit, and the homeowners can move on mentality much quicker and start enjoying life again.
Chapter 13 Bankruptcy. Twyford warns homeowners to think this through before filing bankruptcy as it can be difficult to get out of. The reason a homeowner would file a Chapter 13 is to stop the foreclosure sale of their home. Using a good attorney a homeowner can easily live in their home for two years while in bankruptcy. Twyford says most homeowners won’t choose to “live free” under the guise of bankruptcy because of the stress: constant court hearings, service processors showing up at all hours to your home, never knowing if you will be kicked out, and so on. However, Twyford says, “If you have exhausted all means there is no shame in filing bankruptcy as you have to have a place to lay your head at night and if bankruptcy is the only choice you have…do it. It’s better than living in a homeless shelter.”
Deed-in-Lieu of Foreclosure. Twyford offers her strongest warning against a deed-in-lieu of foreclosure. The bank tells the homeowners that they can simply deed the property back to the bank and not have to go through the stressful foreclosure process. The homeowners think this sounds amazing: Just deed it back and walk away! What the bank fails to tell the homeowners is that they will have a foreclosure on their credit report and if the bank sells the property for a loss the bank will come after the homeowners for the deficiency. Unless the homeowners get it in writing that they are free and clear of the property Twyford says, “Don’t make it easy on the bank. They will show you no mercy so have some fun with them first.”
Refinance The Home. This is a great option if you owe less than your property is worth. Since most homeowners right now owe far more than their property is worth this isn’t typically a viable option. Once the homeowners fall behind on their mortgage payments the banks typically want to do no more than a 75% refi. For example: If you have a $100,000 house and owe $100,000 the bank would be willing to refinance you at 75% of the value or $75,000. Since you owe more than this, this option won’t work. If you are one of the lucky ones and have some equity this is a great option if you can get a lower interest rate.
Sell The Home. Twyford says many homeowners are not yet ready to consider this option as they are emotionally attached to their homes. However, if you have exhausted all means and nothing is working then you may have to consider trying to sell the property. If you owe what the property is worth then you are going to have to list the property with a real estate agent or contact a real estate investor to try a short sale first. Once the short sale is accepted you will be able to sell the property. Many banks are now offering as much as $5,000 relocation money to homeowners which can make all the difference in the world when trying to start fresh.
Do Nothing and Lose The Home. While this doesn’t seem like an option it is one of the most chosen options. Homeowners sit in denial that they will not lose their home, they throw away the letters from the bank, they change their phone numbers and basically avoid the bank at all costs. Then one day the sheriff shows up, explains that their property sold at the foreclosure sale, and proceeds to move the homeowners out – ON THE SPOT! Twyford has seen this happen many times and says it is the most heart wrenching thing she has ever witnessed. The neighbors think that everything is free and rummage thru the homeowners items and in no time their belongings are strewn across the yard or gone. It is emotionally devastating for the homeowners and should be avoided at all costs.
Twyford recommends keeping the lines of communication open between the banks and try to work together. “The banks job is to help the homeowners,” Twyford says, “and even though the homeowners may be embarrassed this is what the bank reps do all day: Help people solve their property problems. Twyford wants to make sure that you know all of your options before you begin the process because knowledge is power.”
Be a Blessing,