Pre-Foreclosure Services

Tips for Avoiding Foreclosure

Are you having trouble keeping up with your mortgage payments? Have you received a notice from your lender asking you to contact them?

• Don't ignore the letters from your lender
• Contact your lender immediately
• Contact a HUD-approved Housing Counseling Agency
• Toll FREE (800) 569-4287
• TTY (800) 877-8339

If you are unable to make your mortgage payment:

1. Don't ignore the problem.

The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.

2. Contact your lender as soon as you realize that you have a problem.

Lenders do not want your house. They have options to help borrowers through difficult financial times.

3. Open and respond to all mail from your lender.

The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may require_once important notice of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.

4. Know your mortgage rights.

Find your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and timeframes in your state (as every state is different) by contacting the State Government Housing Office.

5. Understand foreclosure prevention options.

Valuable information about foreclosure prevention (also called loss mitigation) options can be found on the internet at portal.hud.gov .

6. Contact a HUD-approved housing counselor.

The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if you need this assistance. Find a HUD-approved housing counselor near you or call (800) 569-4287 or TTY (800) 877-8339.

7. Prioritize your spending.

After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses-cable TV, memberships, entertainment-that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.

8. Use your assets.

Do you have assets-a second car, jewelry, and a whole life insurance policy-that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don't significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.

9. Avoid foreclosure prevention companies.

You don't need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month's mortgage payment) for information and services your lender or a HUD approved housing counselor will provide free if you contact them.

10. Don't lose your house to foreclosure recovery scams!

If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD approved housing counselor.

The sad truth is that many Americans loose their homes to foreclosures every year. Some of the lenders are not always careful enough to check the person's ability to make payments; some of them don't even care. Furthermore there are situations when the circumstances change and the owner cannot afford to meet their mortgage obligations.

No matter what is the reason behind a person's incapability to pay for their mortgage the process afterwards is fairly set. First the lender files a public default notice. This initiates the foreclosure process and from this point on the property is officially in pre foreclosure stage. So in other words pre foreclosure is like a grace period. The home owner is warned that he is in default and that he needs to do something about that, however at this moment the lender is not capable of claiming their property and selling it. The length of the pre foreclosure period varies, but it is usually 6 months , in some states even less. Once the property enters pre-foreclosure, there are a number of ways the homeowner can avoid having their property foreclosed on and sold by the lender.

Pay Off The Default

If the owner of the home can find the money t pay off the default amount, then the property is removed from pre-foreclosure. If the amount in default is small, and the default was caused by a temporary glitch in circumstances, then it may be worthwhile taking out a personal loan to repay the debt. If the problem is persisting, however, this may just cause more problems for the homeowner.

Sell The House

That is a little more drastic, but is probably the best option if meeting the repayments is likely to be an ongoing problem. By selling the house, the homeowner should be able to get a reasonable price for it. If the homeowner waits and lets the lender sell it, the sale price is almost certainly going to be much lower, because the lender just wants to offload the property as fast as possible.

In most cases this is a good time for an investor to approach the homeowner with a fair offer to purchase the property. However, many people in pre-foreclosure go into denial, and instead of trying to make the best of a bad situation, will actually refuse taking action until it's too late. Many also don't understand the long-term detrimental effect a foreclosure listing will have on their credit score.

No one wants to face foreclosure on their home, but at least the pre-foreclosure period gives the homeowner the opportunity to find a option that's a little more favorable for them. Waiting for the property to pass into foreclosure and be seized by the lender is almost never the best solution.

The Preforeclosure Sale (PFS) Program allows the mortgagor in default to sell his/her home and use the net sale proceeds to satisfy the mortgage debt even though these proceeds are less than the amount owed.

Question 1 :

Can a mortgagee utilize the buyer's appraisal to review the property that is accepted into the PFS or must the mortgagee acquire an independent one?

Answer:

The mortgagee is required to obtain an appraisal per Mortgagee Letter 94-45, Paragraph E, "Steps Leading to - and Participation In - The PFS Procedure", Item #3, Pages 5-6. This requirement is because the property must be appraised on an As-Is and As-Repaired basis. However, if the buyer has secured an FHA-insured appraisal, use of the buyer's appraisal would be allowed since acquisition of an appraisal for HUD property cannot be duplicated within a six-month period.

Question 2:

How does the mortgagee arrive at the 63% ratio of "as is" appraised value to outstanding debt and the 82% ratio of estimated sales proceeds to appraised value?

Answer

- To arrive at the 63% ratio:

Divide the "As-Is Appraised Value" (APV) by the outstanding indebtedness (principal, accrued interest, and Partial Claim amount, if applicable). If the result is 63% or higher, that criterion has been met.

Answer

- To arrive at the 82% ratio:

Contract sales price minus (allowable PFS expenses + Partial Claim amount, if applicable) divided by As-Is Appraised Value = Net Sales Proceeds. If the result is 82% or higher, that criterion has been met.

There are no variances from the above stated ratios.

Question 3:

Mortgagor is deceased, his father has been making the payments, property was tenant-occupied for eight months, and now the father wants to know if he can acquire the property under the PFS Program?

Answer:

Mortgagee Letter 1994-45, paragraph F, Item 7(a), states in part any PFS proposed by the mortgagor or his agent, and approved by the mortgagee, must be an "arm's length" transaction between the mortgagor and would-be purchaser. HUD defines "arm's length" transaction as between two unrelated parties that are characterized by a selling price and other conditions that would prevail in an open market environment. No hidden terms or special understandings can exist between any of the parties involved in the transaction. Consequently, the deceased mortgagor's father cannot buy the property using the PFS Program.

Question 4:

If a mortgagee is the holder of both the first and second mortgages can the mortgagee be able to utilize the $1,000 that is available to pay towards the settlement of the second mortgage?

Answer:

Yes, Mortgagee Letter 2000-05, page 31-32, paragraph F, "Condition of Title" states, "The incentive consideration payable to the mortgagor should first be applied toward the discharge of liens. If this is not sufficient, the mortgagee can obligate an additional amount not to exceed $1,000 from sales proceeds towards the discharge of liens or encumbrances, if that will result in clear title and allow the sale to proceed."

Question 5:

Can a mortgagee proceed through the PFS Program process if one of the mortgagors is uncooperative and will not participate within the required Housing Counseling session?

Answer:

As the mortgagee, you can facilitate this counseling to the uncooperative mortgagor and acquire their signature on the form HUD-90038, Homeownership Counseling Certification.

Question 6:

Is it possible to do a PFS after the mortgagee has already completed a Partial Claim?

Answer:

PFS may follow a Partial Claim if there is a new reason for default and the mortgagor lacks the financial ability to cure the present default. See PFS Question #2 for calculations to meet the PFS ratios.

Question 7:

Can a buyer utilize the Nehemiah type financing programs in conjunction with a purchase of a house that has been approved to participate in the PFS Program?

Answer:

No, Nehemiah mortgages are disallowed, when the buyer is obtaining FHA financing to purchase a house that is participating in the PFS Program.

Question 8:

A mortgagor approved to participate in the PFS Program has listed the property with a real estate agent who is a relative, but has agreed not to charge a sales commission to handle the transaction. Would this be considered an arm's length transaction?

Answer:

No, Mortgagee Letter 1994-45, defines "arm's length transaction" as a preforeclosure sale between two unrelated parties that is characterized by a selling price and other conditions that would prevail in an open market environment. In addition, no hidden terms or special understandings can exist between any of the parties involved in the transaction: buyer, seller, appraiser, sales agent, closing agent and mortgagee.

Question 9:

What kind of "hardships" does a mortgagor has to have experienced in order to qualify for the PFS Program?

Answer:

Mortgagee Letter 2000-05, Paragraph B. Cause of Default, page 4, states "HUD does not have a "hardship" test. Mortgagees may offer FHA relief options to mortgagors who have experienced a verifiable loss of income or increase in living expenses to the point where the mortgage payments are no longer sustainable."

Question 10:

Is it the responsibility of the mortgagee to acquire marketable title?

Answer:

Mortgagee Letter 2000-05, Paragraph F. Condition of Title, Page 31, states in part, "..the lender must obtain a title search or preliminary report to verify that the title is not impaired with un-resolvable title problems, or junior liens that cannot be discharged as allowed by HUD...If the borrower has a HUD Title I loan secured by the property, the lender must negotiate a release of the Title I lien in order to proceed with a PFS."

The mortgagor is then accepted into the PFS program and resolution of the title issues can be pursued concurrent with marketing. The incentive consideration payable to the mortgagor should first be applied toward the discharge of liens. If this is not sufficient, the mortgagee can obligate an additional amount not to exceed $1,000 from sale proceeds towards the discharge of liens or encumbrances.

Contact Us