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Distress Sale Options

Short Sale homes for sale in Chandler, Gilbert and Mesa AZ are excellent Phoenix real estate investment properties (photo)

Your Options in Lieu Of Foreclosure

 

Foreclosure is one of the most devastating financial challenges that a family can face and one that many times can be avoided. There are numerous options available to owners of homes in Gilbert, Chandler, Mesa, Queen Creek area residents to avoid foreclosure. Following is a brief explanation of these potential solutions, including their benefits and drawbacks:

Reinstatement

A reinstatement is the simplest solution for a foreclosure, however it is often the most difficult because the homeowner has to raise cash to pay all back payments and penalties to bring his loan current. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender's approval and will 'reinstate' a mortgage up to the day before the final foreclosure sale.

  • PRO: This option does not require lender approval.
     
  • CON: Requires that a homeowner be able to pay cash for all back payments, fines and fees.

Forbearance or Repayment Plan

A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe.

  • PRO: Allows the homeowner to make back payments over time.
     
  • CON: Requires that a homeowner be in a financial position to pay not only their current loan, but also a portion of the back payments owed. Some lenders require the homeowner "qualify" for the forbearance.

Loan& Modification

A loan modification involves the reduction of one of: the interest rate on the loan, the principal loan balance, the term of the loan, or a combination of all three. These typically result in a lower payment to the homeowner and a more affordable loan payment.

  • PRO: Reduces the monthly payment a homeowner is required to make and may reduce the principal balance of the loan.
     
  • CON: Requires that a homeowner 'qualify' for the new payment with full documentation.

Rent the Property

A homeowner who has a mortgage payment low enough that market rent will pay all or a major portion of the house payment and the homeowner can afford to make up the monthly shortfall, can convert their property to a rental property and use the rental income to pay the mortgage. This can be an ideal solution for the homeowner who found a new job out of area or out of state and has to move, but can't sell their current home.

  • PRO: Allows homeowner to keep the property indefinitely until the house values goes up.
     
  • CON: Rental properties have maintenance and management costs and rent may not cover the full cost of property ownership and maintenance, but it buys the homeowner time.

Deed in Lieu of Foreclosure

Known as a 'friendly foreclosure', a deed in lieu action allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option and the homeowner must give up possession and vacate the property.

  • PRO: In a successful deed in lieu, the lender will forgo their right to a deficiency judgment.
     
  • CON: The homeowner must vacate the property and a deed in lieu may be reported to credit bureaus as a foreclosure anyway. Don't try this on your own. You need representation.

Bankruptcy

Many erroneously considered bankruptcy a 'foreclosure solution,' but it only delays the loss of your home in Arizona. If the homeowner has non-mortgage debts that keeps them from being able to pay their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.

  • PRO: Does not require lender approval.
     
  • CON: If a homeowner cannot afford their mortgage payment, a bankruptcy will only stall - not stop - the foreclosure process. Bankruptcy can be costly, is damaging to credit scores and can only be declared once every seven years.

Refinance

If a homeowner has sufficient equity in their property, they have been making their house payments and their credit is still in good standing, they may be able to refinance their mortgage.

  • PRO: In some cases, this will lower payments due to the lower interest rates we have now.
     
  • CON: In today's market, most Arizona borrowers have no equity and this is not an option.

Service members Civil Relief Act (military personnel only)

If a member of the military is experiencing financial distress due to deployment, and that person can show that their debt was entered into prior to deployment, they may qualify for relief under the Service members Civil Relief Act. The American Bar Association has a network of attorneys that will work with service members in relation to qualifying for this relief.

  • PRO: If the serviceman is qualified, this will lower payments on all consumer debt in addition to mortgage payments.
     
  • CON: Must be active military to qualify.

Sell the Property

Homeowners with sufficient equity can list their property with a qualified agent that understands the foreclosure process in their area.

  • PRO: Allows homeowner to avoid foreclosure and harvest some of their equity.
     
  • CON: In many cases today, most homeowners do not have sufficient equity to sell their property without negotiating a short sale (see next solution).

Short Sale

If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender. This typically requires the property to be on the market for sale and the homeowner must have a financial hardship to qualify. Hardship can be simply defined as a material change in the financial stability of the homeowner between the date of the home purchase and the date of the short sale negotiation. Acceptable hardship include but are not limited to: high mortgage payment increase, job loss, divorce, excessive debt, bad health, forced or unplanned relocation and more.

  • PRO: A short sale allows the homeowner to avoid foreclosure and salvage some of their credit rating. This also keeps foreclosure off the individual's public record, and in many cases will allow the homeowner to avoid a deficiency judgment. Borrower may qualify for another mortgage in as little as 24 months (as opposed to seven years for a foreclosure).
     
  • CON: Short sales can be a trying process in which a homeowner is best served by contracting with a qualified real estate agent to guide the way.

Request a complimentary Free Home Market Analysis

This represents only a summary of some of the solutions available to homeowners facing foreclosure. Please contact Sam or call 480-213-1799 today for a free confidential evaluation of your individual situation, property value, and possible options. I am not the expert in all these matters, but I can direct you to those who are after determining the best option(s) for you to pursue.

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Sam Elam, Arizona Associate Broker with 25 years of real estate experience
Sam Elam
Associate Broker

480-213-1799
samelam3@msn.com

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