“You Know You’re Caught When…” – Self Assessment

Being caught in financial distress is a hard realization and sometimes people don’t even recognize the warning signs. Let’s face it – the topic of finances is still the #1 source of stress and relationship discord. This self assessment quiz isn’t a solution, just a tool to help you take control of your financial situation and seek help if needed. Don’t be caught unaware, take control today!

You know you’re caught when… you have any of the following obvious signs:

• Job loss
• Loss/decrease in income
• Rate adjustment on your mortgage
• Already more than 30 days late paying your mortgage
• Negative amortization (your payments don’t include paying towards the principal)

You know you’re caught when you…

• Owe more on your mortgage than your home is worth
• Rely on credit cards to pay your monthly living expenses (Don’t have a budget? Sign up for my newsletter and I’ll send you a financial worksheet free so you can get started on monitoring your monthly expenses today!)
• Have rising household expenses (for example: rates on your credit cards have adjusted up, you have additional child care expenses, accrued medical debt, etc.)
• Experienced serious family illness or injury
• Going through a divorce or split of domestic partnership

If any of the previous statements are true, please take immediate action to take control of your financial future. If you need direction on how to get started, read on to our popular post “I’m Caught, Now What?“ If you have questions on your particular situation, please don’t hesitate to contact my team through my Contact page. We will prompty return your inquiry. This may be one of the hardest realizations, but it is possible to rebuild your life and financial future. The more time you delay, the further you have to climb to get out of your current situation. Start rebuilding today!

I’m Caught, Now What?

So, you’ve realized you ‘re caught in the housing bubble. You’re probably thinking, “Now what do I do?” If you’re caught in the housing bubble because you lost your job or have experienced a significant decrease in pay (maybe a paycut or forced un-paid vacation), please read the following post: “I Just Lost My Job, Now What?” I have a special set of instructions for you! Otherwise, read on.

Step #1 – Create or update your monthly budget

If you haven’t done this already, you must. A financial worksheet is going to be your tool to help you determine where you stand financially. In addition, your lender is going to need a copy of your financial worksheet in order to work with you. Before you pick up the phone to call your lender, make sure your worksheet is done. To get a copy of a financial worksheet for free, be sure to sign up for my newsletter and I’ll automatically send you a copy!

Step #2 – Determine your overall goal based on your financial worksheet

How far off is your monthly income from your monthly expenses? Are you in the red? Can you afford your home if you hunkered down, reduced your spending and received a reasonable reduction in your mortgage payment? If so, you most likely will want to pursue a loan modification with your lender(s). Remember that most lenders offer short term loan modifications by temporarily reducing your interest rate (3 – 5 years), thereby reducing your monthly payment for that length of time. I personally have not heard of any lenders currently offering principal reductions as part of a loan modification. But, it doesn’t hurt to ask. If you are seeking a loan modification please, please please do not fall victim to the scams that are out there promising principal reductions or guaranteed loan modifications for an upfront fee. You can work with your lender directly to obtain a loan modification. It may take some bulldogged persistance, but you can negotiate directly with your lender yourself.  For more on pursuing a loan modification see “Do It Yourself Loan Modifications.”

Step #3- Know your options

If you realize you can’t afford your mortgage by cutting back your expenses and by getting a reduction in your monthly payment, you have the following options:

• Short Sale: a negotiated settlement in which your lender(s) agree to accept a payoff less than what is owed to them on the secured Note.
• Deed-In-Lieu of foreclosure: a process where the borrower deeds the collateral (the property) to the lender and thereby avoids foreclosure.
• Foreclosure: a legal process in which your lender repossess the property after it falls in default.

Step #4 – Call your lender

If you simply cannot afford your mortgage no matter the cuts you make, you need to pick up the phone and call your lender to discuss your alternative solutions. Most likely, your lender will recommend a short sale. This is by far the best option to pursue rather than a Deed-in-Lieu and Foreclosure. However, all three options have credit and legal consequences so be sure to contact your qualified professionals for specific advice. Your lender will usually do a phone qualification where they verbally run through your situation and your financial worksheet. That’s why it’s important to have it done before you talk to the lender so you can give an accurate accounting. From there, they will review your options and give instructions to you on what documentation they will need. For specifics on the short sale process, click here.

What you’re going through is not easy. It’s quite stressful and many of my clients have told me that it feels like a monkey on their back. However, they all say that once they took control of the situation, contacted their lender and set out on a course of action (whether it’s a loan modification or short sale) they all felt much more positive about their future and they could finally move on. It also helps to have the assistance of a team of professionals to assist you. If you’d like a free consultation with a highly qualified Realtor make sure to contact my team through our Contact Us page. Even if you aren’t located in the State of CA, we can still connect you through our extensive referral network. We look forward to assisting you!

The Ins and Outs of the Short Sale Process

I have to admit – the content of this post is a little dry and wordy, but there is a lot of great information in here for people wanting to know how short sales work. So, grab a cup of coffee and read on!

What is a short sale?

A short sale is a process that allows homeowners to sell their home for less than what they owe on it through a negotiated settlement. The settlement requires the lender(s) to agree to accept a short payoff for the secured mortgage(s). In order to qualify, the homeowner usually needs to demonstrate a hardship where they can no longer afford the mortgage payment.

What are the steps to the short sale process?

1.    Contact your lender – as I’ve mentioned in other posts, this is always the first place you want to start. Call your lender(s) as soon as you see signs that you are in financial trouble or experiencing a hardship. (Don’t know if you’re in trouble? Take my quick self assessment quiz now!) Make sure to stay in constant contact with your lender and provide accurate information. You never want to misrepresent your situation to your lender(s).
2.    Gather your hardship package – this is the group of documents that the lender will ask for to review your situation so they can offer potential solutions. See my post, The Critical Elements of the Hardship Package for more information on assembling the necessary documents.
3.    Identify the benefits of a short sale – Why go through the short sale process, which can sometimes take up to 120 days to complete? Depending on your specific situation, there several benefits of short sale vs. foreclosure. For more on this topic, click here.
4.    Find the right Realtor® – make sure to find a Realtor® who has a successful track record with short sale negotiations, someone who presents a comprehensive marketing plan for your property, and someone who has a negotiating strategy in place tailored to your situation. Make sure to check the license, certifications and designations that the Realtor® carries (you can usually do this through your state’s Department of Real Estate). And lastly, make sure you hire someone who you are comfortable with. You’re going to be sharing some details about your life with them, you might as well feel comfortable doing it! If you need help finding the right Realtor® for you, please send me a message through my Contact page and I can find one for you through my extensive national referral network.
5.    Let your Realtor go to work for you – meet with your Realtor® to sign the listing agreement, go over the marketing plan for your home, and give them your hardship package. As soon as you receive an offer on your property, your Realtor® will present the offer to you to review all the terms of the sale. They will also handle negotiating with the buyer through a counter offer(s). Once the terms of the sale are agreeable, your Realtor® will have the title company provide an estimated HUD and will send the entire hardship package (including the offer/counter offers) to the lender. They’ll handle dealing with your lender(s) on a regular basis through the negotiation process until an approval is reached.
6.    Maintain the property – while you are waiting for an approval on the sale of your home, stay in the property and maintain it as much as possible. Remember that you are asking the lender to take a significant loss on the property and you should do your best to maintain it to sell quickly. If the property is located in an HOA (Home Owner’s Association), try to stay current on the HOA fees as most lenders will not agree to pay off any liens (just the mortgages) in order to sell the property. Also, maintain the utilities on the property so that they remain on when the property goes into escrow and the potential buyer needs to do their inspections.
7.    Seek professional counsel – there are potential tax and legal consequences for both short sale and foreclosure. Before deciding whether or not a short sale is for you and certainly before you enter into any kind of agreement, make sure you contact the appropriate professional to address any concerns you may have. Also, be careful with whom you share your situation with – not every situation is the same. What works for your friend with their lender may not work for you. Seek information and advice from industry professionals with proven track records, don’t rely not the advice of friends and family – even though they mean well. When an approval is reached with the lender(s), be sure to read the approval conditions very carefully. It is also a good idea to have an attorney review the approval prior to moving into contract with a buyer or agreeing to any terms set forth in the approval.
8.    Be Patient – the short sale process takes time, be prepared to wait on the lender for a response. Keep in mind that due to market conditions, lenders are dealing with a huge influx of work out packages (requests for loan modifications, short sales, and even foreclosures). Every time new legislation is passed which offers more help to homeowners, the loss mitigation departments at the banks get even busier. It may take longer when the 1st and 2nd mortgages are held by two different lenders. Each lender must agree to the sale and one may try to hold out for a better payout. In the end, patience and cooperation from all parties involved is needed for a successful transaction.
9.    Plan for the future – this includes finding a new place to live after the sale goes through. Although many homeowners prematurely vacate their property prior to a short sale approval, this is not necessary. Lenders prefer you stay in the property to maintain it since the goal is to avoid foreclosure. Most homeowners that move out early do it out of fear of not being to qualify for a rental. As soon as you start to experience financial difficulty, start putting together a rental application packet. In this packet include a copy of your credit report, pictures of your home (to show you are a trustworthy tenant who is able to maintain a property), complete rental application with personal references, and a cover letter stating why you would be a good tenant to consider. Share your situation and the steps you took to remedy the situation (i.e. short sale) to show that you are not a victim, but a responsible homeowner trying to work out a debt in good faith. Locate property managers in the area where you’d like to move to and share with them your situation and rental application packet. That way, they can keep you in mind as they receive vacancies on properties for rent.
10.    Keep accurate records – like the settlement of any debt, you’ll want to keep copies of the approval letters and/or agreements to show that your debt was once and for all settled. A good practice is to monitor all three of your credit reports for false information. If the debt reports incorrectly, you’ll have the documentation at hand to dispute the credit lines and have them corrected.

Finally, when you’ve received the approval on the short sale from the lender be prepare to move out and leave the property clean and in the same condition in which it was when the buyer first made their offer and when they did their inspections of the property. You’re ready to move on with the next phase of your life knowing that it was worth the wait to have this debt settled and that you have the documentation to prove it. Plus, by doing a short sale instead of walking away from the property, you have protected your credit and put yourself in a much better position to purchase another home within 2-3 years. If you have questions on this topic, please Contact me. Since we also like sharing on this blog, please be sure to share your thoughts, experiences, and tips here on the Comment section below!

Critical Elements of the “Hardship Package”

First of all, you’re probably wondering what the heck a “Hardship Package” is. I did the first time I heard the term! The hardship package is the term for the group of documents you’ll gather to ask your lender for assistance through a loan modification or short sale. I wanted to outline the package here so you know what each element is and I’ve also included tips for completing the package correctly. Even though your Realtor® will put the package together (if you’re doing a short sale), they may ask you for these elements and you should be ready to produce them quickly. Hardship package requirements vary by lender, but here’s what you can generally expect to provide (items shown with * indicate documents specific to a short sale request):

1. Most recent (consecutive) two years tax returns – Federal return only, include all pages and schedules for all borrowers on the loan(s).
2. Most recent (consecutive) two months bank statements – provide all pages for ALL accounts that you and/or the co-borrower own.
3. Most recent (consecutive) two months pay stubs – for all borrowers on the loan(s).
4. Hardship Letter – this is a letter written by the borrower(s) on the loan in which they ask for the lender to consider a loan modification or short sale (whatever the case may be) and explains to the lender what has happened or what the hardship is that does not allow them to be able to maintain the current financial responsibility for the mortgage(s). It should be short and sweet, as concise as possible – you don’t need to share intimate details of your life.
5. Personal/Household Financial Statement – this is sort of like your budget, most lenders have a standardized format (which you can get for free once you sign up for my newsletter). The financial statement will outline all your income, assets, and expenses to show whether or not you have a surplus of funds each month or you’re in the red every month and are unable to pay.
6. *Purchase Contract – this is the offer from a potential buyer to purchase the property. Each state’s set of documents are different, but some states include a Short Sale Addendum form for buyers that has specific disclosures to the buyer regarding the short sale process: i.e. the acceptance is not bound until the lender(s) issue written approval and also defines the escrow period as beginning the day after the lender’s approval letter is delivered to the buyer’s agent.
7. *Listing Agreement – this is the agreement that the sellers sign to authorize the Realtor® to list and advertise the house for sale. Each state’s set of documents are different, but some states include a Short Sale Addendum form for sellers which contains special disclosures to the seller regarding the short sale process: i.e. there are credit and legal consequences, speak to the appropriate professionals before signing the listing agreement.
8. *Estimated HUD Statement – your Realtor® will obtain this from the title company who will be handling the escrow once the lender approves the sale. It is an estimated net sheet which accounts for all the costs involved in the sale and shows the lender what their potential loss will be. It’s important that this HUD be accurate and include all the payoffs for liens so nothing comes up later in the sale and delays the process. Approval letters from the lender are usually only good for 30 days, so the sale needs to go quickly once approved.
9. Comparative Market Analysis or Broker Price Opinion (a.k.a. BPO) – this isn’t required by lenders, but is usually helpful to show the lender what the property is worth and how the listing price was established. It should support the purchase price negotiated on the Purchase Contract.

Hope this information helps you with your quest! If not, please be sure to drop me a line on my Contact Page with your questions and I’ll be sure to get back to you. Also, I’m totally into networking and sharing – if you have tips to share based on your experience with your lender(s), be sure to leave it here on my Comments section.