Previously, we discussed using a short sale as a tool for avoiding foreclosure. But what if your house simply doesn’t sell? You should consider using a "Deed in Lieu of Foreclosure."
If the lender is amenable, you basicaly give your house back to the lender, rather than proceeding through the foreclosure process. If you are able to negotiate a deed in lieu with your lender you may be able to salvage your credit score.
You should confirm with your lender that it will not report the deed in lieu to credit agencies. Negotiate this with your lender as part of the deal and get it in writing. It is much less costly for the lender to have you deed the house to them, rather than go to the expense of actually completing a foreclosure.
Often the lender incurs additional expense when a foreclosed homeowner trashes the house prior to moving out. Promise your lender that you will move out amicably and leave the house and landscaping in good shape.
If you have equity in your house, a deed in lieu is probably not your best option. If you have equity you may able to refinance, sell your house for a substantially reduced price or, failing that, find a private investor willing to buy your house and pay you for a portion of your equity. Never deed the property to the investor in exchange for a promise to make the house payments. If you do, the loan is still in force and in your name. The “investor” may strip you of your equity and leave you holding the bag.
There are a number of options available to a foreclosed homeowner. A deed in lieu of foreclosure is a option to consider if you are unable to sell your house at any price.
Have you received a Notice of Default from your mortgage lender?
Unless you can bring your payments current, you risk losing your home. There are many financial alternatives for a defaulting homeowner to consider; I’ll discuss the short sale in this article. More information for the homeowner facing foreclosure can be found in my new book "Foreclosed Dreams: A Homeowner's Guide to Foreclosure".
A short sale is an acceptance by a lender of title to your house for less than the total amount you owe on it. Short selling happens all the time. If, for instance, you bargain with a shopkeeper to buy a vase for $25 less than its asking price, you are negotiating a short sale.
There are two instances where a short sale is suitable. The first is on the sale of your house. Suppose you owe $250,000 on your mortgage. You put your house on the market and the best offer you get is $230,000. After closing costs and real agent commission you will be far short of the amount you need to pay off your loan. Approach your lender and explain your situation. Ask if it will accept your net sale proceeds as payment in full.
The lender will make a business decision. First, it will determine if the offer you received on your house is the best obtainable. Second, they need proof that you are unable to pay off the loan deficiency (the difference between the amount owed and the amount offered.)
The lender looks closely at your income and expense statement. This financial statement must be supported by a hardship letter spelling out the special circumstances causing you to fall into arrears. You’ll need to explain how those changes or events impaired your ability to make payments. Finally, you must explain why you don’t think your situation will improve in the future.
The second instance where a short sale is used is when you are able to get money from a third-party. For instance, if your parents are able to loan or gift you an amount that is reasonably close to the loan-payoff amount, the lender may accept this as payment in full. The same financial statement and hardship letter is required. If the bank accepts this amount, you keep your house.
Short sales can result in tax liability. The deficiency amount is "debt forgiveness" income and can result in a sizable tax. Consult your tax adviser before making a short sale.
Your real estate agent may have concerns about a short sale.
Often, a lender will refuse to pay an agent a commission when it accepts a short sale. Your agent will need to check this out.
The long term outlook for the real estate market is bullish.
The reasons are simple, but often overlooked. The United States population is growing, creating an ever increasing demand for houses.
A record number of immigrants are arriving in this country, all needing a place to live. Their housing probably begins with an apartment or shared house with relatives. Eventually an immigrant sets his or her sights on a house.
Older Americans tend to buy second homes. As more baby boomers move into the second-home age bracket, demand will increase.
Children of baby-boomers are reaching the age where owning a home is a natural dream.
Most of these people are sitting on the sidelines waiting for interest rates to go down, or for a clear signal of the housing market's direction. Eventually, they will grow weary of waiting and begin to buy again.
Current home buyers are finding a tremendous inventory of available houses. An oversupply has caused house prices to stay flat or fall slightly. Once the excess inventory of homes is bought and inventory again reaches normal levels, expect home prices to increase once again.
Human nature being what it is, more buyers purchase homes when prices are beginning to peak, rather than when prices are stable or falling. The time to buy a home is now.
When your agent represents both you and the other party to a real estate transaction, a dual agency exists. A dual agency should only exist when disclosure has been made (by the agent) to both buyer and seller that the agent is acting in a dual agency capacity. The buyer and seller should also explicitly agree in writing to the dual representation.
There are both advantages and disadvantages to a dual agency.
The primary advantage is time. Your agent does not need to negotiate with another agent which eliminates a lot of back and forth. Where both parties are comfortable with the price and terms of the real estate transaction, the agent's role is to bring both parties together to take care of paperwork. If the transaction is not complicated, fiduciary responsibility may not come into play.
The disadvantage is that the agent, while working with one of the principals, advances the interests of one party over another. In California, a dual agent has a fiduciary and statutory duty not to discuss price or any information that could potentially affect the outcome of the real estate transaction. Although most agents are able to adhere to this standard, there is always the possibility of a breach of this fiduciary duty. This can in part be due to the fact that in most cases a real estate agent's commission is directly tied to a property's selling price.
When the agent sits down with the other party to discuss tactics and plans he is in the awkward position of knowing the other side's goals. It is a breach of the agent's fiduciary duties to advise the other party how to respond to overtures from his other client. If each party has their own agent, there is no restriction on advice - which is valuable to both parties. The agent and his principals can engage in wide-ranging discussions on strategies and tactics without being inhibited by his duties to the other side.
The bottom line is that a dual agency is fine for uncomplicated transactions where price and terms are not seriously at issue. Where the transaction is complicated or involves significant money, it is better to have another agent involved.
Remember, it does not cost any more to have two agents than it does to have one dual agent. The two agents split the total commission, but the seller's costs remain unchanged.
Click here for "Real Estate Double Agents Represent Buyer and Seller"
The Deed of Trust is the most common security instrument used in real estate transactions. The lender can enforce the loan obligations either through a judicial or non-judicial foreclosure.
Most lenders opt to use the non-judicial foreclosure because it is quicker. A judicial foreclosure is used when the lender plans to sue the homeowner for any money unpaid on the note after the house is foreclosed on.
Under California law, there are four steps in the non-judicial foreclosure process.
If this procedure is followed without delay, a foreclosure can be completed within four months of the homeowner defaulting on the house payments.
A surge of foreclosures in California has left many people wondering just what a foreclosure is and how it works.
Most people understand that a foreclosure involves taking away a home because of missed mortgage payments. This article explains the legal documents that give the lender the right to take your home.
Although most people speak of mortgages in California, there are very few mortgages in the State. The deed of trust replaced the mortgage as the primary document for securing loans many years ago.
When you borrow money whether for a house, car or for education you typically sign a promissory note. This note contains your promise to pay back a certain amount of money with of interest by a particular date. If the note is for a relatively small amount of money, the lender may be satisfied with just your promise in writing. However, for large amounts of money the lender typically requires some type of security.
When you buy a house, you sign a promissory note when you are at the escrow office. That promissory note is secured when you sign a deed of trust. In essence, you get the money, the property and equitable title and the lender gets the deed. Of course the lender doesn't actually get his hands on the deed: that is where the deed of trust comes in.
There are three parties to deed of trust. They are the trustor, the trustee and the beneficiary. The borrower is the trustor and the lender is the beneficiary. The trustee is a third-party who is entrusted with the deed. The trustee is usually a title insurance company.
The trustee has two functions. The first is to return the deed to the trustor (that's you) when the loan has been paid off and the promissory note canceled. The second is to hold a trustee's sale in the event that the borrower-trustor can't make the house payments.
By now you understand that you are the trustor and that some title company is holding your deed for the benefit of your lender. So long as you make your payments to the lender as required by the promissory note, the trustee is totally uninvolved. .
