A Deed in Lieu of Foreclosure (aka Deed in Lieu) is an alternative to foreclosure. Generally it is only used if a loan modification is not possible. It is used much less often than Short Sales as a method to end the foreclosure and settle the remaining debt on the home.
More literally, a Deed in Lieu of Foreclosure is a legal instrument whereby a homeowner voluntarily surrenders their home to the Servicer/Lender. In return the Servicer/Lender stops the foreclosure process and cancels the mortgage debt.
This process used to be referred to as “dangle mail” because it was akin to homeowners mailing their keys back to the bank in an envelope. Despite what you may have heard, banks will not simply accept the keys to cancel the note and mortgage. You must apply for a Deed In Lieu. The Servicer/Lender will want to see all of your financial information and you will be required to fill out a number of forms.
If your application is approved the bank will inform you and/or your attorney. The process will take a few months and it is important to stay in constant contact with the Servicer/Lender and the law firm handling the foreclosure.
Wednesday, April 21, 2010
Short Sale Basics
You may have heard the phrase “the property is underwater”. Properties that are “underwater” are worth less than the mortgage on the home. Therefore, if the property is sold at its current market value the homeowner would need to use some of his or her own funds to pay off the mortgage. In today’s poor economic climate many homes are underwater and their owners are generally unable to make up the difference. One possible solution to this problem is a short sale.
A Short Sale is conducted when the outstanding obligations owed by a homeowner on a property exceed the current market value of the property. The homeowner sells the property at it’s reduced market value and the lender agrees to accept a reduce figure. There are a few other things you should consider when agreeing to do a Short Sale. The sale will impact your credit and the difference between what the property is sold for and what is owed may be considered income on your tax returns.
To conduct a Short Sale you will need to fill out a packet for your Servicer/Lender to review. The bank will instruct you on how they want the property listed and for how long. You will need a broker to list the property and possibly an attorney to assist with paperwork and applications.
A Short Sale is conducted when the outstanding obligations owed by a homeowner on a property exceed the current market value of the property. The homeowner sells the property at it’s reduced market value and the lender agrees to accept a reduce figure. There are a few other things you should consider when agreeing to do a Short Sale. The sale will impact your credit and the difference between what the property is sold for and what is owed may be considered income on your tax returns.
To conduct a Short Sale you will need to fill out a packet for your Servicer/Lender to review. The bank will instruct you on how they want the property listed and for how long. You will need a broker to list the property and possibly an attorney to assist with paperwork and applications.
HAFA (Government Incentives for Deed-In-Lieu of Foreclosure and Short Sales)
As of April, 2010 government incentives were extended to banks that participated in certain Deed-in-Lieu of Foreclosures and Short Sales (for more information of these two types of foreclosure alternatives please read the Deed-In-Lieu of Foreclosure and Short Sale articles). This program is called Home Affordable Foreclosure Alternatives Program (HAFA).
Keep in mind that that prior to be considering for any type of alternative modification of HAFA the Servicer/Lender will first consider you for HAMP. If a homeowner is rejected for HAMP Servicers/Lenders have been instructed to consider other types of loan modifications prior to considering a homeowner for HAFA. This speaks to the government’s desire that Servicer/Lender work to keep homeowners in their homes as opposed to seeking an alternative solution.
If the Servicer/Lender is unable to find a non-HAMP modification program (commonly referred to as an In-House Mod) they will then consider the homeowner for HAFA. All homeowners must be considered for HAFA if they:
(1) Fail to qualify for HAMP,
(2) Fail to successfully complete a HAMP Trial Plan, OR
(3) Miss 2 consecutive HAMP trial plan payments.
In addition, Servicers/Lenders must consider a homeowner for HAFA prior to sending the case to a foreclosure firm to start the foreclosure process & before moving for a foreclosure sale.
Since the HAFA program is new many of the parties involved with the application are not accustomed to the process. Banks will likely be difficult to work with. The key is appropriately putting together the proper paperwork, keeping records of everything and constant phone calls to the servicer/lender and if the case is in foreclosure, the bank law firm. You can take care of this process on your own, but if you are interested in receiving help there are numerous law firms and organizations that can assist you in the process.
Keep in mind that that prior to be considering for any type of alternative modification of HAFA the Servicer/Lender will first consider you for HAMP. If a homeowner is rejected for HAMP Servicers/Lenders have been instructed to consider other types of loan modifications prior to considering a homeowner for HAFA. This speaks to the government’s desire that Servicer/Lender work to keep homeowners in their homes as opposed to seeking an alternative solution.
If the Servicer/Lender is unable to find a non-HAMP modification program (commonly referred to as an In-House Mod) they will then consider the homeowner for HAFA. All homeowners must be considered for HAFA if they:
(1) Fail to qualify for HAMP,
(2) Fail to successfully complete a HAMP Trial Plan, OR
(3) Miss 2 consecutive HAMP trial plan payments.
In addition, Servicers/Lenders must consider a homeowner for HAFA prior to sending the case to a foreclosure firm to start the foreclosure process & before moving for a foreclosure sale.
Since the HAFA program is new many of the parties involved with the application are not accustomed to the process. Banks will likely be difficult to work with. The key is appropriately putting together the proper paperwork, keeping records of everything and constant phone calls to the servicer/lender and if the case is in foreclosure, the bank law firm. You can take care of this process on your own, but if you are interested in receiving help there are numerous law firms and organizations that can assist you in the process.
Second Mortgages & HAMP
Earlier this year only First Mortgages were eligible to be modified under HAMP. As of a few weeks ago HAMP was extended to Second Mortgages under a program known as 2MP. This is great news because many homeowners have Second Mortgages and need both their first and second modified to truly get back on their feet.
Under this new program a homeowner’s Second Mortgage is eligible if:
(1) The First Mortgage is modified under HAMP &
(2) The Servicer/Lender for the Second Mortgage is a HAMP participant (go to www.MakingHomeAffordable.gov/contact_servicer.html to check)
As with any mortgage modification program, it is important to stay on top of the bank and keep copies of all paperwork. Keep in mind that this is a new program and all parties involved will not be experienced in working with it. It is possible to complete this modification application and receive a modification on your own. However, if you think you need help there are numerous professionals and organizations out there that are ready, willing and able.
Under this new program a homeowner’s Second Mortgage is eligible if:
(1) The First Mortgage is modified under HAMP &
(2) The Servicer/Lender for the Second Mortgage is a HAMP participant (go to www.MakingHomeAffordable.gov/contact_servicer.html to check)
As with any mortgage modification program, it is important to stay on top of the bank and keep copies of all paperwork. Keep in mind that this is a new program and all parties involved will not be experienced in working with it. It is possible to complete this modification application and receive a modification on your own. However, if you think you need help there are numerous professionals and organizations out there that are ready, willing and able.
Tuesday, April 20, 2010
HAMP Basics
The Home Affordable Modification Program (HAMP) is a government program that provides incentive payments to residential lenders for modifying your mortgage. This means that the bank may actually decrease your monthly mortgage payment in return for government money. To get a modification under this program your bank must participate in the program (most do), you must be eligible and the modification must meet the NPV test.
1. Does Your Bank Participate?
While the vast majority of United States banks participate in this program, some banks have decline. To check the most updated list of which banks participate go to www.MakingHomeAffordable.gov/contact_servicer.html.
2. Are You Eligible?
In order to be eligible for HAMP you do not need to be behind on your mortgage. The eligibility requirements are as follows:
(1) You must be the owner-occupant of a 1-4 family home
(2) The unpaid balance on your mortgage must not exceed
a. 1 Unit Home - $729,750.00
b. 2 Unit Home - $934,200.00
c. 3 Unit Home - $1,129,250.00
d. 4 Unit Home - $1,403,400.00
(3) Your first mortgage must have been originated on or before June 1, 2009
(4) Your currently monthly mortgage payment must exceed 31% of your pre-tax income (Note: This includes all household income).
(5) Something bad must’ve happened to you that is now making your monthly mortgage payment difficult or impossible to pay
3. Does the Modification Pass the NPV Test?
Assuming the bank participates and you are eligible for HAMP the bank will do a few things to reduce your monthly mortgage payment to 31% of your household’s pre tax income. First they will reduce your interest rate by an eighth of a percentage point at a time. They may go all the way down to 2% (this will remain fixed for 5 years and then can increase). Second they will extend the length of the loan. Third they will put a certain amount of the principal balance to the end of the loan interest free. Finally, they may erase a certain amount of principal (incredibly rare).
The bank will then evaluate the present value of all expected payments and add that together with the government incentive money. If that value is equal to, or better than, the present value of the current mortgage they will offer you a modification. If it’s not they will reject you.
Applying for a HAMP modification can be a difficult and time consuming process. A decent bit of paperwork is involved and it is important to stay on top of the lender, as they may take months to review everything. It you feel up to the task it is possible to apply for and receive a modification on your own. If you would rather go with an expert there are many people out there who can guide you through the process.
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