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Lured by the promise of substantial financial returns, most buyers are inclined to go for foreclosures and short sales, only to find out that these real estate properties carry more negative loads than you have bargained for. You have to understand that investment options with high earning potential may also expose you to undue risk. It is for this reason that you need to carefully weigh your decision so that you don’t put yourself in a serious financial bind.

In most cases, distressed or foreclosed properties are concentrated in undesirable locations. These properties are also in poor condition due to neglect or downright inability of former owners who are cash strapped in maintaining their homes. Worse, some frustrated homeowners strip them down before vacating the distressed or foreclosed properties.

Lenders are able to low-ball prices of properties on short sale and bank-owned foreclosed properties. This provides them with enough leverage in attracting a plethora of bids that will ultimately put a strong upward pressure on its selling price. Investors who have the cash often get ahead of other buyers who rely on financing and other forms of protective contingencies in their sales contract.

If you are seriously going this route in your real estate investment options, it is extremely essential that you are aware of the dynamics of transactions that involve distressed properties. For instance, short sales normally take several months before it gets a seal of approval from lending companies, and banks don’t normally initiate the offer for financing when it involves distressed properties. Thus, it is essential that you are fully aware of the need for you to take the initiative when seeking financing for the purchase of distressed properties on short sale.

There is one big reason why investors consider the earning opportunities of distressed properties. Typically, distressed properties are being sold below their current market value. Obviously, these are deals that are hard to pass simply because of the sheer earning potential that they offer to investors. Unfortunately, there is a big catch when it comes to this kind of investment. The deal comes with a considerable number of drawbacks, and these have to be seriously considered in order to determine whether you are cut out for this kind of real estate deals or not.

When you are making an offer for a short sale, you have to understand that the subject property remains in active status in the market. This means that other offers will still be solicited for the bank’s consideration. This can result to weeks or even months of waiting time before you will receive the bank’s response to your offer. This situation will leave you with limited options, and you may end up losing out on other investment opportunities with better earning potentials. In addition to the time lag that you could experience when pursuing a short sale, you may also get a distressed property whose price will almost be the equal to its market value. This is a possible scenario that you have to consider due to the higher number of tendered offers from other buyers as a direct result to the aggressive pricing of distressed properties.

Banks would not want further complication and commitment when it comes to the disposal of distressed properties. Thus, these properties will be offered by banks to interested buyers and investors on an as-is arrangement. This means that home buyers and investors shall assume all the risks involved in the purchase of this type of properties. Once the offer is accepted by the bank, it is also freed of any responsibility associated with the overall condition of the subject property.

Learn how to sell your own house here: For Sale By Owner

If you’re looking to buy a home from an FSBO listing check here: FSBO Listing

Distressed Homes FAQ:

Question: How do you find distressed homes for sale?
I am interested to search for a cheap home. Do you find a cheaper home buying it from the owner before the owner goes bankrupt or do you contact the mortgage company or do you find a cheaper home to contact the bank after they repossess it or how would you find the best buy? It would not be a concern if the house was new and not finished.

Answer: The “cheapest” deal will be an REO (Real Estate Owned) meaning the place went through foreclosure, didn’t find a buyer at the foreclosure sale and went back to become the bank’s property.

Banks aren’t happy being in the Real Estate Business and usually try to sell the houses at a deep discount. It also has the benefit that you won’t encounter a hidden lien or second mortgage since all of these have been erased when it goes back to the bank.

On the other hand be ready to spend money to fix the house and property, they are usually in need of some TLC.

REO are usually listed with Real Estate Agents but you can also inquire at the bank.

Question: I want to buy a distressed property,Do i need to disclose I’m a real estate agent?
My husband and I want to start buying distressed homes, we both have a real estate license but neither of us have done any deals or do any transactions. Do we have to disclose we are “agents” to invest in a foreclosed property? We just have the license, how this would affect us on making offers?

Answer: Check with your broker, but most states require you to disclose if you are licensed. It doesn’t matter if you are active or not. As a matter of fact, Article 4 of the Realtors Code of Ethics and Standards of Practice requires to you to make such disclosure.

Question: How can a person with horrible credit and little money down purchase a home with so many homes in distress?
I live in the Washington, DC area and I want to purchase a home since there are so many homes in foreclosure now and the prices are becoming affordable for someone with a single income like myself. How can I purchase with little money down and horrible credit after losing a home to foreclosure myself two years ago?

Answer: If you lost a home to foreclosure two years ago, you might not be able to do this in a conventional way.

If you’re looking for investment property to flip, try hard money lenders. They lend on the value of the house and generally not more than 70% of the ARV (After Repair Value), however, the HML (Hard Money Lender) will decide what the ARV is. DO NOT DO THIS IF YOU ARE GOING TO LIVE IN THE HOME! The interest rate is crazy high and the note is usually called due in a few months.

If you want to buy as an OO (Owner Occupied) home, try any government grants/loan programs you can find. If you can qualify for VA, FHA, or other government loans / government secured loans (which I doubt with a 2 year old foreclosure) that would be the best route. Most likely, no conventional lenders will loan you anything even if you made a large down payment.

Another thing you can do is take over payments from someone in trouble or moving. Since selling a house is difficult (because so many are available and financing is hard to find) put ads on CL, Backpage, in the local paper, etc. and take over someone’s payments. You’ll have to do some research on this because most mortgages are non-transferable. Look for “Real Estate Trusts” and you’ll find out how to do it where the mortgage company can’t stop you from taking over the payments.

I would recommend with a recent foreclosure that you take the last option and try to take over someone’s payments through a land trust.

Question: Does it seem like Foreclosed Homes are not in the forefront promoted by the Real Estate Industry?
The county I live in has over 6,000 foreclosed homes, yet they seem to try to fetch within 10% of homes for sales by owners (non-distress) and new home communities. Most foreclosed homes I’ve seen were torn up, ignored, out of date, and simply set aside and not promoted by agents who showed us properties.

Is this a trend? Attitude being conveyed to members of the RE Industry? Banks not pressured for cleaning their books (or disinterested in having the homes in good repair & not truly discounting the Buyer because of the inconvenience?)

Answer: Foreclosed homes require the potential buyer to do their own due diligence. If the potential buyer is using a Realtor, the Realtor likely doesn’t want to waste his/her time researching the property when they can get more commission with less effort on an existing home or a developer.

Question: Why is nobody willing to address negative home equity situations where the owner is NOT financially distressed?
I still have my income. But the home has gone down so much I’m underwater. It doesn’t make sense to keep paying…and I would argue that being underwater IS financially distressed.

Answer: Every single property owner is in the same situation. If the government were to bail out the entire population, and some of us lost millions, the entire country would bankrupt itself. How would you thnk we would pay to bring everyone up to where they were a couple of years ago? Try to think past your nose and see the big picture.

Question: What is the best way to finance the purchase of a distressed property with no money down to minimize payments?
I own one home and am relocating. I would like to buy a distressed property at about 80% of its actual value (and have located two), but I want to minimize my monthly payments until my other house is rented out or sold (in a slow market) so that I am not stuck with two mortgages. Although I have been approved, the cost of two mortgages simultaneously will be too much for more than a few months.

Answer: You have a few options. You could go with a low payment loan such as an option arm or other negative amortization loan. These will keep the payments on the second low for a couple of years while you fix it up, and sell the other. When you are done, you can refinance into a more solid loan.
Your other option is to take out a construction or a rehab loan. This will allow you to borrow funds for a shorter period (6 months to 2 years) to fix the house up and pay your mortgage, then change to more permanent financing.
A good mortgage broker will be able to show you your options.

Question: How do I find homes before they go into foreclosure?
I’m working on short sales and would like some advice on finding distressed property.

Answer: Not easy to do, since the first notice of a pending foreclosure is the filing of a foreclosure action at the local courthouse. By the time it reaches that stage, it gets far more difficult to work on any sort of short sale agreement.

Best you can do is advertise for anyone who might be considering a short sale and wait for the phone to ring.

Question: Why are banks not doing more to help home owners in distress?
I hear constantly about people walking away from their mortgages because they can’t afford the payment even after trying to resolve it with the banks. In many of these stories the banks would not return their calls or treat them very rude as if they don’t want to bother with them. I don’t understand why banks are not doing more to help home owners. Clearly another foreclosure is the last thing they want. Anybody get this?

Answer: Home owners in distress is what helped start this whole recession. Banks were being too lenient on home owners. People foolishly got themselves into mortgages that they couldn’t afford but the banks approved it. Now that the recession is here, the banks aren’t so lenient anymore, and now the people who got themselves into those situations are paying for it.

I feel sorry for the people who lost jobs and now can’t make their payments, but for the people who bought a house that’s way beyond their income, I don’t really feel much remorse.

Are you really in a serious rut if you are unfortunately hit by foreclosure or short sale? When you are faced with foreclosure or short sale, the first thing that you must look into is your Beacon score. You have to understand that a foreclosure can lead to a 50 to 250 range drop in your credit score! This is an aggregate result of delinquent mortgage payments and the foreclosure of the property. The actual point loss is a function of your payment history and the ultimate impact of the foreclosure. Thus, if your pre-approval beacon score is 750 and foreclosure happens, it can lead to a maximum drop of 250 points. On the other hand, a 500 beacon rating may result to a mere 50-point drop for the same derogatory record.

This means that those with “higher” beacon score stand to lose more than those with lower credit score for the same derogatory record. It seems that they are being “penalized” more for having a better credit record. If your real estate property is foreclosed, you are looking at a 5 – 7 year waiting period before you can be able to qualify for another home purchase. This is based on the assumption of a lower range of your beacon score of at least 680 and 10% equity on the home purchase as down payment.

It is also important to note that a deed in lieu of foreclosure can have the same negating effect on your beacon score as that of a foreclosure. However, the real impact of this type of deed instrument will entirely depend on how credit bureaus consider the event. Credit bureaus have the prerogative whether to report deeds on the same terms as foreclosures or not, and when such incidents are reported as such, expect the same negating effect on the beacon score as that of a typical foreclosure.

Here are the following critical issues that you have to negotiate with your lender in as far as credit reporting of your deed in lieu is concerned:

• Paid as per Agreement – Your beacon score has already dropped by more than 100 points as a result of payment arrears. However, if the event is reported as “Paid as Agreed,” then you will be able to qualify for another home purchase for a shorter span of time than you would normally spend as a result of a foreclosure.

• Paid Settlement – This will result to a 75-100 point range drop in your beacon score. This is on top of the points drop as a result of prior payment delinquencies.

• Foreclosure – This will result to a 100-point drop in the low range and a 150-point drop on the upper range. This is also on top of the points you will have lost as a result of prior payment delinquencies.

One of the major advantages of deed in lieu of foreclosure is that you are able to qualify to purchase a new home after 4 years which is shorter than the waiting period applicable to those home buyers who have had their beacon score reduced due to foreclosure. Under existing guidelines, you are only required to have 10% equity in the home purchase as your down payment. Thus, if you are looking for a less “painful” alternative to foreclosure then this deed instrument may just be the right thing for you.

There may even be cases where the FHA will decide favorably on the applications of applicants who have lost their old homes through foreclosure, deed in lieu or short sale. Certain extenuating issues can be factored in and you may be cleared for a new home purchase after a shorter waiting period.

Learn how to sell your own house here: For Sale By Owner

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings.

Beacon Scores FAQ:

Question: What is the difference between the Beacon score and Fico score?
I know that FICO is an independent company that issues the summary score to the three major Credit bureaus that ranges some where between 400’s to 850. What is the top/bottom beacon score?

Answer: FICO is the company that made the software that the 3 major credit bureaus use to score credit based on what each one of them has in their database about a person. Each bureau names them differently, but they are ALL “FICO” scores. It is a generic name. The bureaus name their brand of FICO score as follows: Beacon, Empirica, Fair Issac (FICO=Fair, Isaac & Company named after the founders, Dr. Fair and Dr. Isaac).

FICO scores from 300 to 850 with anything calculating to below a 300 defaulting to a 0. Equifax shows a beacon score which is the same as FICO.

Scores are based on the following factors:

1. Payment history 35%
2. Time in bureau 15%
3. Types of credit 10%
4. New credit 10%
5. Debt to credit ratio 30%

Question: How can I find out what my beacon score is?
A credit report I have just received for free from Equifax does not show my beacon score. By the way, I live in Canada.

Answer: You will have to go back to Equifax Canada and pay for your credit score.

Question: Is there any place to get a sub prime loan with beacon scores at or below 500?

Answer: With a beacon that low, maybe not, but even so, why would you want one, the interest rates are going to kill you. Rent for a couple more years until you work to get your beacon higher. The money you save from your high interest mortgage can be used to pay off old or bad debt and at the same time your beacon score will go up. In the long run, it is the best way to go.

Question: If somebody has a beacon score of under 450. How would they obtain credit for a new business?
A friend of mine is starting a new business she thinks her credit score is between 450-500. She wants to open a new small business but does not know where to start with getting help to do so. She applied for her tax id number and her business license.

Answer: With that score she either has NO credit or a VERY, VERY lousy credit history which will get her nothing in the way of a loan. If she just has lousy credit why not clean it up before taking on a new business which, statistically, is domed to fail and she ends up with a boat load of new debt. If it is due to a lousy credit history she is just confirming she is really a very high risk at failing because she can not even take care of business on a personal level.

Question: Credit inquires hurt your beacon score anymore?
I keep hearing that has changed this year. I knew all hard inquires hurt your beacon in the past, but has it really changed this year?

Answer: Not true. However, loan inquiries for certain things have reduced their impact. For example, if you have 6 inquiries for auto financing with in a two week period it will only effect your score as one inquiry.

Question: Will “monitoring” my credit make my beacon score go down?
I friend recently told me that if I sign up for a credit monitoring service and regularly check my credit reports, my beacon score will go down each time as though a potential creditor were running my report. Is this true? Or do potential creditors know that it is me that is looking at the credit? Basically, if I frequently check my credit through one of these services, will it make my credit worse?

Answer: Monitoring your own credit report through a credit monitoring service will not cause your credit score to go down. This is considered a “soft” inquiry. Only you and the credit bureau see these type of inquiries. A “soft” inquiry may also include these scenarios:

1. Your credit card company checking your credit to see if you qualify for a credit line increase.
2. Credit card/loan companies checking to see if you might qualify for credit with them. If you qualify, they will send you an application.

Only “hard” credit inquiries will affect your credit score. This is when you actually apply for a credit card or loan. These type of inquiries are seen by a potential lender when you apply for credit.

Question: Typically, how many positive credit points will be added to my beacon score with an on-time mortgage payment?
If I am over 30 days late, I know that dings my credit- but on average how many points does it go up WITH a ON-TIME mortgage payment? Or does it?

Answer: Since the exact calculations used by F.I.C.O. are a closely guarded secret it’s impossible to actually answer this question. I can tell you that a mortgage paid as agreed over a long period of time is the single best thing that can show on your credit as far as score and profile go.

Question: How is your beacon score decided, what factors are included?

Answer: There are three credit bureaus and each has its own score calculation based on the information reported to them. Not all creditors report to all three bureaus, and some don’t report at all.

Your score is based on what is reported to your report. There is no formula or “deduction of points.” Your pay history, account balance, types of accounts, and types of creditors all affect your score. How they affect your score differs for each person, based on what is being reported.

Serious home buyers will always find ways to get the best value in their real property purchase decisions. They will always go for those options which they perceive can offer them good deals in terms of the intrinsic value both in the short term and long term.

One of the emerging options for bargain hunters are foreclosed homes. The inventory of foreclosed real estate properties are still within the upper range and lending companies and banks are anxious in unloading these properties to prop up their liquidity and improve their financial position. At best, buyers can snatch a good deal which can be as high 20% lower than the real market value of these real estate properties. However, the increased potential of earning windfall profits from the purchase is also accompanied by the increased risk of getting “dud” purchases.

If you are going to include in your options foreclosed real estate properties then it is crucial that you properly understand the rules of the game so that you don’t end up like a headless chicken running into a potentially disastrous real estate deal. Aside from the risk that you have to manage, you will also have to contend with the intense competition posed by experienced real estate stakeholders and investors.

If you are dead set in going the “foreclosure” route then it is critical for you to observe the following ground rules.

1. Launch a Comprehensive Search

You logical option shall be through online search of foreclosed homes for sale. You can get the list from websites that specialize in this particular privileged market and industry information. How can you narrow your search for the best buys? Your best bet shall be in locations where there is higher number of distressed real estate properties. In most instances, lending companies and banks are more aggressive in pushing for the disposal of these properties as they are being significantly weighed down by this financial baggage.

2. Stay Away from Court Auctions

This purchase option is better left to experienced and seasoned real estate investors. There are other ways we can get bargain deals from foreclosed properties without having to increase our chances of getting burned financially. Although, you can get the best bargains when you participate in court auctions of foreclosed real estate properties, there are a lot of negatives that can work against you especially if you don’t have the experience and wherewithal in taking calculated risk in your bidding options.

3. Get the Latest Market Updates

Knowledge is power and it is the single most important item that you must have in order for you to make informed buying decisions. It is extremely important for you to understand that foreclosed properties do not necessarily connote bargain sale. Make sure that you are not assuming an overpriced or bloated mortgage loan when you are buying a foreclosed property. You must remember that market value of real estate properties have gone down to record lows from their 2006 record levels.

4. Get a Pre-Approved Mortgage

Real estate experts stress the importance of getting a pre-approved loan before working on the purchase of foreclosed properties. Most lending companies have already instituted stringent requirements in the approval of mortgage applications particularly those involving distressed real estate properties. It is important that you are properly informed by your lender on the terms of mortgage plans for foreclosed properties.

5. Undertake a Thorough Inspection

Never finalize your decision to purchase a foreclosed property without a thorough inspection. Most of these properties will require repair and it is essential that you include the cost of repair in the assessment of the financial viability of the purchase.

Learn how to sell your own house here: For Sale By Owner

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings

Foreclosed Homes FAQ:

Question: Where can you find free listings of foreclosed homes in your state?

Answer: Any real estate agent can get you a list, although most states will be broken into specific areas.

Question: Process for buying a foreclosed home?
I am trying to buy a foreclosed home that did not sell at the courthouse door. I put in a bid, and it is at the bank. How long will it be before I hear something? I just don’t understand this whole process.

Answer: That’s a little unusual. Banks don’t sell their foreclosures direct, they list them with Realtors. If you have submitted an offer directly to the bank, then you need to follow up and make sure it’s being considered. Historically they will sit on offers waiting for a higher one. Why? They’re trying to minimize their loss. On the other hand they may be clearing up the title. When a mortgagee acquires property through a foreclosure auction, they don’t get complete title to the property. They get a certificate of title. It takes a court action called quiet title, to perfect ownership. That may be the reason for delay.

Question: Any tax break for a foreclosed home?

Answer: If you bought one, the tax benefits are the same as buying any other home.

Question: Buying short sale homes vs. foreclosures…will banks move much on the price?
Are short salehomes as negotiable as foreclosures? I have purchased 3 foreclosed properties and negotiated awesome prices. I have never looked into or tried to purchase a potential short sale. Will banks move as much on them as they will a foreclosed house?

Answer: Just like in foreclosure you can get get discounts in short sales. The difference is the amount of time for it to get accepted. Short Sale can take anywhere from 3-6 months to get accepted and tons of paper work. I’ve made an offer and closed on a REO within 30 days. Both are very good techniques, I prefer short sales for a few different reasons.

Question: Ramifications of foreclosing on my wife’s home.?
My wife purchased a home before we were married. We are now both living in the house. I am not on the mortgage. The house is worth less than what we owe and we would like to buy a bigger one. I am preapproved for a mortgage on my own but can the bank come after us or her if we foreclose on the home? Will it just affect her credit. We are fine with doing it if it just ruins her credit and nothing else.

Answer: You don’t foreclose, the mortgagee (lender) does. Yes, her credit will take a hit, but she also risks a deficiency judgment. If you buy a home together (both in title) any judgment won’t attach to your new home. The judgment only attaches to property (real and personal) she owns herself. Double check with an attorney before proceeding.

Question: How to apply for foreclosed homes?
My husband and I have been trying to find a house and obviously been looking at foreclosed homes. How do I go about applying for them? Is it hard getting one? I am new to this and would like some information.

Answer: You don’t *apply* for one. You employ the services of a realtor after you have been to the bank and gotten your pre approval letter for a mortgage, and then you go look at foreclosed properties. If one is in your budget that you like, you work with the realtor to make an offer.

Question: Where can I find foreclosed homes?
Does anyone know of of any websites that list actual foreclosed homes without a fee?

Answer: Your BEST source for foreclosures is your local real estate agent. Precious few foreclosed homes can be purchased directly without using real estate brokerage. If a smaller local bank has a few ‘in house’ foreclosures, they will deal directly with you. ALL of the larger lenders will not deal directly with buyers. Their REO property is handed off to real estate agencies for disposition.

You can attend foreclosure auctions if you wish, but the deals there are rare. The MAJOR bidder on any auction property will be the lender holding the mortgage(s). They will bid up the price until the sale prices meet what they need to satisfy their loans. As well, you need cash to buy at auctions. No time to arrange financing.

Question: I’m buying a foreclosed home, I think the property tax are way too high considering today’s economy and other homes in the neighborhood. How do I go about getting my property taxes lowered?

Answer: Most likely you are going to get a larger tax bill at signing then when your purchase price gets recorded the amount will be reassessed on your purchase price. They are most likely charging you for what the home sold for last. Making the taxes larger. That’s the way it was done on our sale in CA. Took about 4 months to get the credit back once the property was recorded with our purchase price an reassessed on the smaller purchase price.

Foreclosure is one of the biggest fears in America for homeowners, particularly those who took on mortgages that exceed what they can afford. To save your home from foreclosure you have to start considering your options as early in the process as possible, preferably before you’re late with a mortgage payment.

Contact Your Lender

Communication is one area in which homeowners often are not proactive enough. Your mortgage lender is far more likely to go through with foreclosure proceedings if they don’t hear from you. Giving them a call to explain your situation is a great first step toward saving your home from foreclosure. Again, you should make the call before you are late with a payment.

If there are specific circumstances surrounding the reason you can’t pay your mortgage, give your mortgage lender details. Explain any job loss, unexpected bills or other reasons and then give the lender a time span during which you’ll be able to rectify the problem. Believe it or not, your lender wants you to save your home from foreclosure.

Get Help

It is doubtful you will be able to save your home from foreclosure on your own. There are too many legal intricacies involved in the process, and you’ll be much better off with an attorney or debt management team in your corner. Ask family members or friends if they can help you with the fees for these professionals until you get back on your feet.

Attorneys in some states are required to commit a certain number of volunteer hours every year, so that might be an option to help save your home from foreclosure. Alternatively, you can try a free debt management service through government or charities. Don’t assume that you’re out of options.

However, you do need to be careful. You might be in a panic to save your home from foreclosure, but there are financial predators out there that will take your money and run. Don’t pay an attorney or debt management firm until you’ve vetted them through the Better Business Bureau and genuine references. Your local Housing and Urban Development office might be able to make legitimate referrals.

Put Your Mortgage First

There is a chance you can save your home from foreclosure by bringing your mortgage debt up to date. If you are paying other bills, such as credit cards and loans, before your mortgage, put your mortgage first. Again, a debt management service can help you prioritize your bills to make the most important payments on time.

Sell Your Home

Another option when you are trying to save your home from foreclosure is to sell your home as quickly as possible. If you’ve built substantial equity, you might come away from the deal with some money in your pocket to rent or buy a smaller house. Let your mortgage lender know that you are putting the home on the market to meet your debts.

In some cases, a mortgage lender will accept a short sale on a home that is bound for foreclosure. This means that the money generated from the sale is insufficient to meet the amount due on the mortgage. For the lender, this might be more profitable than going through the entire foreclosure process. You have to communicate with them for this to be an option.

Hundreds of homes enter foreclosure on a monthly basis in the United States, particularly on the heels of the housing downturn. However, there are ways to save a home from foreclosure, especially if you are proactive from the very beginning. Recognize you have a problem and find the best way to solve it as quickly as possible.

Steve Thompson is a writer for Yodle, a business directory and online advertising company. Find a lawyer or more real estate articles at local.yodle.com.

Foreclosure FAQ:

Question: Can a deed in lieu of foreclosure be done if there are 2 names on the deed but only 1 name on the mortgage?
Two friends own a home together. Only 1 person’s name is on the mortgage but they are both on the deed. The friend who has the mortgage moved out. The home is now in foreclosure. The mortgage company is offering the friend a deed in lieu of foreclosure way out. Can the friend do the deed in lieu if there is another name on the deed? If she takes the deed in lieu, will the other friend be evicted from the home even though his name is also on the deed? And if so how quickly can he be evicted?

Answer: A couple of things.

1. It is not clear how two people came to be on the deed but only 1 on the loan. It could be the mortgage is superior to the transfer of title that put the second person on the deed. If that is the case their share will get wiped out if the lender forecloses.

2. The party on the loan can sign the deed over to the lender. They would only be signing over their interest. They can not remove the other person assuming that the second person came on to the title legally.

3. The lender may not be interested in the deed unless they get clear title. Hence it is very likely that both people on title will need to agree. If they do not agree it can work out that both will lose the property anyway.

It might make sense for the party that is facing the foreclosure to pay the other party something so they agree to sign the place over. It needs to be made clear that if there is no agreement the foreclosure will wipe out both party’s interest in the property.

A lawyer should be consulted so it is clear just where everyone stands in terms of the title.

Question: Can you take out a mortgage on a foreclosure / sheriff sale?
Me and my fiance are looking at homes, and there are some affordable foreclosures / sheriff sales available in my area, and I was wondering if they offer mortgage loans for these type of properties?

Answer: Get your loan first. You will be in some serious trouble if you bid and can not pay. They will not give you a pass, they will come after you for the money. Just make sure you know exactly how much you have to pay before you go.

Also keep in mind that the banks have a reserve bid in, the “starting bid” is a just a random number, you still have to bid over the reserve.

Question: Do you know of a good program to help prevent mortgage foreclosure?
I need help asap. I need a good cost efficient program.

Answer: Guaranteed, sure fire program….. make your mortgage payments on time and get up to date. If necessary, get a second or even third job. Cut down on Macdonalds, movies and beer. and cut up the credit cards. Signing up for one of the advertised ‘programs’, will probably just cost you more or be just an outright scam. If your bank sees that you are making a valiant effort to get up to date, they may be willing to give you more breathing room. If your mortgage has been sold to a third party and you have no chance of making timely payments, you’re screwed. Should the mortgage be foreclosed and you have equity in the house, you may actually get some cash back.

Question: How would foreclosure effect my spouse’s credit whose name is not on the mortgage?
My business was severely impacted by the economy, and I’m now facing foreclosure. When we signed our mortgage, my name was the only one recorded. How would the foreclosure effect my spouse’s credit?

Answer: Your spouse is just that. You are recognized under the law as being connected. This gets far more complicated depending on your circumstances, if you live together under the same roof, if you file taxes jointly, the length of time you have been married, when the mortgage was assumed on your part, in short, you need to talk to a tax/bankruptcy attorney to minimize the effect on your spouse.

The shortest answer is yes, your spouse will be affected, to what degree, you need an attorney to tell you based on your specific circumstances.

Question: Do mortgage papers list the terms of foreclosure proceedings?
If I go through foreclosure, I want to know what happens such as what happens to the balance of the mortgage owed. I lost my job and it’s only a matter of time before I lose my house, which is worth 40% of my mortgage balance so I don’t have the option of selling. Please help I am stressed out beyond words to describe it.

Answer: Mortgage papers usually list the foreclosure process in case of a default. But unless you are a real estate professional it will be very hard to understand the terminology. Typically when you stop making payments the mortgage company will contact you with options, or with a time line of the foreclosure process. I strongly suggest that you contact a Realtor. You have several options. Losing your property should not be one of them, you have invested so much. Consider a short sale, in this case the bank allows you to sell your property for market value, and forgives the difference or balance owed due to your financial hard ship. This helps you avoid foreclosure and saves your credit. Look into all your options and make an informed decision.

Question: How many months can you miss on your mortgage before foreclosure proceedings start?

Answer: You should first read the note and mortgage that you signed. You become delinquent on your mortgage as soon as you do not make a payment within the terms stated in the Promissory Note. Although lenders usually will go through the normal routine of sending late notices and letters, I believe they can start foreclosure proceedings as soon as you have missed a monthly payment.

Question: If I am late on my mortgage for two months and they start foreclosure, can I catch up to stop foreclosure?
I can become current, with mortgage and late fees in month three. Will that end the foreclosure and prevent me from losing the house?

Answer: The decision to decide when to foreclose on a property is determined by the bank/lender. Each have their own time frame. Some will start the foreclosure procedure after you being one month delinquent, while others will start the foreclosure after missing as many as 6-12 months.

You should call your lender and explain to them that you will be late and why you will be late. Between the two of you, you might work out a plan where you can make 1/2 a payment for a certain number of months or some type of program that might add your missed payments to the end of your mortgage.

There are several things that might happen, but unless you communicate your capabilities to your lender they will never know your plans or what you can do to maintain your monthly mortgage payments.

If your property does go into foreclosure and you are able to make up the back payments to include any fees charged, that will end the foreclosure procedure against you.

Question: Who is responsible for the mortgage payments during the foreclosure transfer process?
It usually takes approximately 90-100 days to effectuate an uncontested foreclosure. During that time, who is responsible for the payments, if anyone?

Answer: The foreclosed property owner is responsible for the payments, but since they are losing their interest in the property, it makes no sense for them to make any payments.

You enter the pre-foreclosure stage by missing your first mortgage payment. This is a window of opportunity to modify your loan at a lower interest rate, or cut your losses with a short sale.

You can see if you qualify for a loan modification on your own. Various organizations are available to help you, and I strongly encourage you to try them first. At HUD.gov, you’ll find a list of organizations that can counsel you during pre-foreclosure for FREE.

First, they’ll evaluate whether you may qualify for a loan modification. They’ll check your income, all your monthly expenses and the mortgage payment you can afford. The process is very detailed, and they’ll even mail you a statement listing your options.

HUD and the federal HOPE for Homeowners program are doing a terrific job of providing you all this work for FREE.

If HUD has determined that you are eligible, now you can do your loan modification. All the information that HUD has collected is ready to submit to your lender.

As the loan modification business booms nationwide, so does the opportunity for scams. In California from November 2008 through January 2009, we saw $3 million to $4 million in foreclosure rescue fraud–people taking upfront fees from homeowners, and then vanishing.

No one should charge any upfront fee for your loan modification. Check with your local Realtor before agreeing to anything. Now more than ever, your Realtor is the only person you should trust. We are regulated by the state Department of Real Estate, and any malpractice will affect our licenses.

Even for legitimate loan modifications, the fees can range anywhere from $2500 to $5000–when you can do it yourself.

If you don’t qualify for a loan modification due to financial stress, then you have the option to do a short sale of your house. That means your lender allows you to sell your house for less than the loan balance, and the lender takes the loss.

From the time you miss your first payment, the short sale process could take anywhere from 1 to 3 months. During that time, you can reinsert your loan.

If you cannot make it work, then your case will be moved to the foreclosure department. The process depends on the state you live in. In California, a Notice of Default is mailed to you, published and recorded against your property. At this stage, you can no longer negotiate your loan. Your lender is requiring a payoff.

Our local board of Realtors in Motnerey recently discussed this during a meeting with our state commissioner, Jeff Davi. He mentioned that 55% of loan modifications done in this stage end up as short sales. Visit HUD.org and talk to your Realtor to connect with an organization that can help you through this.

The loan modification window is called “pre-foreclosure.” It is the time during which you can negotiate to change the terms of your loan. And YES, and YOU CAN DO IT yourself. If you don’t qualify for a loan modification, you may be eligible for a short sale.

At this stage, I strongly suggest that you check with a tax adviser and attorney. You might be best off filing bankruptcy to get rid of your debt so you can make your house payment. Most of them will give you a free 20-minute consultation.

I have seen many short sales in which owners are dumping their investment properties–but it’s supposed to be for primary residences only. Be careful. Check with your tax adviser and an attorney.

We are now in foreclosure. This means that you’re unable to reinsert your loan and you will need to pay it off.

How to pay off your loan? Several options are available. The first is a short sale, if you qualify. As we do more and more short sales, it seems that lenders/investors are dumping these loans into collection agencies, a.k.a. debt collectors.

Working with them can be really chaotic.

Your second option is to file bankruptcy if you’re planning to keep some of your properties and, of course, your primary residence. It seems one of the Obama plans could give courts the power to reduce your loan amount. You also have the option of surrendering any of your properties to your lender.

And the last option is to just let it foreclose.

Take action! It is a very painful time to go through, but it is for a better life. We have been living above our financial means for all these years, and now is the time to get your life back. But you’ll need to talk about it and go through counseling. Don’t isolate yourself! A lot of homeowners are being traumatized by this credit crisis.

I am experiencing this hard, painful decision on my own. Mistakes were made, and we will rebuild. Surrendering my home is not quite as hard because I had an interest-only loan: It’s like paying a $4300 rent when I can rent the same house for $1700.

Is a loan modification better than short selling or foreclosing your home? Just look at it this way: If you have an interest-only loan, it is just like paying rent!

Christian Viollaz is a real estate broker in Monterey, California. He is sharing all his knowledge on short sales, foreclosures and loan modifications. Christian is asking you to take FREE action on your own loan modification. Is it a real solution or temporary fix? Come visit Christian’s website, and share your experiences.

Foreclosure FAQ:

Question: Landlord stopped paying mortgage and stopped foreclosure by filing bankruptcy, can I leave?

Answer: In some states, if the ownership of the property changes, it allows either party (tenant or new owners) to terminate the existing lease without penalty. However, this only works in some states and it only works after ownership has been legally transferred.

If your landlord still technically has legal ownership, then there is nothing you can do, your lease is still valid and you must continue paying rent per your lease agreement.

Question: After foreclosure, can your mortgage company make you pay what they lose in a foreclosure sale?
I have a first and second mortgage (to avoid PMI) and I am wondering if after foreclosure we are going to be liable financially for the banks loss, or the difference between our loan balance and what they get in the foreclosure sale? I know that our credit score will be affected, but I am wondering if that is the only repercussion? I am also wondering once we move out, assuming we do so before notice to evict what role will we, as the homeowners, need to play in the foreclosure process? I have heard that you must fill out a 1099 form for taxes? Say the difference between the amount owed and what the bank gets is roughly 30,000, what would that mean we pay at tax time?

Answer: Yes, the mortgage company can go after you for difference between the amount of sale at foreclosure and the amount you owe them. This is called a Deficiency Judgment. Some banks will do this, some won’t. It’s totally up to them.

The tax implications come from another process that the bank could choose to do. They can choose to forgive the debt you owe to them. When they do this there is no Deficiency Judgment against you. The bank will issue a 1099 form to you and the IRS. This form basically states that you received X number of dollars as income from the bank. This “income” is the amount of money you owed them but they never chose to collect. The IRS treats this as income because the bank, in effect, gave you the money by forgiving your loan. You will then owe taxes on this income. Depending on your tax bracket you could owe anywhere from $6600 to $10,500 to the IRS for a $30,000 forgiveness.

Just as a note, it’s best to try and work with the bank before they file a foreclosure with the courts. You will save them a lot of hassle if you choose to do a deed in lieu or a short sale. Once it goes into foreclosure court then you are getting yourself in a really bad place.

Question: Can an amicus curiae brief be given in a divorce proceeding to expedite a mortgage sale to avoid foreclosure?
Specifically what options can a mortgage company have to get the court to hear a motion to force the hand of one party to sign papers to sell a house. There are two parties involved, but one is dragging their feet. There is no disagreement over the validity of the mortgage or that foreclosure is imminent. The stalling party continues to delay the proceedings by switching attorneys and then being granted a continuance. There is a buyer for the house, but needs the signature of both parties to continue. Given that the financial interest of the mortgage company is clear, can they file a AC brief?

Answer: This is up to the judge governing the proceedings. Either the mortgagor or the other party can petition the judge to hear this information, but you can easily imagine him putting that off until the slow party is represented. However, if the petition explains why it needs to be dealt with quickly, you might get some action.

Question: Does a mortgage foreclosure affect my income tax refund?

Answer: One has nothing to do with the other.

Question: My mortgage company filed for foreclosure papers, what steps can I take to keep my house instead of the mortgage company taking my house!

Answer: Contact your mortgage company and get an amount they’ll take to stop foreclosure proceedings. Possibly they might modify your loan to put past due amounts in with the principal and let you start over. Was your inability to pay a temporary situation? They don’t want your house but that’s what they have to use to get the interest for your loan investor. They will usually work with you over trying to market and sell a house.

Question: What is a Mortgage Foreclosure/Mechanical Lien lawsuit?
Does that mean the home is going to get foreclosed because someone didn’t pay for services rendered on their home?

Answer: Yes. And usually if the house is being foreclosed the new buyers will need to assume that lien…. unless is it clearly stated in the P&S that the bank must deliver a clean title. I just dealt with this on a transaction and because the realtor didn’t put that verbage in the P&S it cost my client 8k in liens.

Question: Can a default on a 2nd mortgage cause the 1st to go into foreclosure if payments are current on the 1st?
I have 2 mortgages and was wondering what happens if one goes into default, can the mortgage in default cause foreclosure on both the 2nd and 1st mortgage?

Answer: The holder of the second mortgage can force a foreclosure, but the first mortgage holder gets paid off first, so depending on the balance owed on the first mortgage, it might not be in the the best interests of the holder of the second mortgage to bother with the cost and hassle of foreclosure, since a lot of forclosure sales end up not getting the lenders what they have in loans.

Question: Can I give my mortgage lender the keys to my house to avoid foreclosure?
I heard a person can surrender the keys to their home and sign the deed over to the mortgage lender to avoid foreclosure. Is this true? I guess this is seen on the credit report still as a foreclosure, but it saves the lender some cost and you don’t go through as much pain and they forgive the debt.

Answer: It is true, if the bank agrees. It is usually not in their best interest to agree, as they forfeit the money you took from them. They can not obtain it via other methods as they can in a foreclosure.

Ask your lender if they will accept the deed in lieu of foreclosure. If there is pretty good equity they very well might.

Many people are now facing the problem of having to stop mortgage foreclosure on their home. It is common for people to feel confused and frustrated by the process of foreclosure. It can be hard to decide what to do and how to handle the situation to stop mortgage foreclosure.

There are many options at your disposal to stop mortgage foreclosure, but you are often limited by time. If you really want to stop mortgage foreclosure then you have to move quickly and start working as soon as you know you are in foreclosure. With that in mind, the first step to take is to talk with your lender.

Your lender wants to work with you to stop mortgage foreclosure because they also do not want to have to go through the foreclosure process. It is much more satisfactory to the lender to have you stay in your home than to force you out. Do not be intimidated and keep in mind that your lender does not want to take your home from you. This can help to calm your nerves when you contact them. If you contact the lender early then you will likely find your lender extends options to you that will allow you to keep your home and avoid foreclosure all together.

Do not expect the process to be easy, though. It will take work and dedication from you to stop foreclosure. Your lender is not just going to forgive your debt and give you the house. You will have to continue to make payments and honor your new agreement. You may have to sell assets and find ways to get more money. You have to be willing to do what you can and your lender will likely do what they can to help you.

The worst thing that can happen when you work with your lender is that they will not be willing to do anything to help you. In this case you will want to seek help from professionals where you can get assistance and more options on how to stop mortgage foreclosure.

It can be difficult to speak with your lender and if you have let a lot of time go by or calls and notices unanswered then your lender may not even be willing to talk or work with you. You do have other options, though. You can consider selling your home or giving your house back to the lender through signing a deed-in-lieu.

Foreclosure prevention experts can offer you additional options and methods to stop foreclosure. You are not helpless but you have to take action or you will not be able to stop mortgage foreclosure.

Remember that we’re here to help you stop foreclosure fast on your home; whether you want us to try and help you keep it or sell it. For your free consultation visit http://www.SaveMeFromForeclosure.com/questionnaire.php and be as detailed as possible to receive your totally free, no-risk, no-obligation analysis of your situation.
From SaveMeFromForeclosure.com – The Nation’s leading foreclosure prevention resource and authority. “You have options, and we can help.”

Mortgage Foreclosure FAQ:

Question: What happens in a second mortgage foreclosure?
A house is being foreclosed and posted in the news paper. I did a title search and the current foreclosure is for the second mortgage. Does anyone now what happens to the first loan. If I bid and won would I get the house.

I was under the impression only the first lender had the right to sell the house to secure their money and the second lender was left to fend for themselves / take it up personally with the borrower. I am confused as to why the foreclosure of the second mortgage is in the paper.

Answer: Your correct in the second half of your question. Second mortgage can’t proceed a first mortgage. As long as they are current on their first mortgage then the foreclosure proceeding for the entire property is slim. the first mortgage will always be paid first and the second follows. Chances are that you will hold a lien against the home for the amount you purchased, but that doesn’t mean you will receive the money if a full foreclosure takes place. The fist mortgage holder will collect as much as they can and in some cases they can sell the property at a very low amount, which leaves you high and dry to collect anything.

Question: Will they garnish my paycheck or take my tax returns for an FHA mortgage foreclosure debt?
My FHA mortgage is in the process of foreclosure. Can they garnish my paycheck or take my state or federal tax return for the foreclosure debt? Does the mortgage insurance I paid help at all, since it was an FHA loan?

Answer: Did you look up your states laws on recourse? If they have it yes they can not only send you a 1099 on any shorts after it is sold but the lender can sue and get a judgment and then attach a garnishment to wages.

Question: How fast can I make my mortgage company foreclosure on my house?
I haven’t missed a payment yet but I am planning on moving within 4 months.I will let the house go with March being my last payment. Is there anyway I can help my mortgage company expedite the foreclosure? This is probably a strange question but I would like to know if it is possible to get the house out of my name within 4 months.

Answer: You cannot expedite a foreclosure. You should discuss a short sale with them – depending on the bank I’ve seen this process take years to sort out. Try selling it and see if the bank will accept a short sale.

Question: Can someone explain the mortgage foreclosure process?
Can a mortgagee put a lien on other assets if not used as security in that mortgage?

Answer: The general foreclosure proceeding is:

1. Foreclosure suit filed in court and with the county recorder’s office

2. Mandatory filings, notices and a statutory period of ‘right to redemption’ [depending on state law and the type of deed 30 days to 7 months]

3. If all $ in the arrears plus legal cost aren’t paid the judge will issue and order and of foreclosure , this also transfers title of the property to the lender.

4. Foreclosure sale, which will probably leave a deficiency balance which is a judgment against you. And this amount can be collected by the lender from other assets just like any other judgment.

Advice: Sell the property before the foreclosure sale or give the lender a deed in lieu [return the property to them] if you are concerned about other assets being at risk. Although some types of assets are judgment proof [pensions, primary residences, % of wages, etc.], you should consult an attorney about the specifics

Question: How long is the foreclosure process if I have already modified my mortgage once?
I modified my mortgage a few months ago and still struggling. I owe $315 and it’s worth about $200. So, after thinking about it I am considering just letting it go into foreclosure. Since I have already been through this process with them and re-negotiated my mortgage, is the foreclosure process quicker? Will they start the foreclosure process after I have missed only one payment? How long do I have to try and save money and find somewhere to live? Has anyone been through this?

Answer: You signed a document or two when you modified. I’d get started on reading the paperwork, the answer you seek is in there. But from what I know about it is once you are given a modification you are not allowed a third chance. I believe the process is expedited because of the modification. I’m not sure of the amount of time though but I’m sure it’s in your paperwork.

Question: Can a mortgage company foreclose on a hospitalized patient unaware of the foreclosure?

A 78 year old male, lives in his own home, makes mortgage payments from his pension check, becomes ill and is hospitalized for 4 months and misses 4 months of mortgage payments. Can the mortgage company begin foreclosure proceedings when this individual was in the hospital and the company was not made aware? when the mortgage company is made aware, can they continue with the foreclosure or would they be obligated to halt the foreclosure?

Answer: Yes, they can go forward with the foreclosure process. If the adult had been hospitalized and unable to understand the mortgage contract when the loan was originated, it may be an invalid contract. But the fact that the disability occurred after the fact does not mean that he is not responsible for the mortgage payments during the period of his hospitalization.

Unfortunately, these are the types of circumstances for which short term insurance or an emergency fund are designed for. But he can ask for more time in which to come up with the amount that he is behind and explain the hardship to the bank. It may be willing to work with him in this situation, but he’ll have to negotiate with the lender to find out just what they can offer him and how long they will voluntarily delay the foreclosure process.

Question: Where can I find national mortgage and foreclosure data?
I am looking for information on total mortgages held vs total current foreclosures…what percentage of current foreclosures are investment properties……Etc….Can anyone tell where I can find this information?

Answer: The industry association for the mortgage industry is the Mortgage Bankers Association or America (MBA or MBAA). They do all sorts of data and studies on mortgages, foreclosures, etc.

Question: How do we deal with HELOC in case of house mortgage foreclosure?
The price of our house has dropped $40,000 lower than its original purchase price. Unfortunately, we owe $52,000 in HELOC.

Answer: Keep paying on it if you can possibly afford to do so. If you are close upon foreclosure, be sure to check out the facts of the Mortgage Forgiveness Debt Relief Act of 2007.