Looking for a bank-owned bargain?
3 Important things to consider when buying a foreclosure:
- There are certainly bargains to be had, but you will want a professional real estate agent that has access to properties before the rest of the market knows about them.
- Foreclosed properties may not be move-in ready. A good agent will help you understand what improvements may need to be made to the property and their impact on it's value.
- Often there are legal challenges in purchasing a foreclosed property. That's why as an attorney-based brokerage, Precedence Properties is a wise choice!
Are you facing foreclosure yourself? There are Alternatives!
Every mortgage transaction brings together a variety of actors. Some are directly involved with the homeowner while others operate behind the scenes. Some appear on stage at the beginning of the process, and others after a homeowner defaults on payments. How the mortgage lending market works is a mystery to most consumers. If you are reading this you are probably already confused and/or frustrated.
Precedence Properties was founded by attorney Christian McLaughlin. Over the years Christian has assisted thousands of distressed homeowners, and educated countless attorneys and real estate professionals, both save and also dispose of real estate holdings. As an attorney who understands the market and the impact of foreclosures, Mr. McLaughlin believes that a sale of the real estate asset should always be considered as an option (Equity sale or Short Sale).
Important things for a homeowner to consider when facing a foreclosure are deficiency judgments, forgiveness of debt tax an whether the home is really worth trying to save. Mr. McLaughlin is always available to talk with the clients of Precedence Properties, and he is more than happy to discuss your options from a legal perspective. Options to avoid foreclosure may consist of loan modification, bankruptcy, short sale, litigation, do nothing or any combination of the above.
Below are some common comments and concerns that we hear from our clients:
Why won't my lender work with me?
It is not because they are evil, it’s because the bureaucracy that they have created now prevents them from doing so. The capital underlying the consumer credit market is often coming from the financial mechanism known as “securitization.” securitization is a process of separating certain types of assets, in this instance, mortgage loans, from the risks associated with the original lender, and selling the assets to a third party who in turn issues securities to raise funds in the capital market at a lower cost to the original lender than obtaining a line of credit. Consequently, the financial state of the original lender becomes less relevant to the investor than the investment worthiness of the mortgage loans. In other words, the loans become commodities in and of themselves. Capital is created in this way to fund the making of the loans. The trail of players usually leads from the original lender to Wall Street.
The primary contractual document underlying a securitization transaction is the pooling and servicing agreement (“PSA”). The PSA establishes the securitization loan trust and the various classes of bond holders (“investors”) and it also contains the obligations of the servicer and the various representations and warranties of the parties to the transaction.
Securitization disconnects the borrower from the investor(s), and herein lays the problem consumers have with so called loan workouts or loan modifications. The investor in a typical security is Wall Street and you simply cannot sit down with Wall Street to work out your problems. What a distressed homeowner is left with is a loan servicer whose ability to assist the homeowner is regulated and /or limited to the language of the applicable PSA, and sadly the majority of PSA documents fail to provide relief for the homeowner.
Should I short sale my home?
Most often the answer is a simple YES; it is a no cost solution to your problem that allows you regain control over the inevitable loss of you home. Our office takes the position that a short sale should always be considered by a distressed homeowner. Let’s face it, some homes cannot be saved and/or are simply not worth saving. A short sale can eliminate your obligations to a lender, can often avoid any forgiveness of debt taxes, can reduce or eliminate liabilities that even a bankruptcy filing cannot, often results in cash back to the homeowner, is a free solution for the homeowner, is better for a homeowners credit rating than a foreclosure or bankruptcy, often affords the homeowner additional time in the home, provides a homeowner with closure and is generally better for the community and the housing market verses a foreclosure.
Precedence Properties has strategically positioned itself with the necessary resources to short-sell your home and potentially put some money in your pocket on the way out.
Can I apply for a Loan Modification?
Since the collapse of our financial system in 2008, the dynamic for negotiating pre-foreclosure workout agreements for homeowners has definitely improved. However, in a market in which most homeowners find themselves owing considerably more than the fair market value of their home, a loan modification that does not meaningfully reduce principle is usually not a solution. These types of loan modifications, more often than not, simply delay the inevitable. In certain situations delaying the inevitable might be a viable strategy, but the time must be used wisely by the homeowner. There are limited situations in which a loan modification does result in a meaningful principle reduction, but we have found such to only occur in about 4% of the loan modifications we have reviewed. Bottom line, applying for a loan modification can’t hurt, but do not rely on a loan modification to solve your problems.
Is Bankruptcy a good option?
A consumer facing the loss of his or her home through foreclosure may be able to secure temporary or permanent relief in the bankruptcy court. Bankruptcy can be a powerful tool for a distressed homeowner. A well planned chapter 7 filing will delay a foreclosure sale while also eliminating any deficiencies and/or tax obligations that a homeowner may face upon a foreclosure sale. Aside from delaying a sale date, a chapter 7 filing in itself will not save your home, but it will help protect you from damages that you may face as a result of the foreclosure and it will provide you with additional time to consider your options.
One of the best alternatives to a loan modification is often a chapter 13 bankruptcy filing. A chapter 13 brings with it ancillary advantages, such as the almighty Automatic Stay. Unique to a chapter 13 filing is a means to cure the mortgage arrears by a court order allowing for monthly payments over a period of up to five years (the "PLAN").
Bankruptcy provides a means to deal with all of your creditors in one forum and in many cases a chapter 13 has the added advantage of allowing a debtor the means to eliminate or modify existing underwater mortgages.
Can I sue the bank?
Litigation is often a futile effort and a waste of time and money for a homeowner. Did the financial institutions act inappropriately? The answer is almost always, yes. Did the financial institutions act illegally? The answer is not so simple. Is it worth bringing litigation against the financial institutions to attempt to save your home? Sadly, the answer is, probably not. Litigation is costly, risky and often gets a homeowner nowhere. It has become abundantly clear that the financial institutions have no fear of litigation, that they have enormous legal resources and finances that dwarf those of your average consumer. Although, the consumer’s position in mortgage related litigation is admirable it is also arguable. Think of David and Goliath!
When does it make sense to do nothing at all?
Sometimes the best solution is to simply do nothing. A viable strategy for a homeowner may be to simply stay in the home for as long as possible, save money and prepare for the inevitable foreclosure. The majority of foreclosures will take five months to several years to complete, and there a number of cost effective ways to delay that final day.
Beware of Foreclosure Rescue Scams!
By now it has become abundantly clear that there are a number of foreclosure rescue scams targeted at homeowners facing foreclosure. Typically a “rescuer” identifies potential victims through public notices. The homeowner is then contacted by phone, mail or personal solicitation, with offers of a “fresh start” to save the home. While the clock to stop the foreclosure runs down, the rescuer may impose fees draining the home of equity, or induce the homeowner to sign a large bundle of documents including a transfer of home ownership.
Foreclosure rescue scams typically come in three varieties.
- The first we refer to as “phantom help,” where a rescuer charges outrageous fees either for light-duty phone call and paperwork that the homeowner could have easily done or makes a promise of additional assistance that never occurs. Some simply refer the homeowner to a bankruptcy attorney. Others actually assist the homeowner in filing for bankruptcy. Typically these rescuers have little understanding of bankruptcy law and often the bankruptcy case is ultimately dismissed, leaving the homeowner subject to various restrictions on repeat filing. Whatever form a phantom help rescue scam takes, the homeowner is usually left without enough assistance to save their home and with little or no time left to seek other assistance.
- The second variety involves outright fraud. The homeowner believes that they are obtaining refinancing or a new loan and do not realize that they are surrendering ownership of the house. The papers accomplishing the transfer may be signed by the homeowner, or alternatively the deed transferring the home may be forged.
- The third variety is bailout that typically involves the homeowner’s understanding that they are signing a deed which transfers ownership of their home, but doing so with the belief that they will be able to regain ownership at a later time.
Always be skeptical of an organization using a name that suggests that they have some government affiliation, such as U.S., California, Federal, Government,...... If you are considering engaging the services of anyone presenting options, immediately contact a competent attorney to evaluate the services or the proposed transaction. Never pay anyone up front for assistance without first doing your own homework.
