THE VERY FIRST THING TO DO IS TO OBTAIN COUNSELING FROM THE
COLORADO FORECLOSURE HOTLINE
Some of the options are listed below:
Attempt a Workout with the Lender. Lenders are increasingly interested in helping financially distressed homeowners stay in their homes. In some cases, they have been willing to reduce or roll back interest rates, or reduce the allowable payment, to help sellers avoid short sales and foreclosures. It is not generally advisable for the agent to take the lead in representing a property owner in a workout. Workouts are not real estate transactions. They are complex contract modifications, and to date, relatively few homeowners in distress have been able to come to a permanent agreement with their lender. The homeowner should be advised to consult an attorney if this is the option they choose. Note that new laws and emerging policies and procedures by Fannie Mae, Freddie Mac, the VA, the FHA, and private lenders make the workout option more complex, but also present greater opportunities for financially distressed homeowners.
Offer the Lender a “Deed in Lieu of Foreclosure”. If the seller owes more money than the property is worth, is unable to make payments, and is likely to lose the property in foreclosure in the near future, offering to trade the property to the lender in exchange for the cancellation of the note might make sense. This approach is more likely to be successful in states with very long foreclosure timelines. The lender can obtain the property much sooner and may feel that the mitigation of loss is worth the cancellation of the note. Like workouts, this is a contract negotiation, and should be undertaken only after consulting with an attorney.
Offer the Lender a “Short Sale”, We will discuss the short sale process in greater detail below. Be aware that, on occasion, lenders have “approved” short sales that included personal notes for the deficiency, and unwitting sellers have signed the notes without a full understanding of the consequences. Note that the lender is not a principal in the transaction. The agent represents the seller, not the lender. In a short sale, the offer is negotiated with the seller, just as in a traditional sale. The offer is then submitted to the lender, not for an “acceptance” but for approval of the terms and net proceeds. The offer will be accepted by the seller and potential buyer, as in a normal property negotiation, but that acceptance will be subject to the lender(s) approval(s).
The elements of a successful short sale are generally these:
§ The property is worth less than is owed.
§ The seller has some hardship that makes it impossible or extremely impractical for the seller to keep the property.
§ The seller is cooperative and willing to work with a real estate broker to package the short sale.
§ The lender is contacted and expresses willingness to entertain a short sale.
§ The property is listed, properly priced, and effectively marketed.
§ The lender is presented with an offer, accepted by the seller, along with a completed short sale package and narrative explaining why the short sale is necessary and desirable.
§ The lender approves the offer and escrow closes as usual. No proceeds go to the seller.
§ Many more lenders are open to the short sale process as time goes on as they have become to realize that their net is generally much higher than if they let the home go through the entire foreclosure process.
Allow the Property to go to Foreclosure. Usually this is the last option. It does the most damage to a property owner’s credit. There are circumstances, however, in which it might make sense for a property owner who has no other resources with which to obtain housing to simply stay in the property as long as possible. Also, as a practical matter, if a homeowner is days or a few weeks away from a foreclosure sale, it may be difficult to stop the sale, though it is always worth a try.
If you or someone you know may be facing this difficult situation and you would like to discuss these options further, please contact me via email or by phone. I am never too busy for your email or call and all information will be held in strict confidence.