You’ve Got Options
By Dagmar Mouritsen
Published on www.inMaricopa.com March 2010
In 2009 the economy suffered a record 3.9 million foreclosures. The Mortgage Bankers Association published that delinquency (30 days or more late) reached 4.06 percent in the third quarter 2009. Arizona is among the states leading in foreclosures.
Behind these numbers there are people, people who don’t know how to make the next mortgage payment or how to get out from underneath a pile of bills. Often times, we stick our heads in the sand when things get overwhelming, but that does not usually get the best results.
It has been reported that 7 out of 10 homeowners proceed to foreclosure without seeking assistance and without getting the facts. Many do not realize that foreclosure is a process and that there is time to make decisions that may result in a better outcome.
Here are some of the options:
Foreclosure
In Arizona, the Anti-Deficiency Statute applies when a home goes into foreclosure. However, not all mortgage debt is protected by the Anti-Deficiency Statute. The lender can, in certain circumstances, pursue a deficiency after foreclosure. A foreclosure stays on a credit report for 10 years and it is a challenging issue against security clearance. A homeowner is ineligible for a Fannie Mae-backed loan for 5 to 7 years.
Bankruptcy
Bankruptcy might be a solution for a homeowner who has non-mortgage debt that is the cause for a homeowner’s inability to make the mortgage payments. A personal bankruptcy can eliminate these debts. A homeowner who was able to stay current on a mortgage might be able to keep their home.
Short sale
If a homeowner owes more on a 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.
The real estate agent is paid by the lender with a sales commission upon closing. This typically requires a financial hardship to qualify. A successfully negotiated short sale has a less negative effect on a person’s credit compared to a foreclosure. Under certain circumstances, after a short sale, a seller is eligible for a government-backed loan on a primary residence.
Please see HUD Mortgage Letter 09-52 published Dec 16th, 2009 at www.hud.gov.
In a short sale situation, the Anti-Deficiency statute does not apply. Protection from the bank pursuing a deficiency is part of the short sale negotiation. Depending on the circumstance the result of a successful short sale negotiation can be no deficiency or a lesser deficiency compared to a foreclosure.
FHA/HUD Pre-foreclosure short sale
If you have a loan that is backed by the Federal Housing Administration (FHA), check to see if you are eligible for this program. The government provides funds to help close a short sale and provide protection to the seller against deficiency. Find out more at www.hud.gov/offices/hsg/sfh/nsc/rep/pfsfact.pdf.
Home Affordable Refinance Program (HARP)
You may be eligible for a lower interest rate if you have a Fannie Mae or Freddie Mac loan and the amount on your first mortgage does not exceed 125 percent of the current market value of your home. You have to be current on your loan. The program will reduce the amount of interest a borrower pays.
For eligibility and program details go to www.makinghomeaffordable.com/refinance_eligibility.html.
Home Affordable Modification Program (HAMP)
Are you struggling to make your payments because your financial situation has changed or did you suffer a financial hardship? Is your payment on your first mortgage including interest, principal, tax, insurance and HOA dues, more than 31 percent of your gross income? Is the home your primary residence? If you answered yes to all these questions, you may be eligible for a modification under the Home Affordable Modification Program. Find out more at www.makinghomeaffordable.com/modification_eligibility.html.
There are more options out there, and the above-mentioned options are not intended to be seen as recommendations. Furthermore, some lenders have their own short sale programs that are designed to facilitate the short sale process and deal with second mortgages and other aspects and potential obstacles.
And there is more help to come: President Barack Obama just announced a new program for states hardest hit by the real estate crisis including Arizona. State housing agencies are asked to come up with individual plans to address the housing crisis in their state.
The Mortgage Forgiveness Debt Relief Act protects many homeowners from paying taxes on debt that was forgiven due to foreclosures and short sales. However, homeowners should address their specific situation with a tax professional. Details about the Debt Relief Act at www.irs.gov/individuals/article/0,,id=179414,00.html.
What is best for a homeowner depends on the particular circumstances and personal considerations. Using the information resources that are provided by the government and HUD-approved counseling agencies can be a good first step and can bring clarity about your situation and how best to resolve it.
The HOPE Hotline — 888-995-HOPE is staffed by HUD approved credit counselors who can guide you through possible options. Another resource is www. makinghomeaf fordable.gov/ and www.hopenow.com.
Note: The writer cannot assume responsibility nor guarantee the accuracy or completeness of this document. This author is not an attorney or tax professional and this information should not be considered legal or tax advice.