Dean Graziosi

 

Foreclosure

Homeowners often find themselves unexpectedly faced with a financial and/pr physical inability to manage their property sue to unemployment, divorce, medical challenges, and even death.  At such times, a homeowner’s lending institution will intervene and enforce payment of the debt by seizing and selling the estate.  During this process, referred to as foreclosure, the estate officially becomes the absolute property of the lending institution.

 

Should I be worried about foreclosure: Secured vs. Unsecured loans?

You should always be aware of the specifics of foreclosure, since most people find themselves in need of a loan at some point in their lives.  However, anyone who has taken out a secured loan is more likely to be impacted by foreclosure than are individuals who have unsecured loans, in which the lender relies on the promise of repayment without collateral.  While interest rates for unsecured loans tend to be higher, secured  home loans generally hold home being purchased with the funds as collateral that can be taken back in the foreclosure process upon default.

 

What does the process look like?

Foreclosure is a legal process that occurs according to federal, state, and local laws, and can take upwards of a year and a half from start to finish. It typically begins when the homeowner defaults by failing to make mortgage payments to the lending institution at the appointed time. At the point, the lending institution will make a formal demand for payment by sending a Notice of Default (NOD) notifying the homeowner of the intent to take ownership of the property and evict tenants. While states vary, the lender usually issues the NOD after the homeowner’s mortgage payments are three months delinquent.

 

Once the NOD is sent:

·         Foreclosure sale date is established if the default isn’t corrected and the loan brought current within three months;

·         A Notice of Sale is

o   sent to homeowner,

o   posted on property, 

o   recorded at County Recorder’s Office in the county where the property is located,  

o   published in local newspapers over a three-week period.

·         Foreclosure Trustee Sale occurs, usually at the county courthouse in which the property is located.  (Specific time/location designated in Notice of Sale).

·         At Trustee Sale:

o   opening bid is set by the foreclosing lender, and usually equals the outstanding loan balance, interest accrued, and additional fees,

o   property is publicly auctioned to the highest bidder, who must pay the high bid price in cash (typically with a deposit up front and the remainder within 24 hours), and

o   winner receives the property deed.

 

If there are no bids higher than the opening bid, the property is purchased by the attorney conducting the sale for the lender, at which point is becomes a REO (Real Estate Owned).

Bottom Line: Communication is essential!  Your lender wants to keep you in your house as much as you want to stay there. Ask what you can do to avoid foreclosure and keep you at home where you belong.

 

What is HARP refinancing?

Refinancing can help a homeowner by initiating a new mortgage loan with better terms to pay off and replace the current loan. In an effort to help stabilize the housing market, the government developed the Home Affordable Refinance Program (HARP) with two primary goals in mind:

 

1.    To help homeowners who do not have enough equity for a traditional refinance

2.    To help homeowners who are  having problems making payments on current mortgages.

HARP was first released with similar risk-based pricing similar to conventional loans.  Homeowners who qualified for HARP found that the new higher credit requirements for conventional loans made them too expensive.  Even though homeowners expected a 4.5%, 30 year interest rate, they were often offered 6%+ rates.

Therefore, in an effort to help homeowners who had these lower credit requirements get a decent rate, the government  responded by implementing an adjustment cap equivalent to about .5% to the homeowners interest rate.  For example, if 30 year fixed HARP loans were at 4.5%, everybody who qualified for HARP would only pay 5% or less, depending on their qualifications.  

 

Am I eligible for a HARP loan?

If you meet the following criteria, you should ask you lender if you qualify for HARP:

·         your current loan is owned by either Freddie Mac or Fannie Mae,

·         you have demonstrated financial stability by making all payments on your current loan for at least the past 12 months, and

·          the balance on your first mortgage must be under 125 percent of your home’s current value.

Qualifying properties include:

·         primary residences, secondary residences, and multi-family properties with four or less units;

·         owner-occupied and investment properties

 

What are the benefits to refinancing with a HARP loan?

HARP loans can reduce a borrower’s mortgage interest expenses in one of two ways.

1.    More debt stability. While a fixed-rate mortgage may raise your mortgage payments, more of that payment will be applied to the principal on the loan so your debt will be paid down faster.

2.    For homeowners who incurred a high interest rate when they bought their home, the ability to refinance at current rates can lead to more affordable mortgage payments.

3.    While refinancing under HARP does not change your current obligation to carry private mortgage insurance or allow you to add other debts to the amount financed in the HARP loan, some closing costs may be financed, and could result in case back of up to $250.00.

The HARP was recently extended until June, 2011,  Therefore, if you are currently a homeowner struggling with high mortgage payments and a lack of traditional refinancing options, this may be the program for you.  

For information on qualifying for the HARP program, visit: www.usmortgagerelief.org.