A ?distressed property? is one where the homeowner can no longer afford to keep the house for any number of reasons and is in danger of losing it through foreclosure. It can also pertain to Short Sales, where the homeowner is attempting to sell the property at current market value even though they owe more than it is currently worth before the property is lost through foreclosure.
We advise that all property owners facing any of these situations consult with your REALTOR? ? as well as an attorney and/or tax advisor before making a final decision on the disposition of real property.
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Deed-in-Lieu of Foreclosure
The Deed in Lieu of Foreclosure may offer several advantages to both the borrower and the lender. The principle advantage to the borrower is that it may release him from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than in a formal foreclosure.
If homeowner has been unable to make monthly mortgage payments and has also been unsuccessful trying to sell the home at the market value, this form of device may be possible if certain criteria are met. This procedure allows someone to transfer their property voluntarily to their lender or Mortgage Company and the debt or deficiency is often forgiven. This will not save the homeowner?s home, but it may improve the chances of getting another mortgage loan in the future and it will help avoid the lengthy legal process of foreclosure. Although it is a negative strike on a person?s credit rating, it is may be less harmful than a mortgage foreclosure.
Typically your Mortgage Company will require that the home has been listed with a Real Estate Agent for at least 30 ? 60 days (lender requirements vary) and there are no other liens (no second mortgages or tax liens, for example) on the property. Some companies may also require that the property be vacant, have an interior appraisal of the property completed and/or that there be a minimum of 60 days prior to a Foreclosure sale before they will accept a Deed in Lieu.
Not all banks will accept a Deed in Lieu, preferring to proceed with a foreclosure. But under certain circumstances it is the quickest, easiest and least costly way for a bank to acquire a property back from the owner.
There are many reasons a homeowner can fall behind in their house payments. In the case of hardship, or a change in circumstances that makes it impossible to maintain the property, a SHORT SALE may be the answer for some people. Shorts sales may not have the same negative impact as a full foreclosure.
The following must be true in order for most banks to accept a short sale scenario:
Most banks won?t consider a short sale until you have a buyer who is willing to buy the house. What this means is that your home is listed for something less than is owed, a potential buyer makes an offer, the homeowner signs and approves the offer? then the hard work begins. After the REALTOR? has an accepted offer, the REALTOR? negotiates with the bank to accept the lesser amount to pay off the loan.
Once a borrower has fallen behind on his or her house payments (also called a Default), the bank has the option of beginning a process called a Foreclosure to take the property back. Most banks will wait until a homeowner is at least a few months behind to start the process, but every bank has its own policy or practices on dealing with Foreclosure timing.
Foreclosure begins with the bank files an NOD (Notice of Default) with the County where the property is located and sends you a copy. Once foreclosure begins, you have three months to bring your payments current and pay all fees and penalties before the property is noticed for sale.
Again, banks each have their own policies and practices, so the amount of time before the Foreclosure Sale may be longer. During that time, the homeowner can attempt a Deed in Lieu of Foreclosure or Short Sale (both explained above) which may be less damaging to the homeowner?s credit than a full Foreclosure.
The homeowner also has the option to apply for a loan modification or other payment workout plan. Every bank has different criteria for who can qualify, so homeowners are encouraged to talk to their bank for details early in the process
Once the Foreclosure sale (called the "Trustee's Sale") is held, if no other party comes forward to purchase the home for an amount acceptable to the bank, the bank acquires title to the property and will secure possession of the property and offer it for sale as its REO (Other Real Estate Owned) property.
In many cases the amount the property is sold for is not enough to cover the entire amount of the original loan or loans. The homeowner can be held liable for the balance if the bank pursues judicial action. Every homeowner in this situation is advised to seek legal advice to assess their situation and monetary or tax consequences.
NOTICE: No representation is made as to the Legal Validity of Adequacy of any statement made herein when applied to any specific transaction. If you desire Legal or Tax Advice contact an attorney or accountant.