Overview of Loan Relief Options

 

The recent national economic downturn has lowered the market values of most real estate in California.  Because of this, many homeowners are finding themselves in positions that are burdened by home loan payments, especially those who have taken out adjustable rate mortgages (ARMs) which have recently reset to higher interest rates.  Borrowers who are in a situation of selling their home are often not able to recoup the money to repay back your loan on a traditional sale given today's market - this is what we call being 'upside-down'.  The following is an overview of some of the most common proceedings to provide relief for those facing financial hardship and unaffordable housing loan payments.  This is not a comprehensive list and some of these actions may carry credit rating and tax implications which require the attention of a tax advisor or attorney.  For more information on options that can provide you with a solution, please contact Discovery Property Group. 

 

Common Home Loan Relief Procedures:

  

Loan Modifications

             

    If a borrower falls behind or is unable to make payments he or she may qualify for a loan modification; eligibility varies among lenders and includes consideration of several aspects, including a borrower's income-to-debt ratio, the default status of the loan, and the borrower's hardships.  A successful modification will have term changes, such as the interest rate or loan amortization length, that make the loan compatible with the homeowner’s financial situation and more affordable to the borrower.

 

Short Selling

             

    Short selling is an increasingly used alternative to foreclosure for those defaulting on a home loan.  In the short sale transaction, a house is sold for less than the outstanding loan balance on the property.  For example, if a borrower owes $300,000 to his or her lender but can only sell their home for $250,000 in the open market, the lender may agree to take a $50,000 loss.   The term "short sale" originates from the deficiency between the sales price and the amount owed - such as the $50,000 deficiency between the sale price and the $300,000 loan obligation in the preceding example.  For a successful short sale, a borrower’s situation needs to be qualified by the lender by meeting ‘hardship’ requirements, which involves detailing financial hardship and presenting supporting financial documents.  In this transaction the borrower may be relieved of the entire debt.  Negotiations between the borrower and lender are frequnetly aided by a licensed real estate agent.  The real estate agent uses market knowledge and professional skills to negotiatie and establish reasons why the lender should accept a loan loss now rather than progressing towards foreclosure proceedings.  The agent also prices, markets and lists the property and may additionally find a buyer to complete the sale thereby providing relief from deficiency and loan payments on the property.
 

Foreclosure

             

    Foreclosure is the legal process by which an owner’s rights to a property are terminated because of a loan default. After foreclosure, the lender sells the property to recoup money owed on the defaulted loan.  In California, non-judicial foreclosure is the most widely used proceeding, which does not require the participation of the court system.  This foreclosure is a three step process.  First, a borrower defaults on a home loan - commonly by not making payments.   A Notice of Default (NOD) is then recorded and the borrower has 90 days to remedy the default by paying the deficient amount plus any applicable fees and interest.  Second, if the default is not cured in this period, a Notice of Trustee Sale is recorded indicating that the lender or trustee will publicly auction the property in a certain number of days.   At auction, if the property does not receive bidding at a price acceptable to the lender they take possession and sell it as a real-estate-owned (REO) property in the open market. 


 


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