In teaching workshops on how to buy foreclosure homes (often listed on a foreclosure auctions report), I often write on the markerboard in big bold letters, “Gain They’re Trust to Close More Deals”.
The principle of gaining the trust of the homeowner threatened with foreclosure is a deal-maker. If they trust you, they are more likely to accept your offer. Besides that, if you have earned their trust by explaining their options to them, then if they choose to let the home go to auction where it will likely end up on a foreclosure auctions report (and you win it) they are much more likely to vacate the property without a fight.
1. Work with their Current Lender
Forbearance: An agreement between the lender and the borrower that reinstates the delinquent loan because the homeowner will put up an initial lump sum of the total delinquency and pay the rest over a period of time.
Loan Modification: A change in any of the terms of the original note. This includes decreasing the interest rate, re-amortizing the remaining balance, extending the term of the note.
2. Work with a New Lender
Refinance: Where a new lender loan the borrower monies to pay off existing debt. This option is generally open to borrowers that face a temporary setback in their financial situation and can prove that they can afford the new mortgage payment. Most financial institutions will not loan to people unless they have the above mentioned criteria and at least 20% equity in the residence.
Junior Mortgage: Where a new lender will offer a second loan or junior lien in order to make up any back payments, late fees and other charges necessary to reinstate the loan. Rates are typically 12%-18% and terms are 5 to 10 years.
3. File Bankruptcy
Bankruptcy is a way for people who owe more money than they can pay right now, to either work out a plan to repay the secure creditors over time in Chapter 13 filings, or wipe out (discharge) most of their bill in a Chapter 7 filing. While the debtor is working out a plan, or the trustee is gathering the available assets to sell, the Bankruptcy Code provides that creditors must stop all collection efforts against the debtor. What happens to your bills, debts and house will be controlled by the Bankruptcy Code and the Federal Rules of Bankruptcy(the owner will NO longer have control over any of their assets). Bankruptcy will have a serious impact on the credit lives for the next 10 years.
4. Sell Their Home
List with a Realtor on the MLS (Multiple Listing Service)- Due to the short foreclosure period in Texas, listing their home with an real estate broker and being able to close within 21 days is a very unrealistic task due to the new buyers financing. The process of lenders approving the buyers credit, appraising the house, completing underwriting, reviewing title, getting a new survey, getting payoff demands and drawing documents–can take 3-4 weeks to complete (assuming no problems pop up). Just because the property is under contract and scheduled to close will NOT stop the auction.
Sell to an Investor- Selling their house to an investor who offers ” cash at closing”; no new loan contingencies; no repairs to be made (AS IS); fast escrow; a for sure sale providing a fresh start with reputation and integrity intact would be their best option. Although the investor’s price is less, the investor can salvage the seller’s credit, bring loans current, rebuild seller’s credit by paying the sellers debt on time every month. This is a much BETTER solution than doing nothing and losing everything at the foreclosure auction.
5.Giving Up and Letting it Go:
Deed-in-Lieu: Borrower voluntary conveys the title (property) back to lender in lieu of the lender foreclosing. Most lenders would rather go through with the auction and clean title by extinguishing inferior liens.
Let it Go to Auction: Obviously, nothing good can come from this, the owner loses their home with no money, credit problems, hard to find new housing due to past history and the lender can sue for any deficiency.