Tuesday, January 15, 2008

Ways People Prevent Foreclosure

A short sale is one of many ways a homeowner can prevent a foreclosure. Whether you are an investor or homeowner you should know and understand all of your options. A short sale is often the best option available to the homeowner but knowing all options is in the best interest of all parties so an informed decision can be made.

For the purpose of instruction we will assume you are a homeowner facing foreclosure.

Foreclosure Rules

Rule #1: Contact your lender right away to discuss your options.
Rule #2: Never ignore the lender's letters or phone calls.
Rule #3: Ask the lender for a reinstatement or repayment plan.
Rule #4: Know your options


Reinstatement might be possible when you are behind in your payments but can promise a lump sum to bring payments current by a specific date. Call the lender and ask to speak with the workout department. The lender would prefer to have the loan reinstated and have you stay in the home then to foreclose on the property.

Repayment Plan

If your account is past due, but you can now make payments, the lender may agree to let you catch up by adding a portion of the past due amount to a certain number of monthly payments until your account is current.
Example. You fall 5 payment behind on your house

Private Money Loan Up To $25,000

A Private Money Loan is often the best solution for the homeowner because it allows them to bring the other loans current. Most private money lenders require a total loan to value ratio below 75% and are equity based lenders meaning more importance is placed on the house securing the debt than a personal credit rating. Make sure you are dealing with a private money lender like ours and not a mortgage broker, bank, or hard money lender(all of these may charge exorbitant points and fees costing you more money). With a private money lender you keep the ownership of your house, borrow only what you need, and can repair your credit over time.

Sell Your House To An Investor

If 1, 2, & 3 are not an option then you can sell your house to an investor. On average a seller nets 85% of the sales price after taking into consideration all selling, closing, & misc. expenses. An investor will expect to make a reasonable profit but can close quickly with cash or may take over existing debt & bring the loan current. A credible investor closes quickly which starts rebuilding your credit immediately and may put cash in your pocket depending on your equity. If you have little/no equity see #6.

Sell Your House and Lease Option Back

This is a very popular option and must be done by a willing investor. Typically the investor takes over the existing debt or gets new financing then gives the seller the option to buy the property back at a later date for a higher amount. The seller gets to stay in the house and make reasonable lease payments while rebuilding their credit. Done right this can be a solution but the disadvantage is you lose ownership of the house and tax write offs. Another option that may be less expensive is getting a Private Money Loan. If you have little or no equity an investor may be able to do a short sale(see #6) then lease option the house back to you.

NOTE: We are not a big fan of lease optioning the home back to the owner because unless it is done correctly there is too much that can go wrong at a later date. We mention it here to cover all the options.

Short Sale

A short sale is when an investor purchases a property conditioned upon the lender discounting the loan(s) to a lower amount. This may be the only solution for sellers that have little or no equity or are over financed owing more than the value of the property. Make sure you work with a credible investor experienced in short sales. Do not do business with anyone that guarantees or promises results- they simply can't because there is no way of knowing what discount a lender will accept. Many times acceptance will not occur until just before the foreclosure date. Note: If you have little or no equity it is important to start working with a credible investor ASAP because the short sale process takes time.

List The Property With A Realtor

This is the option of last resort. FACT: there are thousands of houses listed on the MLS that Realtors can't sell. Average days on the market continues to climb! The foreclosure process limits the time you have to sell. You simply don't have the time. Realtors do not understand options 3, 4, 5, and 6. Realtors increase your costs with exorbitant commissions and most seasoned investors avoid working with Realtors on short sales.

Or sell to us, tap here now, and we'll see what we can do for you.

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