WORD: Upside Down

And the WORD for Today is:

Upside down—refers to a situation when a consumer owes more on a house than the mortgage pay-off. Also called Underwater.

Underwater—relative to housing—this is a term which means a home cannot be sold on the open market today for enough money to pay-off the existing mortgage. There are a number of factors which might contribute to this being the case; an over-supply of houses in this price point perhaps because of over building, a limited supply of buyers for this type house, lack of easily affordable financing, a declining market because of excessive foreclosures, or various other factors might impact the seller’s ability to get an offer for as much as the current indebtedness on the property.

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: Pre-payment Risk

And the WORD for Today is:

Pre-payment Risk – refers to the possibility of receiving full or partial payment from the borrower before the principal is due. A full pre-payment typically results from the sale or refinancing of a mortgaged property. A partial pre-payment typically occurs when a borrower applies additional money toward the reduction of the principal owed on a mortgage. While such a pre-payment is not a common practice, it is an excellent way for a borrower to significantly reduce the amount of interest they pay over the term of the loan. Pre-payments reduce the value of the mortgage servicing right asset, as the anticipated servicing cash flows are effectively reduced. Many lenders in the sub-prime market strongly inhibit pre-payment activity my imposing harsh pre-payment penalties on a borrower who wishes to pay the entire loan off early. Reinvesting the money from pre-paid principal could be very costly to an investor since they would then need to reinvest and are most likely going to receive a lower interest rate (yield) than the mortgage was paying. Borrowers should be aware that pre-payment penalties can be high enough to effectively lock you into a mortgage you would prefer to pay off early. The solution: be sure your loan does not include such a penalty for repaying the principal early.

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.)

Modification Myth

MYTH—It is a widespread myth that borrowers who are in default have no money and therefore no way to pay for help with addressing their default situation. The argument is frequently the logic for non-profits who insist that it is somehow immoral for a borrower to be asked to contribute to the service which they need. While I support non-profits, I have never bought into this false thinking. I believe that most folks appreciate more what they have contributed to and think that non-profits could offer more services to more people if they adopted a sliding scale which allowed clients to pay according to income level with a provision for totally FREE service in situations which clearly warranted such.

REALITY—many borrowers do have money—SOME money. No matter what circumstance caused the default, many borrowers not only have some money but are both willing and anxious to find someone whom they feel can help them with their mortgage mess and are both able and expect to pay for that service. This is especially true of middle to upper income borrowers who are used to paying for any service they get and are more likely to be suspicious of service offered for FREE. As an example, the borrower in a $500,000 house who has been laid off is likely to have resources to make the mortgage payment for a while before savings, retirement and/or other accounts are depleted. This individual is looking for an attorney or similar professional with knowledge of the foreclosure process, possible impact on his taxes, etc to help with the tough decisions which have to be made. Additionally, this same borrower, while highly competent at his/her job is acutely aware that they are unprepared to negotiate for themselves in this arena. To my point, I recently personally coached a highly skilled attorney through the loan modification process and the mandatory meeting with the Lender shop which has been instituted by law in the state of Indiana. The attorney was able to do what I told her to do but she did not know WHAT to do or WHY certain things were important because this is not her area of expertise. She needed professional coaching to deal with the bank world. She is one of several consumers whom I have personally coached through the process and helped them to be able to represent themselves since I am not in a position to do so.

SOLUTION—Trained, competent foreclosure intervention counselors—who work for a fee, to represent those who cannot get representation at HUD approved or other such agencies. There is room in the market place for both. There are consumers at both ends of the spectrum who need appropriate, professional help. Recently I was asked by an upper income borrower what exactly I do other than the training for REALTORS. I explained that I am a consumer advocate and try to reach borrowers for whom I can provide FREE workshops or materials to in order to help make a difference in their situation. His question then was ”Why are you discriminating against people who have money?” The question caught me off guard and caused me pause. The truth is that I come from a background of poverty and I have a commitment to make as much of a difference as I can for those who are struggling. Does that mean I should not share my knowledge with those who can afford to pay for it?

It struck me as a novel concept. It resulted in a paradigm shift.

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

(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.)

Fast Fact: Release of Liability

Release of Liability

FACT: This is a very important paragraph in your mortgage or deed of trust. Tricky, how the things you don’t pay much attention to can come back and bite you in the proverbial butt. This is one of them.

The reason we are discussing it here is because it comes into play if you decide to let someone assume the mortgage on your home. This is further complicated by the fact that the bank may agree to allow someone to assume the mortgage on your behalf; yet you are still legally obligated to pay the mortgage should THEY become unable to keep up payments.

How could that be? It’s called "release of liability.” Read the section in your note. It clearly says that unless the lender specifically grants a "release of liability" you are still on the hook for all payments until the loan is paid in full. My son said when he was 13, “you better ask somebody." Consider yourself warned: contact an attorney and have him to prepare a "release of liability" to be signed by the lender, PRIOR to agreeing to allow anyone to assume your mortgage. You’ve already agreed to this arrangement when you took out the loan; you need someone to get you “off the hook.”

**This also applies to rental car contracts. You are on the hook for the time and amount you promised no matter what side deal you cook up after you leave the dealership. (In fact, you are prohibited from legally making any side deals). Yes, I know it happens all the time. Consider yourself warned. I am trying to look out for you.

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(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.)

From the Desk of..."The Party's Over"

Party’s Over...Now for the Clean-up

I’ve always enjoyed entertaining. Fact is, I’d rather have 20 folks over than 5 and if 50 came for dinner—why that would be awesome. Everyone comes expecting to get their personal favorite —WHATEVER—and I aimed to please. The menu was always extensive. No one was required to bring anything to the table and surprisingly—almost no one did.

Dinner is over. Everyone had too much of everything, stuffed extra in a plastic bag and they’re out the door. I am exhausted—but happy because I gave them what they wanted. They’re happy because they:

• got what they wanted
• didn’t have to work too hard for it
• got “extra” for another day

What’s Wrong With This Picture

For starters, I am now financially depleted, exhausted and the house looks like the scene of a train wreck. Only a couple of people even offered to help with the clean-up before taking off. Fifty people can eat a lot and leave a substantial mess in their wake. Dovie, my daughter, pointed out that while I might be having fun, I was setting a bad precedent. It amazes me how long it took me to change the party rules and request contributions and help with the clean-up. My budget has improved and the house was clean when the last ten folks left. I enjoyed my parties more---can you imagine that?

Lessons Learned

Financing the entire event is expensive. It deprives others of the satisfaction of participation. It’s an amazing human phenomen—when folks don’t pay for or help to prepare food they have enormous appetites, little sense sharing fairly and unilaterally take more than they can consume. The host budget is gradually depleted and eventually the parties must cease. 100% financing is a close parallel. The real estate bubble bursting is a prime example of national over-indulgence.

Oh, What a Tangled Web We Weave . . .

Alan Greenspan in recent testimony concerning our current financial meltdown has admitted to being totally blindsided by the financial collapse. No disrespect intended, but how could the former head of the Federal Reserve believe that financial institutions would self regulate appropriately when the business model for creating mortgage securities begged you—literally begged you-to mix bad apples with good apples. After all, they were being shipped overseas tomorrow; NEXT DAY EXPRESS, early delivery guaranteed. The United States has woven a tapestry of bad appraisals, “liar loans” and no collateral into a housing market which threatens to unravel the world economy.

Party House—Closed for Repairs

Builders, mortgage brokers, large insurance firms, government backed loan program participants, Wall Street investment firms and the rest of the party givers are, shall we say, “down on their luck right now.” Based on the latest news regarding bailouts, acquisitions and financial institutions in the intensive care unit, things are not looking too good.

There are no parties scheduled for the foreseeable future. Maybe there will be a few small get-togethers for a limited number of truly qualified buyers/sellers but the orgies are a thing of the past. Sometimes the hangover is so bad that the participants swear off alcohol for the rest of their lives. Me thinks Americans have decided enmasse to go on the “lending wagon” and become, albeit by necessity, responsible partakers of mortgage financing. Likewise, I believe that financial institutions which have operated as though they could be irresponsible forever since they were selling almost all the junk they allowed to be funded have discovered that having your accounts balanced right under Wall Street’s nose is bad for business.

The Intensive Care Unit

There are so many institutions checking into the unit that it is hard to keep up. If you are not familiar with the Implod-0-meter this is a great time to check out their website at The Law Blog. The mere existence of this business is another indicator of someone who has seized an opportunity borne of this housing crisis to create a niche for themselves. The articles are timely; the information is invaluable. You have to ability to check the “condition” of the financial institutions which impact your day-to-day business. I strongly recommend that it rates a bookmark as a favorite. This site has become a personal favorite for the real deal on those institutions which are continuing to shape the real estate market. An old farm analogy: “If you forget what kind of peas you planted, just wait until they come up”. Sowing and reaping is a universal principle which applies equally as well to mortgages as it does to farm crops.

Push Your Sleeves Up . . .

Clean up requires a stiff upper lip. Let’s focus on the mortgage mess. Instead of trash bags full of refuse we have:

• tightening credit requirements
• decent interests only available with higher credit scores
• large down payment (okay, as opposed to NO down-payment)
• stricter valuation of the collateral
• verification documentation of income and assets

Truth is, none of these clean-up strategies are unreasonable. Further, had they been in place back in 2005, we wouldn’t be up to our hips in mortgage debris.

The American Challenge

We have just elected a new president. Election fatigue is finally over. The celebration party was astonishing. However, the reality is that the US is facing arguably its most difficult challenge in its history as a country. Each of us as an individual must find the strength and ingenuity we have in our genes to weather the storm ahead. We would be foolish and ill-prepared for the journey if we assumed we were headed on a pleasure trip—or off to another big bash. As our forefathers before realized, we are headed for a “New Land.” Let’s each put our shoulder to the wheel and find our inner strength to support our individual communities and our country as a whole.

Our greatest president, John F. Kennedy, said it best for all times, “Ask not what your country can do for you? Ask what you can do for your country?”

Observations From the Desk of Mildred Wilkins,
President and Founder of Home Ownership Matters, LLC.

© Copyright 2008, Home Ownership Matters, LLC. All rights reserved.
(FIS) is a registered trademark of Home Ownership Matters, LLC.

(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.)

Reflections on the Home Affordable Loan Modification Program

The Obama Administration announced the H A M P program with great fanfare on March 4, 2009. It was a bold step to address the foreclosure problem which was clearly swirling out of control. $75 Billion committed to reducing loan payments. Projected to help more than 4 million homeowners.

It Began With a Premise

Foreclosures in the country were occurring at break neck speed and something had to be done. The plan was conceived based on the premise that homeowners would pay their mortgages—IF they could. Despite being upside-down, borrowers are committed to retaining their home. Warren Buffet has been quoted as saying “Commentary on the current housing crises often ignores the crucial fact that most foreclosures do not occur because a house is worth less than it’s mortgage (upside down). Rather, foreclosure takes place because borrowers can’t pay the monthly payment they agreed to pay.” It is a premise with which I agree and an honorable premise on which to craft a resolution.

A Look At the Program

H A M P or Home Affordable Loan Modification Program was launched with the specific and ambitious goal of making sure that millions of Americans would have the opportunity to remain in their homes even though market dynamics and other factors beyond their control meant the value of the property had declined AND they were struggling with payments but they wanted to keep their home. The goals were clear, the mandate receiving strong support. It seemed a good thing—for all the right reasons.

Reduction in Payment

To address the ‘ability to pay’ the H A M P plan provided guidelines for getting those payments under control. Conservative banking guidelines for many years had shown that mortgage payments at no more than 31% of a borrower’s income usually prove to be sustainable so that OLD underwriting guideline was used as a benchmark for what should be the new goal to help us get out of this mess.

To accomplish this, lenders and their servicing partners were provided with guidelines to make this happen:

a. First, Reduce the payment amount so that it was no more than 31% of the borrower’s monthly income

b. Reduce the interest rate to as low as 2% as a way to get the payment down farther

c. Extend the term of the loan—up to 40 years—further reducing the monthly payment

d. If the payment amount was still more than 31% of the borrower’s monthly income, THEN funds from the H A M P fund would be used to pay whatever was needed to get the payment down to 31% of monthly income

Adjusting the principle balance was not an option addressed by this plan even though it was a logical step (in the opinion of this writer) and had been the objective of the ‘cram down’ component of the bankruptcy reform legislation defeated late in 2008.

Criteria for Participation

H A M P was created as an option for owner-occupied properties with outstanding balances of $729,750 or less. The homeowner was required to demonstrate a hardship caused by a factor or factors beyond their control. It applied to loans originated prior to January 1, 2009. Modified payments were set up for 3 months, as a test to see if the borrower could afford the new payment.

If they made that threshold, then the loan modification became permanent (for 5 years, so let’s say, semi-permanent).

Investors or speculators were exempted from participations. So if you had bought into the hype that building a piece of America was the way to financial security, you were on your own. Consequently, it was expected by a number of observers that the number of foreclosures in this segment would rise dramatically, and RISE they have.

Incentives

In order to facilitate this voluntary program, the H A M P initiative provided for financial inducement to all parties to participate. Servicers (and/or the lenders whom they represented) were to receive $1,000 for each completed modification. The plan called for an additional $1,000 for each year the modification remained in place with a cap after 3 years. The borrower could get $1,000 off their principal balance for each year, up to five years.

“Net Present Value” Test

In order to determine which loans should be modified, lenders/servicers were to conduct a ‘net present value’ test. The test was supposed to compare the expected cash flow which would be generated under the program (with a modified, performing loan) as compared with the expected cash flow if the loan were not modified (and continued non-performing if the borrower were already in default). Let’s see, some $ paid, versus $0 paid. Not a hard test really. Seems like a no-brainer to me.

Good intentions for a worthy cause. So how did it go wrong. Why have consumers across the country been yelling fowl by the hundreds of thousands? Why has the Administration acknowledged that the program has not reached nearly the scope that they projected? We’ll provide those assessments in tomorrow’s blog. Don’t miss it.

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

(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: Upside Down

And the WORD for Today is:

Upside Down - refers to a situation when a consumer owes more on a house than the mortgage pay-off. Also called Underwater.

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: Offer Doesn't Cover Loan

Q: A common question over the past year has been: “What happens if I am trying to sell my house and I am not able to get a new buyer who will pay as much as my outstanding loan?” “What are my options then?”

A: The questions you raise are faced by many borrowers across the country and the answers to your questions vary somewhat depending on several factors:

a. Your circumstances, including your reason for default

b. Your guarantor, meaning who ultimately is holding the loan and stands to lose the amount NOT being offered by the new buyer

c. Your resources, ie. Money in savings, retirement account, etc.

d. Current restrictions or requirements from external forces such as the TREASURY

Ordinarily, to sell your home, you need to get an offer which will cover all the costs associated with the transfer AND cover the full amount due to the lender to pay off your mortgage in full. In today’s climate frequently the value of the home has fallen and that is not possible, creating what is now commonly called a ‘short sale’. The lender may require one of more of the following options:

1. You sign an unsecured note for the difference (or an amount you negotiate which is less than the difference but will satisfy the guarantor).

2. You bring a check to closing for the difference between the offer and the amount owed.

3. Someone other than you (the real estate agent, the purchaser) pay the difference or a negotiated, compromised amount in order to allow the closing to move forward

HOW do you handle a potential sale when you are not likely to get all that you owe from a new buyer?

Select a REALTOR® who is experienced in handling short sales in your area and work closely with them in providing everything your lender/servicer is requesting in order to get them to accept an amount which is consistent with the current value of the home.

IF you cannot negotiate a compromise for less than the full amount owed: THEN foreclosure is frequently the outcome.

Best of luck with your attempt to move your home in today’s market. With market savvy and determination, it can be done!

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

(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.)

Fast Fact: Short Sale Denial

Too many folks have unrealistic expectations concerning a possible short sale. While it is now pretty common knowledge that lots of homes are “upside down” or “under water” most consumers (and too many REALTORS) don’t really understand how a short sale listing works.

FACT: The lender must approve a short sale in order for there to be a “closing”. Frequently the lender DOES NOT approve a short sale attempt and the homeowner eventually loses the home to foreclosure.

REALITY: When an agent lists a home for ‘possible short sale’ that listing is always based upon getting the approval of the lender to accept a shortfall if the new buyer will not pay enough to pay off the mortgage in full and pay all related expenses (commission, taxes, etc). All parties need to understand that it is a possible real estate transaction where the homeowner does not have the final say so about whether or not the offer being presented is or will be acceptable to the bank. There are numerous reasons why a lender may ultimately choose not to approve a possible short sale. Some are connected to the seller but the issue could just as easily be a second lien holder who refuses to budge on the amount needed to lift or satisfy their lien again the home. Or the lender could decide that they are not willing to accept the terms of the offer, as written. The possibilities could fill a rubix cube.


Several precautions are advised for sellers who are upside down:

a. All offers submitted to your agent should first be forwarded to your lender for their consideration. (That’s what “lender approval” means.)
b. Sellers would be ill-advised to sign a purchase agreement to sell the home to Mr./Mrs. Smith PRIOR to receiving, in writing, approval to do so.
c. Sellers should be aware that if you ignore item #b above (because your agent said you had to) and you agree to sell for $159,00 and your bank eventually says that you can close for $$175,000, you have a few thousand dollars to find real quick. (I suggest you get your agent to help you FIND the money since they gave you the advice).

The point is this; if you sign a legally binding contract which the bank later declines; you still signed a contract agreeing to sell your home for a specific amount. You can be sued by the potential buyer for “failure to perform”.

You were warned!

Copyright © 2008, Home Ownership Matters, LLC.

(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: Gifting Property

Q.  My wife and I own a piece of property which we would like to give to someone else but we are not sure how to go about doing that.  I was told it is a simple procedure and does not require an attorney.  Can you direct us to what we should do?

A: The process is actually very simple to complete though you really do need to consult an attorney about the implications of such a move since once it’s done, it’s done.

To transfer title to someone else, to ”gift” your real estate property to them, can usually be facilitated by completing a “quit claim deed” which identifies you as the owner of the real estate, provides the address and legal description of the property to be transferred and the name of the party to whom you are giving it. Most often this is a one page document, you can get a copy from many large real estate offices or an office supply store. 

The form will need to be notarized and then recorded in your local recorder’s office. A small fee will apply ($35-$50). Please understand that you have now transferred ownership rights in the property. This has NO impact whatsoever on who is responsible for making the payments on this same piece of real estate. Having said that, this is not a viable option for dividing up property in a divorce if the objective is to change who is responsible for the mortgage. Refinancing the home is the way to accomplish that objective with one party taking out a loan to pay off the old mortgage which simultaneously changes the ownership to only one party.

Again, talk to an attorney about this very important real estate transaction. Don’t let the fact that it is simple and commonplace trick you into believing it does not have major consequences.

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

(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: Crisis Budget

Q. We have been in our house for several years and did not refinance or get a second mortgage like so many people seem to have done over the past few years. We have managed to make our payments on time and things were fine until they cut back my hours at work six months ago. We struggled but we were still getting by until my husband was laid off two months ago. He cannot find a job even though he is trying really hard. We have already talked to the bank about trying to work with us on the mortgage but they can’t with the little bit of income we have. I don’t even care about the house any more. What can we do to try to keep food in the house until we have to move? We need help just to survive. Can you make any suggestions? We will try anything.

A. For many people today the truth is that they, like you, are in survival mode. I will not address any possibilities for saving your home since your focus is survival of your family. First, you should be applauded for looking at the survival issues as being more urgent than your housing issue.

I would encourage you to immediately adapt a crisis or survival budget. I will cover a whole list of things to do, some I am sure you’ve already thought of but some which you might not have considered. Here goes.

1. Household necessities—food and medicine

• Cook at home—no fast food
• Switch to store brands, minimize food purchases when possible by using simpler dishes (spaghetti instead of lasagna)
• Use coupons and watch for store specials
• Check again to see if you NOW qualify for food stamps
• See if the “Angel Food Ministries” is available in your area
• Look for short dated meats which are dramatically reduced (use immediately or freeze)
• For prescriptions—switch to generics and/or ask your doctor for samples

2. Car expenses

• Can you switch to a lower car payment? Use public transportation?
• Get rid of a second car? Carpool?
• Reduce the number of miles you drive, saving on gas
• Increase the deductible on your insurance to get a lower monthly premium
• Barter for an oil change but DO NOT delay when one is needed

3. Minimize household expenses

• Get rid of cable and minimize the expenses with a land line if you also have a cell phone
• Go to a minimal package with your cell phone company
• Reduce personal care expenses for haircuts, nails (can you barter for the hair or do it at home?)
• Change entertainment to free park or other community events instead of movies, bowling etc
• Cut out playing the lottery or other gambling
• Give up cigarettes or drinking (big saving on 1 or both of these)

4. Look for ways to generate income such as:

• Selling items on eBay
• Holding a garage sale
• Taking items to a consignment shop
• Take in a roommate—be upfront with them about your mortgage situation
• Sell items you don’t need at a flea market
• Look at your skills to see if anyone will pay you for a skill you have (mowing lawns, painting, childcare, fixing items, any one of 50 things)
• Do you have a hobby which could generate income (cake decorating, sewing)

5. Other possibilities

• If the car is paid off, reduce the insurance coverage to liability only
• Change the number of dependents on your W-2’s
• Use conservation methods to reduce your utility bills

6. Housing

• Apply for government subsidized housing (Section 8), even if there is a long waiting list
• Consider moving in with someone (family/friend) for a period of time
• Use techniques for “buying TIME” to stall foreclosure until your situation improves

This is typically called a crisis budget, you can get the definition, and more information, here.

Please share any suggestions you are already using which are not included in the list above. We’ll use them in a future blog and you can help someone else to make it over the hump. We really are all in this together. (You can either leave a comment here, or send an email to Heather at homeownershipmatters@gmail.com).

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

(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.)

From the Desk of: Buying T-I-M-E

Never before has the expression “If I could just buy some time” meant so much to people. When you are facing foreclosure you need time to discover your options, analyze your situation and implement an action plan. Your most precious commodity is time…And it’s running out.

When your money is running out…

You don’t have time to wait for the trickle down effect of the stimulus package to make a difference in your personal situation. While the package will make a significant difference over the long haul for thousands of Americans, anyone who thinks it is going to quickly make a difference for EVERY American is kidding themselves. Facing reality is hard, but necessary. As a country, we have ignored hard truths with disastrous consequences for too long. Nothing will be gained by continuing to point fingers. However, we must immediately recognize that each of us has a role to play in correcting the serious housing problem we face as a country. (Even if your home is paid off, FREE and CLEAR). The housing market holds the key to stabilizing our country, so anything we can do to keep people in their homes is a step in the right direction.

First thing’s first...

DO NOT ABANDON YOUR HOME. Even when you are behind on your mortgage, no matter how far behind you are, DO NOT abandon your home until the entire legal process has been played out. You can stay in YOUR house until your right to possession has ended. Exactly when that time is will be determined by three (3) factors:

1. Type of foreclosure in your state: judicial or non-judicial
2. Whether you have a mortgage or a deed of trust
3. State statutes regarding sheriff or trustee sale and possession timeframes

Find out the answers to items 1, 2 and 3, and then abide by them. Make sure your lender abides by them as well. Things could improve while you are holding out. Hold on.

Things are changing radically and very quickly because of the magnitude of the housing problem. Your local courts could dramatically change the way they process pending foreclosures so that you have a chance to work things out with the lender. Stay in our home and fight for the chance to work things out. More banks are willing to work with borrowers today simply because they really can’t manage the huge backlog of homes which have already been lost to foreclosure. If you can present a viable plan, your chances of retaining home ownership are pretty good.

Second thing’s second…

I know you know that, but I needed to get your attention. Probably the second most valuable thing anyone will ever tell you to do to save your home from foreclosure is to

1. Demand the lender or servicer who is threatening to sue you for foreclosure produce the original note/deed of trust which says you owe them. In legal terms you are asking them to demonstrate that they are the “real party of interest.” In common language that means, prove I owe you. Prove you have the right to demand payments from me.
   
2. The most effective way to demand this documentation is with a “qualified written request”. You are entitled to request that and any other information you want which is related to servicing on your loan (any mortgage loan in the United States) under federal RESPA regulations. Details are taught in the workshop.

What Choices do I have????

Let’s consider the answer to that question. It is critical that you start with an honest inventory of your situation. How far behind are you? Do you have the resources to resume payments? If not now, when will you be able to do so? What do you want to do? What are you ABLE to do? Why should the bank consider your proposal? You’ll need to able to defend it as being reasonable, based on your current circumstances.

Space in this article will not allow me to go into detail but I will provide you with the options you can consider. Do further research on each of them, online, in the library, on websites such as HomeOwnershipMatters.com Or at the blog: HomeOwnershipMatters.blogspot.com.

1. Options to keep the house—special forbearance, loan modification or a partial claim. You need to learn what each of these means and how it works
2. Options to let the house go—short sale, assumption or deed-in-lieu. All of these options are better than foreclosure but you need to know exactly how they work to avoid creating yet another problem for yourself down the road.
3. Reverse mortgage could be considered, it could be your solution. Be sure to use a government backed reverse mortgage if you decide to use this option.
4. Receiving disability payments (if you have a claim pending) could make the difference. Hold on until you know what you will be receiving
5. Acquiring a roommate could change your finances—get started working on it (I mean a roommate who will PAY—not one who will add to your expenses)
6. Selling unnecessary items in order to cover the gap until you get a permanent solution. Ebay or Craigslist could bring in some immediate cash. (Stop crying—we are trying to save your home and Buy “T I M E”).
7. Some other solution which has not even occurred to me

“Answer” the summons

The summons is your official notification that the lender has moved to legal action. The court notifies you via the “summons”. Your response should be to the clerk of the courts, the lender/servicer and their attorney. It is critical that your answer be received within the legally stipulated timeframe in your state. It is strongly recommended that the answer be sent by certified mail, with a signature required. This is a task which you can handle on your own, with a little coaching.

Basically, an answer should acknowledge that you are aware of your situation and that you are working with the lender on a plan. Specify what that plan entails. If you are challenging whether or not the lender has the legal right to foreclose (due to failure to produce the original note or demonstrate that they are the “real party of interest”) this is your time to say so. The foreclosure is likely to be stalled based on the quality of a timely, well prepared “answer”.

Buying “T I M E” workshops offered…

Workshops to teach consumers what they can do to “save themselves” will be offered in cities across the country beginning in March. All workshops will be posted to the HOM calendar as soon as they are confirmed so look for one in your area soon. These workshops are 3 hours in length with an hour after for questions and answers. Attendees will leave with a comprehensive packet which details all the options outlined above as well as a sample “qualified written request” with complete instructions on how to use one most effectively. Each borrower who attends will also walk away with clarity on how to prepare an “answer” since this is also critical if legal action has begun.

Want to host a workshop in your town?

The commitment is simple and inexpensive. A workshop can be offered anywhere in the country if a host is willing to provide a suitable space and advertising to let the public know that the event will be held. There is no fee for the speaker (donations will be accepted) but expenses to the event must be covered. For a nominal expense you can offer a very valuable training which can save homes in your community. For details about what is required, please send an email to Heather at meade.heather@gmail.com.

Local initiative is needed

We all have high expectations of the new administration but our President has said repeatedly, and has demonstrated with his grassroots campaign, that the masses can make a difference, when they choose to become involved. If every person who reads this article would share it with the people in your personal database, you would help several people to avoid foreclosure.

If the leaders of organizations would share the articles and the link to the blog with your entire company, you might save not only their home but the home of some of their family members or friends. Driving people to the blog and website so that they can get practical, easy to understand information to help them with their personal choices could make a big difference. Anyone reading this who has the connections to have a workshop in your city or a program aired on Public Access or Government Access television or local radio show could reach thousands of folks with some concrete/self help which could make all the difference in your community. I am a teacher and a writer. I know the role I am to play. I ask each of you to find your role in helping our country get back on its feet. We must find some resolution to our housing problems.

“Working together, we can make a difference”

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(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: Debt Consolidation and Debt Consolidation Loan

And the WORD for Today is:

Debt Consolidation—means refinancing multiple debts into a new loan. Unfortunately, consumers are frequently encouraged and agree to roll several short-term unsecured loans into a long term loan secured by their mortgage as a consolidation loan. This type of loan is seldom a good idea and frequently leads to default and possible foreclosure.

Debt Consolidation Loan—with this type of loan you pay off unsecured debt such as credit cards or department stores with a loan which is secured by collateral such as your home. Debt consolidation loans have been very popular during the past few years while interest rates on home mortgages have been really low. Unfortunately, many consumers did not realize the increased risk of default and possible foreclosure which they assumed when they made this loan. Without a large equity cushion the borrower would not be protected in the event of a decrease in property value. The unstable and declining home values in many parts of the country during 2007 has caused a substantial number of borrowers to become unable to meet the payments on these type of loans due to sliding interest rates coupled with loan-to-value rations too high.

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: Demand

And the WORD for Today is:

Demand—has two common applications in the real estate market. The first refers to a letter from a lender showing the amount due to pay-off a mortgage or deed of trust that is in default. The second application of demand refers to the quantity of goods, which can be sold at a given price, in a given market, at a particular time. When there is an oversupply (excessive amount) of a given product relative to demand then prices decline. See inventory homes.

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: Pre-Foreclosure Sale

And the WORD for Today is:

Pre-foreclosure Sale - is also frequently called a short sale, this will allow for sale of the property for an amount less than the amount necessary to pay off the mortgage loan and avoid foreclosure.

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.)

REO Assumptions and Assertions

REO Assumptions and Assertions

Biggest Assumption: They just need to dump it

Translation: They’ll take any kind of crazy offer

Assertion: N-O-T YET

As a former Fannie Mae Broker–Specialist, I can provide insight into the real world of buying and selling bank-owned properties. First, forget most of what you think you know about such transactions—you’re probably way off target.

The Devil’s in the Details . . .

If you’re assuming they just need to dump it, you are half way right. They do, they really do, but not at any price. The most common misconception is that the holder of REO property will accept any offer without consideration for the value of the collateral. I suspect you’ve been watching too much late night television. While it is true that the increased volume of foreclosed properties means a substantial increase in REO inventory, the basic business principles which govern liquidation are not changing as rapidly as they need to (or as you had hoped they would.)

Harsh New Reality

It is a harsh new reality that today’s market is being flooded with REO’s. Thousands more will be added in the months ahead as a result of the backlog which has been created because of political posturing. As a consequence, both federal agencies (HUD, VA, Fannie and Freddie) and private mortgage insurance carriers will need to adjust their guidelines during the upcoming months. Unfortunately, as a practical matter, in the meantime, they and loan servicers must operate within the guidelines of existing regulations and existing contractual stipulations until they are amended. They will be relaxed—necessity will dictate that they must be. The consequence will be a ‘let’s make a deal free-for-all.’ Good for agents and buyers—not so good for price stabilization. But it has to happen and the sooner we get to it the better.

They Don’t Know Its Value

You’re right on target with that assertion. The “local market reality” is a piece of data which is hard for the servicer to grasp when they handle properties around the country from a centralized location. The truth is, their usual resources are less than reliable. They must rely on:

• Their appraisal, and we know how likely that is to be inflated
• A $50-$75 BPO—okay, does anyone really think you’re getting an accurate evaluation with a product produced in a BPO mill? Do you really think that they are trying to determine value with that document? (They are NOT. They are fulfilling a servicing requirement to have a BPO performed.)
• Their gut instinct
• The loan amount shown in their computer—but since when has that been connected to the ACTUAL value of the property?

Hence, the market will dictate and that process takes time. If the property is ‘rejected by the market’ for an extended period of time then it is declining in both actual and perceived value. It’s in everyone’s best interest to determine fairly accurately, from the onset, what is today’s market value. Consequently, the servicer needs a current, as-is appraisal. While many appraisers were rewarded for inflating values during the boom years, they are now stuck with the unpleasant task of trying to justify vast differences between former and current value. Market correction is not enough of an explanation but the recently sold comps don’t lie. It’s worth what someone will pay for it—today—not last year.

The Law of Supply and Demand

In time (I think within the next three to four months) the inventory will be so high that the valuations will plummet and get in line with what a ready and able buyer is willing to pay a reluctant REO owner. During the boom years hundreds of thousands of houses were built across the country without any clear need based on population growth. Speculation in real estate was HOT. The jobs created, the loans generated, and false illusion of prosperity made for wonderful headlines.

I was nearly thrown out of a Foreclosure Task Force meeting in Indiana in 2006 when I dared to mention the need for a moratorium on new construction since the city had already built more than 30,000 new homes in 5 years for only 10,000 new residents. I mentioned a college business class on supply and demand. I visited Denver in 2006 and thought they were building homes for the entire United States to move there. Then I moved to Florida and quickly observed that enough new houses were being built there for the few folks who didn’t want to move to Denver or Indianapolis. Shall I mention Atlanta, Las Vegas and twenty other cities which issued building permits without checking to see where the buyers were coming from. We are paying the piper (and we will be paying for the next ten years) for allowing an excessive amount of housing to be built. We created an economic situation which will dictate FEWER aggregate occupied households as people move to sharing homes in order to survive the financial crisis created, in part, by the ‘creative financing’ used to sell the new housing stock.

In time, the newly created rental housing market (previous homeowners, now renting again) will absorb much of the current excess single family housing but we will have changed the dynamics of communities across the countries from single family, owner-occupant to rental dwellings, perhaps housing more than one family. Investors are the most likely purchasers for the glut of foreclosed homes which will hit the market during the next two years. As businessmen and women, they will make decisions based on totally different criteria than buyers who would be owner-occupants. Financial institutions will have no choice except to reconsider their options when holding costs, fines from municipalities and other constraints dictate they do something to stop the bleeding. Excess has its payback. The law of supply and demand will not be ignored; pretending it does not exist is a sure fire way to pay the piper.

Now About that Insurance and Title Work

If you do not know the difference between a ‘marketable title’ and a ‘clear title’ this would be an excellent thing for you to research if you are planning to purchase an REO property. Suffice it to say that the REO you are purchasing can have gaps in the title coverage which leave room for undisclosed liens to surface after the closing and bite the new owner in the proverbial behind. Since you will have signed numerous documents which stated that you understood that you had no recourse after closing: you will not be surprised when I tell you: YOU HAVE NO RECOURSE AFTER CLOSING.

Watch for an upcoming webinar on the HOM website: “Buying REO is Risky Business”. You might want to put that on your schedule.

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

(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: Involuntary Lien

The WORD for Today is:

Involuntary Lien—any lien, such as a tax lien, judgment lien, etc which attaches to property without the consent of the owner. Such a lien is unlike a mortgage lien, which a borrower voluntarily agrees to have placed against a property.

A legal claim against property that must be satisfied when the property is sold. A judgment affecting all the property an owner has or acquires during the legal life of the lien. Statutory and involuntary liens fall into four categories:

1. Property tax liens—These are placed against a property when the property taxes are not paid on time; they are given precedence over all other claims; if they continue to be delinquent for five years, the property will be sold off to pay the taxes; whenever a property is foreclosed upon, taxes are always the first debts paid.
2. Judgment liens—These are general liens resulting when a person suing another person wins a judgment from a court for the sums owing and records an abstract of that judgment
3. Mechanics liens—These are recorded with the county by contractors, subcontractors, materials suppliers, or workers who wish to be paid for their delinquent bills covering labor or materials on new construction, land improvements, or remodeling projects
4. Federal or State liens—These result from unpaid federal or state taxes, personal and inheritance taxes being the most common.

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.)

Myth: Modification vs Refinance

Myth: There is a widespread myth that a modification is just a re-financing of the loan. The two options have some things in common, but they are worlds apart. Let’s get some clarity.

Fact: Modification is usually a much better option for a borrower, especially if you are behind on the mortgage and want to use this option to get a loan which you can afford.

Both a modification and a re-finance will result in the old loan being paid off and a new loan being created. However, almost everything else about the two are dramatically different.

A modification:

a. Will be handled by the lender/servicer currently holding the loan (a big plus)
b. Will NOT require a new appraisal or upfront fees to be paid (a significant financial blessing)
c. MAY be used even when a person’s credit score has already been lowered by late or unpaid payments
d. Should definitely be considered if your interest rate is scheduled to reset

Under the terms of a modification:

1. the term of the loan can be stretched out (which reduces your monthly payment)
2. the interest rate can be changed from a variable to a fixed rate
3. the interest rate may be lowered
4. the principal balance on the loan (the amount you owe) can be reduced with documentation that the actual value of the home has declined (almost a given in today’s market)

A re-finance has major differences which are not as consumer friendly.

1. You probably won’t qualify for a re-finance if your credit has been dinged.
2. You must go to an outside source (different lender) apply, and pay fees for processing a new loan
3. There will be fees associated with the process such as an appraisal and possibly a lender’s inspection
4. Closing the transaction will cost another substantial fee
5. Strong possibility of a higher, rather than a lower, payment

When it’s all said and done, the climate is right for your lender or servicer to be willing to consider a modification of your loan if you are struggling to make payments. It is definitely in their best interests to help you resume making regular payments even if those are at a reduced amount.

There will be paperwork required for either of these options. You will need to demonstrate your ability to make payments and fill out the hardship documents which are required, but it is well worth the effort to get a PERMANENT change to your loan which makes it a workable situation for you as well as the lender.

Call your lender today. Best of luck.

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(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: Landlord in Foreclosure

Q: I have been renting a wonderful house for the past 8 months and really like the neighborhood. My landlord was really nice when I first looked at the place, but I have not heard from him for the past two months. No reason I should, since everything was working okay. Today I came home to find a sheriff’s sale notice stuck to the front door. The landlord’s number is disconnected and I don’t know what to do. Who should I call? What can I do? What did he do with my rent money?

A: First, slow down and take a deep breath. It probably won’t make you feel any better to know that thousands of folks across the country are facing the same dilemma: what to do when your landlord fails to pay the mortgage even though you are paying rent on a regular basis. It has become a common problem.

It is important that you not panic. Let’s discuss the things you can do which are likely to be of help. It is also a good plan to avoid doing stupid stuff which might make you feel better for a minute but will not improve your situation. (Example: tearing something up.)

Before you do anything else: decide what you want. Given this new turn of events, re-consider your options carefully before you decide what steps you will take.

Specifically:

a. do you want to stay through the term of your lease?
b. would you be just as happy to move on to some other option now that you have been given the chance to “break your lease”?
c. do you just want the time to carefully pack and move?

Make a decision, then move to action.

If the sheriff’s notice does not say when the sale will take place, then get that information from the local sheriff’s department so you have an idea how much time you have to take whatever action you have chosen.

Next, check the landlord tenant laws in your state to see what recourse you have, under the law, if the landlord goes into foreclosure. These laws should be readily available, perhaps on your Attorney General’s site.

Then check the foreclosure laws in your state (use google “ _______ state foreclosure laws”). You are looking specifically for notifications required of tenant occupied properties when a foreclosure is pending. Some states require notice be provided to the “unnamed tenants” of a property as part of the foreclosure process in order to avoid exactly your situation. This will be particularly important if you want to stay during the remainder of the leased term.

You need to get some information about the property in order to proceed further. You can start with the information on the sheriff’s notice which will give you some details to get the other information you must have. You will likely need to talk to the county clerk’s office, perhaps the tax assessor and as well as do some on-line research. You will need:

a. the correct names on the title
b. lender or holder of note
c. insurer of the note (if it is Fannie Mae or Freddie Mac you are lucky)
d. attorney who is representing the lender

Notify the sheriff’s department, the attorney, the lender (if you can find a number) and the insurer that you are residing in the home, as a tenant. Be prepared to show that rental payments are current.

If the insurer is Fannie or Freddie, both have implemented programs which will allow tenants to continue to reside in the homes and rent directly from Fannie or Freddie during the time they are being marketed for sale to a new buyer. (Are you up for that?)

Pull yourself together and make a ‘new’ decision based on adjusted circumstances.

**I did not forget that you asked what he did with your rent money. Probably wine and loose women. Doesn’t matter, what is your next step?

Oh, by the way, don’t send off next month’s rent payment just yet.

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!)