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6 Ways to Stop Foreclosure

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There are several ways that homeowners can help guard against foreclosure so that they can keep their homes and avoid the negative consequences of this action.


Reasons for Foreclosure

When a person acquires a mortgage on his or her property, the loan is secured with the mortgage. If the person gets behind on the payments or otherwise fails to meet his or her obligations under the mortgage contract, the lender can take steps to foreclose on the home. 

Consequences of Foreclosure

In addition to losing the residence the homeowner, faces many additional consequences if the property is foreclosed upon. The homeowner can be charged for the expenses related to dispossession and other charges allowed by law. In many states, the lender can still pursue a deficiency judgment for any difference between the amount owed on the loan and the sale price. Additionally, the homeowner’s credit will likely be significantly impacted by this event. 

Options

There may be several options available to avoid foreclosure depending on the circumstances, including:

Foreclosure Settlement

Rather than selling the house at auction, the bank may be willing to work out some type of settlement that will allow the homeowner with the loan. 

Loan Modification

The lender may agree to modify the loan rather than foreclosing the property. A loan modification can make an existing loan more feasible by resulting in lower monthly payments, lower interest rates, more time to pay or unpaid payments added to the back end of the loan. In some loan modifications, the amount of the loan may be reduced. The lender may be more willing to work with a homeowner who has taken additional steps to try to meet the financial obligation, such as reducing other expenses or getting an additional job. 

Deed in Lieu of Foreclosure

A deed in lieu of foreclosure results when the person whose name the home is in voluntarily signs the deed to the property back over to the lender. This can help the homeowner avoid the additional expenses related to foreclosure and the public nature of the proceedings. There are some disadvantages to this approach, so it is important that a person in this situation seek legal counsel. 

Short Sale

One common way that a person can avoid foreclosure is by having a short sale of the property. Many lenders during the real estate crisis used short sales as an exit plan so that they would get more proceeds from the sale of the house than they would have received through a public auction. Once the homeowner receives a Notice of Default or otherwise suspects that he or she may have trouble meeting the obligation, he or she may consider a short sale. A short sale occurs when the homeowner sells the property for less than the current value of the property. The lender may agree to this arrangement rather than having to proceed with a foreclosure. However, the lender may still be able to seek a deficiency judgment for the unpaid portion of the loan. Some states do not permit this while others do. Individuals who are considering a short sale should be careful to negotiate an acceptance by the lender of the purchase amount and to accept it as payment in full. Even with this scenario, there may be tax implications to a short sale, so it is important

Bankruptcy

Filing bankruptcy can sometimes help avoid bankruptcy. When a person files bankruptcy, an automatic stay is issued which prevents further collection efforts. Therefore, a bankruptcy works to effectively freeze a foreclosure. However, the homeowner may still wind up losing the home in the bankruptcy proceedings if he or she cannot show that the debt can be repaid. So bankruptcy often works as a mere delay of the foreclosure. However, during bankruptcy, the debtor and the creditors may be able to work out an arrangement that will allow the debtor to repay some of the loan. The secured debt has priority over unsecured debts. Bankruptcy has many ramifications of which the debtor should be aware and seek counsel. 

Legal Assistance

Individuals who believe that they may be in fear of a foreclosure may wish to contact a lawyer. A real estate lawyer can help explain the process of foreclosure and evaluate the individual’s circumstances to determine whether there are any alternatives to foreclosure. He or she can explain the pros and cons of these potential alternatives.

If you have any additional questions or queries contact us at (954).944.2799 or email info@DSALegalGroup.com 

Source: HG

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact an attorney. 

Is The Zero-Down Mortgage Loan Making A Comeback?

Buyers may soon be able to bring less to closing. They were blamed for precipitating the housing crisis years ago, but major lenders are giving no- and low-downpayment loans another shot.

Several major lenders are reportedly offering loans with just 1 percent down. Navy Federal, the nation's largest credit union, offers its members zero-down mortgages in amounts up to $1 million. NASA Federal Credit Union markets zero-down mortgages as well.

Quicken Loans, the third highest volume lender, offers 1 percent downpayment options, as does United Wholesale Mortgage. And the Department of Veterans Affairs has offered zero-down loans to eligible borrowers for many years.

Also, Movement Mortgage, a large national lender, has introduced a financing option that provides eligible first-time buyers with a non-repayable grant of up to 3 percent. As such, applicants can qualify for a 97 percent loan-to-value ratio conventional mortgage, which is basically zero from the buyers and 3 percent from Movement. For example, on a $300,000 home purchase, a borrower could invest zero personal funds with Movement providing $9,000 down. The loan also allows sellers to contribute toward the buyer's closing costs.

So far, the delinquency rates on these low- to zero-down payment loans have been minimal, according to lenders. Quicken Loans says its 1 percent down loans have a delinquency rate of less than one-quarter of 1 percent. United Wholesale Mortgages told The Washington Post that it has had zero delinquencies from the borrowers on its 1-percent down loan since debuting it last summer.

For Movement's new loan product, the lender will originate the loans and then sell them to Fannie Mae, which remains under federal conservatorship. Fannie officials released the following a statement:

"(We're) committed to working with our customers to increase affordable, sustainable lending to creditworthy borrowers. We continue to work with a number of lenders to launch (test programs) that require 97 percent loan-to-value ratios for all loans we acquire." They add that there "is no commitment beyond the pilots," which are "focused on reaching more low- to-moderate income borrowers through responsible yet creative solutions."

During the housing crisis, zero-down loans were among the biggest losses for lenders, investors and borrowers. However, housing experts say the latest versions are different from years ago. Applicants must now demonstrate an ability to repay what's owed. They also must have stellar credit histories and scores, and lenders require a lot more documentation to prove borrowers are in good standing.

Also, many of the programs are charging higher interest rates. For example, Movement's rate for its zero-down payment option in mid-June was 4.5 percent to 4.625 percent, compared with 4 percent for its standard fixed-rate mortgages.

Some critics say that the borrowers who really could benefit from such options aren't able to qualify for them. Paul Skeens, president of Colonial Mortgage Corp. in Waldorf, Md., told The Washington Post that "it seems like people without excellent credit scores and three months of [bank] reserves don't qualify."

Source: "No Down Payment? No Problem, Say Lenders Eager to Finance Home Purchases," The Washington Post (June 14, 2017)

If you have any additional questions or queries contact us at (954).944.2799 or emailinfo@DSALegalGroup.com

 

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact an attorney.

never buy or sell real estate without a lawyer

However, real estate transactions often represent the most expensive transaction that a person makes. Spending the extra funds to ensure that the job is done right is often a prudent choice. Real estate lawyers help in the following ways when you are purchasing or selling a home: 

Contract Drafting and Review

Real estate lawyers memorialize the terms of the agreement into a formal contract. They can ensure that certain provisions are contained in the contract that protect their client’s interests as well as to make sure that state laws are complied with. They can also address certain issues that may arise, such as purchasing a lease-back by the seller, handling existing tenants, using the property for certain uses in the future and include contingencies to protect the client. 

Many documents will manifest during the course of a purchase and sale of a home. Lawyers will carefully review all of these documents and not simply take the lender’s word for what the document is stating. If there is any troubling wording or legal issue that arises, he or she can address these concerns. 

Many home sales are based on a number of important contingencies. A seller may want to secure a new home and make the sale contingent on this ability, or the buyer may want to make the sale of his or her own home contingent on the transaction. There may be other contingencies as well that can be included in the purchase agreement.

Drafting Amendments

There may be changes made in the original agreement based on new information. It may have taken longer than expected for certain stages of the process to be completed. There may be changes based on the home inspection and agreements reached regarding any defects. A natural disaster may strike, causing damage to the property. Real estate lawyers can draft such amendments to keep the purchase agreement intact but to account for this new information. 

Reviewing Liens

A real estate lawyer often conducts a title search on a property to determine if there are any encumbrances against it or anything that is clouding the title. This search helps clarify whether the seller has the legal right to sell the property and whether there is anything that may block the sale. For example, the seller may be required to pay off a lien or judgment before selling the home. A real estate lawyer can also secure proof that the judgment or lien has been satisfied. 

Transferring Property

A real estate lawyer helps to draft deeds to effectuate the transfer of real estate. Additionally, he or she can review any contracts related to the real estate transaction that have to do with a corporation, partnership or trust so that no terms of the charter agreement are breached. Without the proper legal protocol, the opposing party may be sued if the agreement is violated.

Fulfilling Additional Legal Requirements

The purchase of certain properties may require additional steps. For example, there may be special requirements if a home is considered historical property. If a property is on wetlands and building permits are not secured, the entire structure may need to be rebuilt. If the property is ultimately going to be used for a commercial use, certain zoning restrictions may apply. 

Disclosures

State laws dictate what types of information must be disclosed about a property. Real estate lawyers can help request these disclosures as well as prepare the disclosures if they are representing the seller. Without a real estate lawyer, the likelihood of being sued regarding a disclosure increases. A real estate lawyer can also be sure to put a home inspection clause in the buyer’s documents so that any unknown defects are realized before the transaction concludes. 

Recording

Property law is full of cases involving properties that were purchased but no deed was ever recorded, creating legal nightmares for buyers. A real estate lawyer can ensure that the deed is properly filed and recorded. If a deed is not properly recorded, the buyer may not be considered the legal owner. His or her income and estate taxes may be levied. 

Legal Assistance

To best protect their interests, many home buyers and sellers choose to retain the services of a competent real estate lawyer. He or she focuses on protecting the client’s interests and ensuring that all applicable rules are adhered to in order to avoid potential problems that could arise in the future.

 

For Home Loans, 3% Down is the New 20%

Derrick Reed has had enough of living in an apartment. The 57-year-old retired autoworker used to own a home, he says, but sold it in 2012 after his "health went sideways." He has rented an apartment in Indianapolis since then but wants to get back to the lifestyle he used to have.

"I am not an apartment dweller," Reed said. "I just like having my own space. Even though my neighbors have been pretty good – I don't hear a lot of noise – still, it's not mine."

Reed has zeroed in on a home in the city's Liberty Creek neighborhood that he hopes to buy in about a month. There's only one problem: Reed doesn't have much money saved for a downpayment. "I'm on a fixed income," Reed said, laughing. "I'm getting old."

Many buyers like Reed have been shut out of homeownership in the years since the housing crash. Banks tightened lending standards, making it harder for buyers to qualify for mortgages, and they required higher downpayments. But seven years into the economic recovery, financial institutions are once again making it easier for people to participate in the so-called American dream of homeownership.

Some of the nation's largest banks in recent weeks have trimmed downpayment requirements on conventional loans, without private mortgage insurance, to as little as 3 percent. A few financial institutions are even offering zero-down mortgages. The lending products are geared toward first-time buyers and people with good credit who have had trouble saving money.

Reed is working with Old National Bank to get a mortgage that will allow him to buy the house he wants. Evansville-based Old National has a variety of mortgage products that enable buyers to close for as little as $1,000 out of pocket, thanks to outside grants. Old National works with the Indianapolis Neighborhood Housing Partnership, Federal Home Loan Bank of Indianapolis and the Federal Housing Administration to help buyers get downpayment assistance.

"Even with the job situation changing (during the recovery), for some people, it's just hard to get that savings where you have that 3 percent," said Sherry Boudoin, a loan officer for Old National who specializes in affordable mortgage products. "It's hard to live and also put money aside for the downpayment."

Some of Old National's most appealing mortgage options aren't for everyone, though. The products with the lowest downpayments are geared toward low- to moderate-income or first-time buyers.

3 percent down

But new options are sprouting for people who don't fit into those categories. Wells Fargo, Chase and Bank of America recently launched conventional mortgages requiring as little as 3 percent down – all while avoiding costly mortgage insurance that typically applies to loans with low downpayments.

Bank of America in February rolled out a 3 percent downpayment program that requires buyers to have a credit score of at least 660. To qualify, buyers also must have incomes no higher than the median in their area. The mortgages are backed by Freddie Mac and Self-Help Ventures Fund.

Wells Fargo and Chase followed with similar programs in May, both of which also require a minimum 3 percent downpayment. Unlike Bank of America's 3 percent downpayment mortgage, the Wells Fargo and Chase products don't have income limits. They target first-time buyers, but they're available to virtually anyone with good credit scores.

Wells Fargo's YourFirst Mortgage is an option for buyers who have a 620 credit score or higher. The program can be used to buy houses that cost up to $417,000. Buyers can save one-eighth of a percent off their interest rate if they complete a homebuyer education course. In addition, money for the downpayment and closing costs can come from gifts, a relatively rare allowance for mortgages.

Chase's new plan, called Standard Agency 97 percent, requires a 680 credit score, the highest of the new 3 percent downpayment options. No buyer education course is required.

Mortgages in the 3 percent range aren't new. FHA-backed loans, for instance, have long enabled buyers to get mortgages for as little as 3.5 percent down. But banks recently have soured on issuing FHA loans after being hit with billions of dollars in fines for making what they call minor errors on them. FHA loans also require mortgage insurance, an additional cost, just like many other low downpayment mortgages offered by banks in recent months.

'Higher-risk loan'

Banks are starting to sidestep unpopular mortgage insurance – and the FHA – thanks in part to a 2014 deal with federal regulators in which Fannie Mae and Freddie Mac began backing mortgages that covered up to 97 percent of the value of homes. Fannie and Freddie buy mortgages from lenders and guarantee their values to investors.

The low downpayment trend carries risk for financial institutions and buyers. There is plenty of evidence that low downpayments have higher default rates than loans issued to buyers making the traditional 20 percent down payment, said Daren Blomquist, the vice president of RealtyTrac, a California firm that analyzes real estate data.

"When we break out the foreclosure rates on FHA loans, they are always considered higher than overall loans," Blomquist said. "FHA has a consistently higher default rate over the years, so there's no doubt about it that when you have a lower downpayment, it's a higher-risk loan."

One reason for that: When buyers who make large downpayments fall into financial trouble, they have more equity that enables them to sell, whereas buyers who make low downpayments might owe more money than their houses are worth.

Nationally, the average downpayment on mortgages fell to an all-time low of around 11 percent in late 2008, according to RealtyTrac – just as the housing market was collapsing. As banks raised their standards, the average downpayment ticked up to nearly 16 percent in fall 2013 before starting to slide again. It has been hovering around 15 percent for the past year.

Although low downpayment loans might lead to increased foreclosures, Blomquist said they can't entirely be blamed for the last housing crash and won't singlehandedly cause another one.

"It wasn't just the low downpayment piece of it. It was very lax lending standards and underwriting standards," Blomquist said. "Really, to qualify for loans, homeowners were not even required to document income or debt-to-income ratio, and I believe this time we do have much tighter lending standards in place that are documenting income and holding the line in terms of creditworthiness of buyers."

Raising awareness

Randy Thomas, a sales manager in Indianapolis for Wells Fargo, said the bank's new 3 percent down product is a way of helping first-time buyers, as well as people who got pummeled during the recession and have found their way back into steady employment.

"There are people that had some challenges during the years since 2008, and people fell on hard times," he said. "They're trying to get re-established and get back to homeownership."

One challenge so far, Thomas said, has been educating people that mortgages are available for downpayments of less than 20 percent.

"They're not aware of all the other alternatives and opportunities," he said.

A few financial institutions have brought back zero-down mortgages. Navy Federal Credit Union, which serves members of the military and their families, has offered a zero-down mortgage since 2005. The credit union stopped marketing it for a couple of years during the recession but has been touting it again since 2010.

Zero-down mortgages account for 10 to 15 percent of Navy Federal's home loans each year, said Katie Miller, the credit union's vice president of mortgage lending. Fewer than 1 percent of them default, Miller said.

Financial institutions that are offering the lowest downpayments on conventional loans tend to have one thing in common: They're big. Navy Federal is among the nation's largest mortgage providers, and Bank of America, Wells Fargo and Chase are among the so-called systematically important financial institutions (SIFI), a term that refers to the largest of the financial giants.

"The 3 percent down mortgage strikes me as unfair competition by SIFI institutions," said Charles Trzcinka, a finance professor at Indiana University's Kelley School of Business. "The federal government will buy many of these mortgages, but banks will still take the risk of issuing mortgages that have a higher failure rate. They will obviously take the default risk if they hold these mortgages and don't sell them. The clear reason why they are doing it is the higher interest that they will get."

Smaller banks such as Old National must get creative to compete with the giants, helping buyers apply for grants and housing programs to spend as little as possible upfront.

Reed, who hopes to buy a house in Liberty Creek, doesn't necessarily care which mortgage program he uses. He chose Old National because the process seemed comfortable, he said.

Reed is hoping to spend about $105,000, a more modest amount than he spent on his previous house, he said. He wants to be responsible. He just needs a little help getting the key.

"We're close," Reed said. "I just want to close as soon as possible, because I'm tired of paying rent on an apartment."

Copyright © 2016 The Indianapolis Star, James Briggs. Distributed by Tribune Content Agency, LLC.  Source