Avoiding Foreclosure - Part IV of series

The perfect storm of adjustable mortgages, declining home sales, and job loss have led to a rise in foreclosures. Short sales and foreclosures now represent 30% of all real estate sales in the country. But just because you're falling behind in your mortgage payments, you do have alternatives.

The consequences of foreclosure on homeowners are terrible -- loss of home and equity, damage to credit (lowers score 200 points or more and stays on report for seven years), and the less tangible emotional toll. Neighbors suffer as well, through lowered property values and vacant properties, which can attract vandals and squatters.

Even though the fear of foreclosure can be paralyzing, the worst thing that you can do is nothing. Thankfully, there are an increasing number of resources and new government efforts to support homeowners at risk (see resource list at bottom of post). Your first step should to contact a housing counselor, financial adviser and/or attorney. Explain your situation ask for advice on how to proceed. Depending on a number of factors, including your income and assets, the value of your house, and your loan terms, they may advise one of the following options:

• Refinance
• Lender workout
• Sell your home (bringing cash to closing if necessary)
  
• Short sale
• Deed in lieu of foreclosure
• Bankruptcy

Some homeowners have had success contacting their mortgage company's workout department, negotiating a change in the terms of their loan so that their payments are affordable. You may need to write what is known as a "hardship letter," describing the reasons you are no longer able to afford payments and suggesting a solution. Some common "hardships" include:

• Income loss or reduction
• Death of homeowner or spouse
• Forced relocation
• Medical bills
• Payment increase (i.e. adjustable rate)
• Business failure
• Incarceration

If a Work Out is not an option, your next consideration might be a short sale (discussed in Part II of this series), where you and the lender agree to sell your home at a loss (to you and the lender). A short sale MAY only reduce your credit score by 50 points, although each loan and borrower is different and it could have the same credit impact as a foreclosure.

Remember that lenders want to avoid foreclosure almost as much as homeowners do because they lose $50,000 per foreclosure, on average.

Help is out there and it's free. Beware of foreclosure rescue scams that charge a fee to negotiate with lenders. Get started on your path to avoiding foreclosure with one of the resources here:

Colorado Foreclosure HOTLINE (877) 601-HOPE or (877) 601-4673 Boulder County Housing Counseling Offices http://www.bouldercounty.org/hhs/housingcounseling.htm Phone: 720-564-2279 Email: hcinfo@bouldercounty.org Locations: · Boulder: 2525 13th Street #204, Boulder 80304 · Longmont: 385 Kimbark Street, Longmont 80501 The Making Home Affordable Program http://makinghomeaffordable.gov/ Hope Now (An Alliance of Lenders Helping Homeowners) https://www.hopenow.com/ How to Write a Hardship Letter http://www.afscanhelp.com/hardship-1.cfm

Short Sales - Boulder Foreclosures, Part II

Have you ever seen a real estate listing that said "subject to bank approval" or "short sale"? This means that the list price of the home is less than the amount owed in mortgage(s). If it sells, the bank will be "shorted" on the loan, not to mention that the sellers will lose any equity they once had in the property. A short sale is an alternative to foreclosure, saving the bank the money and hassle of the foreclosure process, and -- hopefully -- is less detrimental to the sellers' credit. The sellers must be in default on their loan -- have missed several payments -- in order to qualify for a short sale.

The main difference between a short sale and a normal transaction is that the sellers AND their lender(s) have to sign off on the purchase contract. Because there are so many homes in pre-foreclosure, most banks are swamped with short sale offers -- picture some harried bank employee with stacks of 20-page offers on their desk. It can take weeks to even get an answer back on an offer, and sometimes many months to close. Plus, the homeowners may have mixed feelings about the transaction because they will not be getting a check at closing. Patience and persistence are the names of the game.

So, why would anyone want to buy a short sale? For starters, they can be a bargain. Take, for example, a short sale on 15th Street in North Boulder that closed on the last day of 2009 for $595,000. The 5-bedroom, 3-bath home built in 1993 sits on a large, almost 15,000 square-foot lot. Even though property tax assessments are no substitute for appraisals, considering this home was assessed at $815,500, I think it's safe to assume the buyers on this deal got a six-figure discount on this home.

Another short sale example is a Kalmia Court 2-bedroom, 2-bath condo that sold last summer for $278,000, compared with two comparable sales in the building of right around $300,000.

However, not all short sale opportunities are created equally. Buyers need to look carefully at the condition of the home, and the limits of their patience, before considering a short sale. Also, be sure your buyer's broker is on-board and knowledgeable about short sales. Banks sometimes reduce the commissions, meaning your broker may be less than enthusiastic about showing you these homes. Be open with your broker and discuss other options for compensation if there is a short sale opportunity that you don't want to miss out on.

Still confused? Please feel free to call me at 303-449-2959 and I can explain the process further.