WORD: Inability to Rent Property

And the WORD for Today Is...

Inability to Rent Property – may trigger the default on a mortgage. It should first be pointed out that most mortgages DO NOT allow for the renting of a property (home) if it was acquired to be owner-occupied. To leave the house and move elsewhere constitutes abandonment. In a situation where such a borrower has been forced to relocate in order to remain employed, then a lender may consider allowing an exception hoping the borrower can rent the property for enough to cover the mortgage. When this is not possible then you have a default caused by the inability to rent the property. Likewise, if it is an investment property and the owner cannot rent it at all due to market or property conditions, then the inability to rent may lead to default and ultimately to foreclosure. See “default trigger event”.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Short Sale Dickering

Q: The phone call was from an acquaintance, who had her friend on the line to discuss what to do about a proposed short sale which was stalled. The REALTOR seemed unsure what to do and both women felt he was looking out for the bank’s interest. Her problem: the lender wanted her to sign a promissory note for the deficiency—$25,000 on a $120, 000 loan in order for them to approve the short sale and let her go to closing. They agreed, after some haggling, to accept $6,000. She was frustrated because she felt they should just approve the short sale; further, if they didn’t she was considering just letting them foreclose. She had already moved out of the house and quite frankly, just wanted this to be over with. The question: What is a short sale suppose to do anyway? I thought it was to wipe out what I owed and the bank wrote that off as a loss.

A: There is NOT a simple answer to the issues raised in the above phone call. I will address what a short sale is (and isn’t) and then address a couple of other issues from the query above. First, short sale means that the lender permits a defaulted borrower (under certain circumstances) to close on the sale of the mortgaged property for less than the full amount allowed. There is a broad misconception that a short sale will be without conditions. Nothing could be further from the truth. The lender has the right, under the terms of the mortgage note (or the deed of trust), to pursue the consumer for the deficiency when less than the full amount due is received from a new buyer. The lender has several options to cover the deficiency: a. submit a claim to the insurer (when applicable, subject to certain restrictions) go for a deficiency judgment against the borrower (can be used to get a wage assignment) ask the borrower to sign an unsecured note for all or a portion of the shortage some other alternative I have not heard of yet

If the borrower does not agree to the ‘conditions’ for the approval then the lender has the sole right to reject the proposed offer and move forward with foreclosure.

Foreclosure is an option the borrower should try to avoid in almost all situations. Pretty much the only time foreclosure has limited power to hurt you is: if you are much older (say 70) never plan to buy a house again, you have NO ASSETS (no savings, no retirement, nothing) and you are judgment proof. Otherwise, you need to work something out. Try to negotiate a lower amount on the promissory note ($6,000 is an excellent compromise). She should take it, run get it signed and notarized and thank the Lord for helping her avoid the full impact of the deficiency. It is important that the document state that the payment of the note “satisfies the indebtedness in full” and is signed by someone of authority at the lender’s shop.

The ‘friend’ from this phone call has several other extenuating circumstances which made the decision to advise her to negotiate and agree to the lowered amount very easy. She is younger (early 50’s), wishes to purchase again, is currently employed, already vacated the house (abandonment, which was discussed on Jan 23-24—here and here) has a significant retirement account and for all those reasons she is not in a strong position to refuse to cooperate with a lender whom she owes $120,00 with an offer of $90,000 on the table. She agreed to repay the full amount, with interest. Circumstances such as her escalating variable rate do not alter the terms of the initial contract. Please understand that I empathize with the situation but must still give you the best answer I can, based on your overall situation. Look to save yourself to fight another day by protecting your financial future with each choice that you make.

Copyright © 2009, Home Ownership Matters, LLC. All rights Reserved. "Answer Book in a Foreclosure Climate" by Mildred Wilkins, available in 2009 from www.DovePublishingHouse.com.

(Please e-mail Heather at homeownershipmatters@gmail.com with any questions, comments, or concerns you might have. We appreciate all feedback, comments, and especially your questions. Don't be shy!)

Q&A: Stay or Go?

Stay or go? How do I know?

Q: I am behind on my mortgage and while I would like to keep my home I can’t possibly see any way for me to make the payments since my interest rate jumped and my payments skyrocketed. The person at the bank “implied” I should just go ahead and move if I can’t make my payments. A couple of friends are also encouraging me to move now. I am not sure who to listen to. When is the best time to move if you are facing foreclosure?

A: Listen to me. First, please understand that you have the ‘Right of Possession” of your home until either, you voluntarily relinquish it (see abandonment—Jan 24) or that right has been severed. Depending on the foreclosure statues in your states usually you have the right of possession until the sheriff’s sale. Even though you are not making payments, the lender must still adhere to the guidelines in your mortgage note or deed of trust—in compliance with applicable state laws—before you can be forced from your home. Don’t speed the process up by vacating when you are not required to. You still need to use common sense—if the foreclosure has already occurred and you expect the sheriff’s auction, followed for forceful eviction to occur in February in Connecticut you might want to move in November.

In my personal situation back in 1991, I moved out on a Monday in March–BEFORE the sheriff’s sale, which was scheduled for that Saturday. My now ex-husband did some fancy lying and got the sheriff’s sale postponed—until July. There are two ways to look at this: I avoided the humiliation of being there at the time of the sale for myself and my kids but I also incurred housing expenses several months before I would have HAD to do so. You will have to make a judgment call, based on your personal situation.

Perhaps your situation will change—prior to the actual auction. The new administration may implement some guidelines which make your situation workable, there could be a moratorium of either foreclosures or auctions in your area—any number of things could change the situation for the better. Make an informed decision about what works best for you. I’m rooting for you.

Bottom line is, you have the right of possession until the fat lady sings. In foreclosure issues the FAT LADY is the sheriff’s sale.

© Copyright 2009, Home Ownership Matters, LLC. All rights Reserved. "Answer Book in a Foreclosure Climate" by Mildred Wilkins, available in 2009 from www.DovePublishingHouse.com.

(Please e-mail Heather at homeownershipmatters@gmail.com with any questions, comments, or concerns you might have. We appreciate all feedback, comments, and especially your questions. Don't be shy!)

WORD: Abandonment

The WORD for Today Is:

Abandonment–means you have voluntarily left the mortgaged property. If the borrower assumes another housing payment, say rent, they are demonstrating the ability to continue making house payments, even if the amount would have been reduced. Loss mitigation rights are nullified by abandonment. While a lender may CHOOSE to still work with you; they are not OBLIGATED to do so even on government loans. See default trigger event.

Refers to the voluntary relinquishing of ownership rights by failure to use the property. Abandonment usually requires two things:
a. failure to use the property (not being physically present for an extended period of time).
b. coupled with the intent to give up your interest in the property (the actual removal of your possessions from the property which would signify you have no further interest).

It is important to understand what constitutes abandonment because a borrower’s rights could be on the line. A lender has the right to aggressively move forward with foreclosure action under the “abandonment clause” in most mortgage notes. As an author/trainer I travel extensively and may be away from my residence for 2-3 weeks at a time (do not use the property). That does not constitute abandonment since my belongings are still in place and look as though someone plans to return eventually. Therefore, there is no intent to give up my interest in the home just because I am away for an extended period of time. A borrower who removes most or all of their possessions from their home while in default is usually guilty of abandonment and should expect foreclosure action to follow.

© Copyright 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Abandon

The WORD for Today is:

Abandon–to voluntarily leave your home, thereby relinquishing your rights to the property (through failure to use the property). It is a serious misstep for a consumer who is in default to abandon. Lenders are usually less willing to engage in loss mitigation if you do not reside in the home. For government backed loans, your RIGHT TO LOSS MITGATION is tied to your continued residence in the house. The lender has the legal right to accelerate foreclosure by virtue of your abandonment, which is in violation of the mortgage note. DON’T DO IT. STAY AND WORK WITH LOSS MITIGATION.

© Copyright 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)