People who are in foreclosure and are distressed need help in resolving their situation. They are looking to us for answers and options. They are yearning for someone to come along and share with them solutions to help them out of their situation. Well, here are some options that you can share with your seller:
1. Loan Modification: The seller may be able to refinance the debt and/or extend the term of their mortgage loan. This will help the seller catch up by possibly reducing the monthly payments to a more affordable level. They may qualify if they have recovered from a financial problem but their net income is less than it was before the default (failure to pay). The interest rate could change or the actual product may even be converted (like the case of an ARM turning into a fixed rate). Usually, the banks don't readily perform a modification unless there are very good reasons for them to do so.
2. Partial Claim. The lender may be able to work with the seller to obtain an interest- free loan from HUD to bring the seller's mortgage current. They may qualify if: 1) their loan is at least 4 months delinquent, and no more than 12 months delinquent; 2) their mortgage is not in foreclosure; and 3) they are able to begin making full mortgage payments. When the seller's lender files a Partial Claim, the U. S. Department of Housing and Urban Development will pay the lender the amount necessary to bring their mortgage current. The sellermust execute a Promissory Note, and a Lien will be placed on their property until the Promissory Note is paid in full. The Promissory Note is interest-free, and will be due if they sell or leave their property, or when their mortgage matures.
3. Reinstatement of Loan (Cure): Cure and reinstatement simply means to cure the default in the seller's mortgage loan by paying the amount of missed payments, plus late charges, costs of collections, etc. , which results in a reinstatement of the mortgage loan as if no default had ever occurred. You can help the homeowner arrange for cure and reinstatement of the mortgage loan for substantially less than the actual cure amount! Since foreclosure laws vary from state to state, the time period during which cure and reinstatement is an option will depend on where your property is located.
4. Short-term forbearance. This allows for the suspension of up to three payments, or a reduction in payments due for up to six months, to help the seller get back on their feet. After the forbearance period is up, the seller must agree to a stretched-out repayment plan covering all the payments you missed.
5. Long-term forbearance. It's the same idea as short-term forbearance, but deals with more serious delinquencies and allows suspension or reduction of payments for four and 12 months.
6. Special Forbearance. The lender may be able to arrange a repayment plan which would be based upon the seller's financial situation and may even provide for a temporary reduction or suspension of the seller's payments. They may qualify for this if they have recently experienced an involuntary reduction in income or an increase in living expenses. They must have also furnished information to the lender to show that the would be able to meet the requirements of the new payment plan.
7. Deed-in-lieu of foreclosure. As a last resort, the seller may be able to voluntarily “give back" their property to the lender. This won't save your house, but it will help their chances of getting another mortgage loan in the future. The seller can qualify if:
1) they are in default and don't qualify for any of the other options;
2) their attempts at selling the house before foreclosure were unsuccessful;
3) they doesn't have another FHA mortgage in default.
8. Cash Sale: This all depends on the seller's equity. This is when the seller gets cashed out on his/her property and everything is paid in full. Obviously, that means you will need to get the property at a substantial discount in order to make this a good cash investment.
9. Short Sale: The borrower makes an agreement with the investor to sell it for less than is actually owed, subject to approval of the lien holders. This generally results in no cash to the homeowner, but will be better for his credit than a completed foreclosure.
10. Refinance: The borrower may be able to refinance and get a new loan, but generally this is difficult because the borrower has little equity and poor credit by the time the seller gets to this point of the foreclosure. The new loan most likely will have higher payments than the old loan so this won't solve the problem of making the monthly payments.
11. Do Nothing: Sometimes I get a seller who is still in denial or would prefer to let the bank take the house rather than work with an investor who stands to make a profit. Obviously, this means the seller's credit will be ruined-their credit score could actually be decreased by about 250 points in the case of a foreclosure. Furthermore, the lender could incur a deficiency judgment against the seller to collect the balance. The seller could remain the house for a few more months and save up some money but surely the bank will not give them any cash at the point the property is auctioned so this is the least desirable result.
When you invest in foreclosures, you need to have the right attitude. The more honest, sympathetic and understanding you are with the homeowner, the better you will be able to build a good rapport and build trust. I talk about this in the ebook http://www.ForeclosuresUnleashed.net. Remember, seller's want to do business with people they feel they can trust and like. Offer honest solutions. Think in terms of what is best for the other person and you will richly rewarded in the long run.
Learn how to maximize the profits from the booming foreclosures in today's marketplace without using your money or credit by going to http://www.ForeclosuresUnleashed.net . Master the same principles that has helped the author, Robert Lam, generate tens of thousands of dollars through real estate foreclosures.