TECHNIQUES FOR AVOIDING FORECLOSURE SALE AUCTIONS

Why should an investor inform the homeowners of ways in which they can save the home from foreclosure? Because it's good business, and because it's good for the homeowners. Trust, compassion and honesty are our best tools in dealing with the trauma that homeowners are feeling while they are being moved out of a house by factors beyond their control. If foreclosure cannot be avoided, the loyalty you will have earned from the homeowners will help you to achieve a good business deal for yourself. An Investor put itself in the shoes of the homeowners. We do this without losing sight of the fact that we are in this business to make a profit only. Not to own the property, but to sell it; not to save the home, but to buy it. REPAYMENT PLANS FOR THE HOMEOWNERS You as a homeowner may be able to make arrangements for repayment of their loans to avoid the foreclosure. "Repayment plans" is a term used for several types of situations that all have one thing in common: the homeowners have suffered a temporary loss of income that is now available to them again. Whether due to unemployment, injury, death or a natural disaster situation, the homeowners lost control of the mortgage payments. If the homeowners' situation has improved, they may be able to make a Repayment Plan satisfactory to the lender. In this situation, they can request in writing to the bank or mortgage company, preferably by certified mail return receipt, that the terms of their mortgage be modified for a specific period of time. They will always be more comfortable pursuing other foreclosure options if they have first explored the possibility of a Repayment Plan. There are several types of Repayment Plans: SPECIAL FORBEARANCE Special Forbearance is a formal written agreement to reduce or suspend homeowners' monthly payments for a specific period of time not to exceed six to nine months from the date first reduced. It is usually granted to allow the homeowners time to sell the property on the open market. There is generally a provision which automatically initiates a foreclosure proceeding at the end of the forbearance period if the property has not been sold. Generally, the secondary mortgage market does not want this agreement to run longer than eighteen months. The homeowners in this situation must then begin to make monthly payments plus an additional amount to the lender after the period is over. MODIFICATION OF THE LOAN A loan modification requires that one or more of the terms of the mortgage be changed in order to help the homeowners over the default and bring the homeowners current again and prevent foreclosure.The secondary mortgage market requires that the borrower be facing a legitimate hardship, that any payments to the retirement account be suspended, that the borrower has applied all or a substantial amount of his assets to bringing the mortgage current, that the borrower's income before the modification is less than his expenses, and that there is no equity in the property. SPECIAL REFINANCE This is available when the homeowners' loan is in a mortgage-backed security pool and the homeowners certify that they do not have the ability to make the full amount of the future payments and the secondary market believes the property will go to foreclosure. TEMPORARY INDULGENCE This is a procedure where the bank allows the homeowners a thirty-day grace period only if the bank believes that the homeowners can bring the account current within that period of time. This situation is usually used when the property is under contract, there is an insurance settlement pending, additional time is needed to formulate a repayment plan, or time is needed to reapply previous principal prepayments. LIQUIDATING PLAN Here the bank will allow the homeowners to make their regular payments plus a portion of the late payments when the homeowners have suffered a temporary cash flow problem. An agreement which requires less than three months of repayment can be oral; otherwise, it should be in writing. Some liquidation plans require that monthly payments are made in multiple installments of the regular payment, such as the regular payment one month and two payments the next, or bi-weekly payments or even weekly payments until the loan is brought current. REINSTATEMENT OF THE MORTGAGE Homeowners can reinstate a mortgage any time up to the date of the foreclosure auction by paying all of the outstanding principal, interest, attorney fees and collection costs associated with the foreclosure. REFINANCING THE PROPERTY Many homeowners will attempt to refinance the property after they have fallen behind on the mortgage. Usually homeowners will have the ability to refinance if the property has equity of thirty-five to forty percent. The interest rate will be steep and the cost of the refinancing will be very high (as much as five points). Many homeowners who go through a refinance in times of trouble are just putting off the inevitable loss of the home. BANKRUPTCY There are three types of bankruptcies for homeowners with which the foreclosure investor needs to be conversant: Chapter 7 (liquidation), Chapter 11 (business repayment) and Chapter 13 (personal debt adjustment): CHAPTER 7 BANKRUPTCY Here the homeowners are liquidating all of the non-exempt[1] assets that they own. The homeowners can decide to retain the home or liquidate it. If the homeowners plan on keeping the property, they will need to get the payments current or enter into a plan with the bank. This procedure usually costs more in legal fees than it is worth: the homeowners need to pay for attorneys for themselves as well as for the bank. CHAPTER 11 BANKRUPTCY This is a business bankruptcy in which the homeowners could be a business which owns multi-family properties. During the first 120 days, the homeowners have the exclusive right to propose a repayment plan that will repay the creditors from the earnings. CHAPTER 13 BANKRUPTCY This is the borrower's chance to enter into a repayment plan for a period of thirty-six to sixty months. The borrower will have to pay the fees of the bank's lawyer, his own lawyer and the bankruptcy trustee during the period, as well as keep current with the past due payments. If the homeowners miss a payment, the property can be lost to foreclosure.[1] PRE-FORECLOSURE SALE Here the bank and the homeowners agree to sell the property for the amount of the proceeds of the sale to satisfy a defaulted mortgage, even though it may be less than the amount owed on the mortgage.The secondary mortgage market will enter into this arrangement when a borrower is in a financial hardship, but the value of the property has declined to less than the amount owed. This sale will be considered whenever the secondary mortgage market will lose more by having an auction than by selling it now. This does not allow the homeowners more time to sell the property; it just means that if a sale is consummated before the auction date there will be no need for an auction. The homeowners should also know that there are tax consequences to the forgiveness of a debt. The procedure from the bank's perspective is to have the property valued by a real estate broker, then the property is listed with a broker at an "as is" price. The Listing Agreement and the Purchase and Sale Agreement must include a clause indicating that the agreements may be canceled without penalty. Once an offer is received, the broker should send the offer and a net sheet to the secondary market lender. The secondary market lender will then review the offer and communicate its decision within seventy-two hours.http://frontgateconsulting.com/