When you find yourself down on your luck and not able to keep up with the mortgage payments on your home, you might find yourself in a sticky situation looking for a solution and attempting to avoid foreclosure.
With the way the current market is going, foreclosure becoming more and more commonplace with the economic and job situation coming to a screeching halt given the current events of the global situation.
According to the FDIC and NeighborWorks America, one in two hundred homeowners will be in a foreclosure situation at some point in their ownership.
According to real-estate data firm Black Knight, 4.6 million American homeowners were in some type of non-repayment as of June 16, representing 8.7% of all mortgages. (hbr.org)
In most of the larger metropolitan areas, this would translate to thousands of homeowners losing their homes to a foreclosure situation every single year, which is a bit of a dismal outlook on things.
When you zoom out and look at things on a national scale, it translates to a quarter million families facing foreclosure every single month.
There are a multitude of factors that can attribute to this staggering number, including but not limited to markets with home valuations dropping, or many homeowners not comprehending the verbiage and details within their mortgage agreements.
Many of these homeowners that we deal with feel that their options are either limited or none in this type of situation, but that’s simply not the case at hand.
On the other side of the coin, foreclosure isn’t a great situation for the lending companies or the banks, either.
Lenders and banks will have to spend an average of $50,000 to go through the foreclosure process on a property. Below are some stats on why banks are looking to avoid going through the same crisis of 2008.
How Banks Can Avoid Foreclosure and a Repeat of the 2008 Crisis – Harvard Business Review (hbr.org)
- At one point following the 2008-09 crisis, the average loss severity of subprime loans the amount lost as a ratio of the loan amount was 73%.
- At first, Bank of America acknowledged that many of its acquired home loans were distressed and stated a ” goal of keeping distressed mortgage borrowers in their homes when possible.
- In order to demonstrate that it would not be a soft touch, Bank of America, like many other mortgage lenders, started aggressively repossessing the collateral of the defaulting mortgage borrowers, their houses, hiring law firms specialized in high-volume low-cost litigation to act as their agents.
- Lawyers engaged by defendants in these cases soon found questionable patterns in loan origination and foreclosure proceedings including even outright fraud (multiple instances were uncovered in which Countrywide loan assessors advised would-be borrowers to falsify their mortgage applications) .
- For example, U.S. owned Government Sponsored Entities (GSE’s) Fannie Mae and Freddie Mac strongly encouraged banks to use pre-approved foreclosure law firms , at least one of which was led by an attorney
Simply put, lenders and banks are just as motivated as homeowners to dodge the foreclosure process. Across a multitude of states, they are offering options to homeowners to have a shot a making good on the missed payments to avoid foreclosure process for themselves and homeowners, giving both parties a benefit of the doubt when this situation arises.
If you do have delayed mortgage payments coming due, check out some of the options below from Malloy Evans, the SVP of Fannie Mae.
Delayed mortgage payments coming due? These are your options – CNN (cnn.com)
- “If you have gotten back into a new reality, then it will be a conversation around what your circumstances are,” said Malloy Evans, senior vice president and chief credit officer at Fannie Mae, which backs loans covered by the CARES Act.
- Evans stressed that those covered by the CARES Act are not required to pay the deferred amount in one single balloon payment.
- ” If you really need to keep your monthly payments the same or even lower than they were prior to the forbearance, you could ask for a loan modification, which will add the amount you owe to the end of the loan.
- Even if your hardship has passed, you’ll want to be certain you are ready to regularly make payments if you exit your forbearance plan.
This might not be an option for homeowners who find themselves in dire staits with their current financial situation.
What would you be able to do if you know in your heart of hearts that you’re not going to be able to make up the missed payments, and the bank has rejected any of your loan modification or short sale options?
Is there a possibility that you could give your home back to the bank or lender to avoid foreclosure process and the black mark on your homeowner record and credit score?
There may still be hope to get out of that corner and get back on your feet, so let’s explore some of those options and see what can be done for you regardless of your current situation.
First off, we believe you should understand your foreclosure rights before exploring your options. Here are some reputable sources we recommend for understanding your rights as a homeowner prior to engaging in any type of relief.
Get reliable foreclosure help and counseling through the government’s Making Home Affordable program . Or find a government certified housing counselor near you. (usa.gov)
The Coronavirus Aid, Relief, and Economic Security (CARES) Act offers mortgage relief for homeowners with federally backed mortgages. The act offers a foreclosure moratorium and the right to forbearance if you are experiencing financial hardship due to the COVID-19 coronavirus pandemic. If you do not have a federally backed mortgage, contact your mortgage servicer to discuss your relief options. (credit.com)
If you’ve fallen behind on your mortgage payments, the threat of foreclosure can become overwhelming. Struggling homeowners might feel inclined to simply accept their fate there’s no getting out of foreclosure, right? But when it comes to mortgage foreclosure, remember that you have options. (credit.com)
Can I Return My Deed in Lieu of Foreclosure?
The short answer to this is yes, you can return your deed to the bank in order to avoid foreclosure, using a process called deed in lieu of foreclosure. SFGate has written a wonderful guide to help homeowners through the process, an excerpt and link have been provided below so you can get other expert 3rd party information about your options when foreclosure is on the line.
Can You Forfeit Your House to the Bank Without Foreclosure?
When it becomes clear that you can no longer afford your home, you can arrange to forfeit ownership to your lender — only if your lender agrees to take it. A deed in lieu of foreclosure, also known as a deed-in-lieu, cancels a loan obligation… (homeguides.sfgate.com)
Before going down this road and going with this option however, take a look at other options at your disposal, like loan modification, selling the property, or a lesser known option, commonly referred to as a short sale.
If you feel like you’re cornered and don’t have any other option at your disposal, deed in lieu of foreclosure would let you sign the deed to the bank or lender in order to rid yourself of the house and any financial responsibilities you agreed to, which will also cancel the remaining balance on the mortgage so that you’d be able to move on and find another living arrangement.
Pros of a Deed in Lieu of Foreclosure
You might be asking yourself at this point: why would I consider the option or possibility of giving my home back to the mortgage company in this fashion? One main reason being that the foreclosure process can be a drawn out, lengthy and exhaustive process, but a deed in lieu of foreclosure option give you an opportunity to save time, money, and energy in having to go through with the proceedings.
As previously mentioned, this will save you from the expenses, fees and headache of the foreclosure process in the long run, while also being an extremely expedient way to get out from being underwater in debt and having the capacity to move on with your life and not worry about it anymore.
Cons of Deed in Lieu of Foreclosure
So with all of those excellent pros in your favor, why wouldn’t you take this as an option to get out intact? One of the big factors is that if there’s another route to become debt free, like selling your home the traditional way, you could avoid some serious roughing up of your credit score. Although the ding is less than the penalty that the foreclosure would carry with it, returning a house to the bank would have a severe negative impact on your overall credit rating and score, which would take time to repair and recover from.
Having a deed in lieu of foreclosure on your credit report usually translates to you having to wait several years before you can apply for another mortgage on a new home, which may upset your strategy and upend your current lifestyle if you’re unaware of it.
The average wait period with a deed in lieu of foreclosure is 4 years from date of completion of the process, but is still better than the average with foreclosure, which is approximately 7 years.
Lastly, one of the biggest consequences of committing to a deed in lieu of foreclosure process is financial loss from the process. What we mean by that is that yes, your debt will be negated, but in the process you have to give up your home, and any appreciation that may have occurred during the process in an attempt to raise the home’s value.
How to Complete a Deed in Lieu of Foreclosure
When doing a deed in lieu of foreclosure process, it’s not as easy as signing off on the contract, giving the bank their house and letting them know the keys are in the mail. That’d be awesome if they did it that way, but it doesn’t work like that. Financial institutions are old school like that, so we have to go about this their way, even though the other way would be super easy.
Unfortunately like every other financial transaction on the planet, there are rules and regulations we have to play by and a process they want us to abide by, and the whole thing has to kick off officially before the foreclosure process can begin.
Even if you think your home won’t sell, we highly recommend you put it back on the market. By doing this, you show the bank and the lender that you’re ready to do whatever it takes and explore all potential options in order to make yourself financially whole again, and address your debt issue head-on. Keep in mind that the banks and lenders won’t agree to a deed in lieu of foreclosure unless you’re exhausted every possible option except for foreclosure, so this lets them know you’re ready to play ball, so to speak.
Next up, check and make sure you’re actually behind on your mortgage payments by having a look at your mortgage staement, as you can’t actually go through and commit to a deed in lieu of foreclosure unless you’re actually behind in your payment arrangement with your financial institution or lender.
Unless you do this, the bank is going to assume business as usual, that you’re not really at risk for foreclosure, and politely request you continue making payments by contacting you in every possible form of communication on a regular basis.
Ideally, you’d need to be at least 30 days or greater into missing monthly payments before they’d even entertain the idea, so check the statement so it doesn’t look like you’re playing homeowner who cried deed in lieu of foreclosure.
After making sure that you’re in fact behind on your monthly payment for your mortgage, you’d need to pull together whatever documents you have as proof of your current financial situation. Normally this starts off with a verifiable proof of income, usually about two pay stubs to account for the past 30 days.
Now, some of them might want 60 days or 90 days of proof depending on how long you’ve missed your monthly payment, but that’s their program and they’re sticking to it. Remember, we said banks and lenders are old school, so they play by old school rules when it comes to foreclosure proceeding.
After that, you’re going to want to get your tax returns in order, because they’re going to want those, too. Another way of doing this is showing an expense statement of your current financial situation, coupled with a few monthly bank statements to get the green light for the deed in lieu of foreclosure process to begin.
All of these aforementioned documents will give your bank or lender undeniable proof that you simply can’t afford to keep paying the mortgage, and the process begins.
The next step in the process that you’re going to have to do is write a hardship letter, explaining to your bank or lender what’s going on with your financial situation and that you’re unable to continue making payments on your mortgage.
Write up anything that may be applicable to your situation to set up a foundation for your case. Situational problems in a hardship letter like extreme illness, job loss, death of an immediate family member are permissible in the hardship letter you’re writing up.
Keep the letter concise Typically, lenders spend less than five minutes reading a hardship letter so it’s in your interest to restrict the letter to a single page. If you use more than a page, there’s a good chance that your letter will not be read thoroughly. To keep your letter to a single page, include those details that you think are relevant to your case. To get a better idea of what to include in a hardship letter, refer to a sample hardship letter. (templatelab.com)
Explain your situation In a financial hardship letter, you need to explain why you stopped making mortgage payments: This is extremely important. More than anything else, you need to convince your lender that you’re not an irresponsible person when it comes to making mortgage payments. You need to show the lender that your current grave financial situation is the only reason you’ve fallen behind on your loan payments . The reasons that cause loan payment problems which you can cite in your hardship letter are mentioned above. (templatelab.com)
You can find some excellent information about hardship letters at the link below to ensure you’re doing it right and not wasting your time.
At this point, it’s up to the lender to decide on whether or not they will accept your request. The first step for the lender is to perform a title search, as they normally only perform a deed in lieu of foreclosure on a first mortgage.
If you have multiple mortgages on the property, you may be possibly denied, however if there are no other liens on the property, the lender will get a pricing opinion from a broker to determine actual market value of your property, which ultimately brings them to their final decision.
If there are no other liens, the lender will as for a broker’s price opinion to determine the property’s market value, which leads to the final decision. You will receive a notification from the bank about your approval or denial based on all of this information.
Factors to Consider
If you’re going to attempt to give your house back to the mortgage company through deed in lieu of foreclosure, you have to keep in mind that the mortgage company doesn’t have to agree to it at all, they still hold the note and have last right of refusal on anything.
The appeal process you’re looking to go through can be denied for a myriad of reasons, some of them include:
- Agreeing to a deed in lieu of foreclosure isn’t going to be profitable for them. Remember, they’re a financial institution, they exist to make money.
- The home was appraise to less than they would be willing to accept.
- There are other outstanding items on the property, like encumbrances, judgments, or loans that you currently have. This is usually a big one when it comes to denial of deed in lieu of foreclosure.
- The deed in lieu of foreclosure is prohibited by your purchase and sale agreement from the time of signing.
If the approval process does happen in your favor, you will have to get a notary involved at the time of signing the title transfer. Once this process has occurred, you’ll be ready to move forward with the rest of the process.
Is All Of This Making Sense To You?
If you’re a homeowner who’s run into financial dire straits, the choice of returning a house to the bank to avoid foreclosure in the mortgage loan process should be a no brainer. But, this is very much an active and proactive transaction, so you’ll need to do all the legwork and prep before the foreclosure process begins. This process is also only available to you in the correct circumstance and only to be used as a last resort when all other options have been exhausted.
All of that being said, there’s always another way to get out of a house you can’t afford anymore. In order to maximize the pending foreclosure situation, you might want to consider selling the property in a differen manner. Selling your property to EveryHouse is a far superior option than a short sale, a deed in lieu of foreclosure, or a standard foreclosure.
Selling to Everyhouse would have no impact or damage on your credit score, and is far more profitable to you as a home seller. You would be able to sell your property far quicker and with less stress than a deed in lieu of foreclosure process. Contact EveryHouse if you’d like to learn more about our quick, no hassle and convenient home selling process.