Many homeowners don't know where to turn when they are having financial troubles. Banks and collection agencies put a great deal of pressure on people and because they may not know they have options, they think foreclosure is the only way out. This can have detrimental and lasting effects, both personally and financially.
Unfortunately, with the current state of the real estate and financial market, this is a reality for a staggering number of people. Here is what you can do:
1. Contact your lender as soon as you know that you may have difficulty making your mortgage payments. Open and respond to ALL MAIL from your lender! Lenders DO NOT want to take your home! Delays will reduce your options.
2. Contact a nonprofit housing counselor. This counselor can explain your options and negotiate with your lender on your behalf. Help is always available at 1-888-995-HOPE, or through Home Partnership, Inc., specializing in Baltimore, Harford and Cecil Counties, at 410-679-3200
3. Write a "Hardship Letter". This letter is required by lenders and must be written by the homeowner. The letter should include your name, your loan number, the date, the fact that you would like to stay in your home, when you fell behind on your payments, the reason you fell behind on payments, and how you plan to overcome these difficulties.
4. Prepare a Household Monthly Budget. Indicate what your income is minus fixed monthly expenses, variable monthly expenses, credit card debt and a net surplus or deficit.
5. Prioritize your spending. Review your finances and cut spending wherever possible. Can you sell some of your assets? Can you or family members work extra hours? Demonstrate to lender that you are willing to do whatever is necessary to keep your home.
6. Attempt to refinance to a more affordable mortgage. The Maryland Department of Housing and Community Development (DHCD) has refinance programs available including "Lifeline Refinance Program" and the "Bridge to Hope" program. Also, "FHA Secure" is a HUD refinancing program which you can learn about by calling 1-800-225-5342.
7. AVOID FORECLOSE "RESCUE" SCAMS! Free assistance is available from a nonprofit housing counselor as detailed above. Do not sign any legal documents without getting legal advice. If you feel that you have been a victim of a scam report this to Maryland's Department of Labor, Licensing & regulation, www.dllr.state.md.us, 1-888-784-0136.
8. Consider a short sale.
A short sale refers to the potential sale of real estate where the mortgage on a home is greater than the fair market value. Basically, you owe more than what the house is worth. A short sale requires that the homeowner qualify with a legitimate "hardship" and the mortgage company or companies agree to accept less than the full balance of the loan at closing. A relatively new solution to a financial crisis, the short sale has been used successfully as one of the last options before foreclosure.
Benefits of a Short Sale:
- No additional funds required at closing
- Lender pays real estate agent commissions
- Avoid foreclosure and many times a judgment
- Preserve credit
- Commissions and fees paid by lender. No cost to seller.
- May not affect your credit score
A successful short sale requires a qualified Realtor such as a CDPE (Certified Distressed Property Expert) who understands the complexity of this process and the extensive documentation required. The success of a short sale depends on the knowledge and ability to work closely with lenders, banks, accountants, and other realtors. The short sale is one of the most important aspects of real estate in todays market.
Karen Gaylord is a Realtor with Long & Foster Realtors and the award winning Hirschhorn Team. She is also a CPA, CLU, ChFC, Certified Distressed Property Expert. She has recently been elected to the Board of Governor's of the Million Dollar Realtor Association of Harford County for a term of 2008-2012.
You can contact her at 410-322-6588 or visit her websites at http://www.karengaylord.com
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