By Ken Tibesar, CDPE (Certified Distressed Property Expert)

Licensed Realtors^® that have the designation Certified Distressed Property Expert are available to assist the estimated 1 out of 8 home owners facing foreclosure.

The current U.S. housing market and financial crisis have caused tremendous stress and heartache for families across America. Chances are this crisis has impacted someone you know, a friend, family member or coworker. Across the U.S., communities have seen an unprecedented number of home foreclosures. There are ways to avoid foreclosures but the homeowner needs to act early in the process. Assistance is now available from Realtors^® that have been trained to assist home owners in avoiding foreclosure. There is no up-front fees and no obligations for this assistance.

Besides the traditional issues that caused foreclosures such divorce, medical emergencies, illness and death of a spouse, the recent down turn in the economy has resulted in job loss and under employment. Foreclosures are also on the increase due to creative financing written in the early 2000’s resulting in financial problems that show up at pre-determined times during the loan. Families are faced with mortgages that are “resetting” resulting in monthly mortgage payments that can as much as double from one month to the next.

Unfortunately 7 out of 10 homeowners facing foreclosure proceed without the assistance or advice or any professional. More than 2/3’s of the home owners do nothing and simply wait for the foreclosure date. Others try to supplement their income using their savings to keep up with the monthly mortgage payments waiting for a change to their financial problems or a change in the home market values. It is best for the homeowner to find an advocate to avoid foreclosure but they are uncomfortable in asking for help and besides there are so many scams that take advantage of the homeowners in distress it is difficult to trust anyone that claims to be there to assist.

To assist families with their financially distressed homes and avoid foreclosure, I have joined a group of Realtors^® that have a Certified Distressed Property Expert^® (CDPE) designation. I have trained extensively to understand the options, solutions and effective methods to assist homeowners in avoiding foreclosure. As a Minnesota licensed agent, a Realtor^® provides a trustworthy and reliable resource that operates under the jurisdiction of the State Commerce Department. Don’t risk your financial future and the sale of your financially distressed home with a Realtor^® who does not have the CDPE designation.

How Did We Get Here?

In the early 2000’s, home values appreciated rapidly until 2006 when the housing market crash caused home values to drop. Prices have now reverted to where they were in 2001. The Twin Cities market is expected to fall another 5% between now and June 2010 followed by a relatively flat market with a multi-year gradual increase. Economists predict that it may be well beyond 2020 before the home values return to the 2006 levels.

Creative mortgages written in the early 2000’s were used to qualify homeowners for loans that they would not otherwise qualify. Many of these loans were given to individuals who had no intentions on making payments. In one Twin City community, 70% of the home loans had either one or no payments on the mortgage prior to its foreclosure. Creative loans have monthly payments based on the index and margins. The index is based on prime lending rates (LIBOR is most common) whereas the margins are adjustments built into the loan and adjusted at given time periods during the loan. Even if the interest rates remain stable (which is uncommon), house payments can increase when margins are adjusted. One example of this is a “pick a payment” in which the home owner decides monthly which one of 4 types of payments to make. They can make a 1) minimum payment (less than interest only), 2) interest only, 3) 30 year fixed or 4) 15 year fixed. A payment for a $200,000 loan can vary from $660 to $1,828 per month. At a predetermined time into the loan, the home is appraised and the loan is “recast” where Appraisals on homes today are much lower than the appraised value at the time of the loan. The home loan balance almost always exceeds the appraised value resulting in new monthly payments that are significantly increased. The increase is required to “catch up” with the “up-side-down” condition of owing more than what the house is worth. The new payments are impossible to achieve for many home owners and the process toward foreclosure begins.

What are the Consequences of a Foreclosure?

You hear home owners facing foreclosure say “It is not a big deal. A few hundred points on the credit score besides I get to live in the house for more than 6 months free”. There are many impacts that a foreclosure has on credit and related issues which can impact a home buyer for many years. It is best to avoid a foreclosure (and definitely avoid bankruptcy) because:

1. Any future mortgage application will require disclosure of a foreclosure.

2. Credit scores will be lowered by 300+ points.

3. A foreclosure is the one credit report that is almost impossible to repair.

4. Lenders can seek a foreclosure by action deficiency judgment although Mn typically uses a Foreclosure by advertisement and no deficiency judgment.

5. Credit checks are used by current or potential employers.

6. Many jobs require a good credit score especially government positions.

7. Credit scores are used to set payments on items such as your auto insurance.

8. Foreclosures only relieve the 1^st mortgage. A 2^nd or 3^rd mortgage is NOT forgiven and a deficiency judgment can be issued after foreclosure on the 1st.

What can be done to Avoid a Foreclosure?

There are ways to avoid foreclosure listed below. The “Vacate” column indicates options that require the homeowner to vacate their home. If a homeowner want to stay in their home, access to additional funds will typically be required with some exceptions.

Which Option makes Sense?

The option that you use will depend on your situation. A military family can take advantage of the Service-members Civil Relief Act of 2003. If there is equity in the home, selling the property using the traditional home sales process may be the best way to reduce the financial distress. Hopefully the home owner can sell the home and have enough funds remaining to have make a down payment on their next down-scaled home.

One of the more attractive options is the Loan Modification option. There are several restrictions and relatively few homeowners in this category will actually qualify. This refers to the Obama administration’s new mortgage rescue plan. The home owner negotiates with their lender to reduce the mortgage rate. This requires significant qualifications and across the U.S. has only been used to modify approximately 1700 loans since it was introduced.

A Short Sale is the most commonly used option. Although it requires the homeowner to vacate their home, it provides the best way to get out of the financial distress with minimal impact. A homeowner cannot decide on their own to have a “Short Sale” on their home. A Short Sale requires negotiation with a lender before the sale of a home can be considered a “Short Sale”. The homeowner has to prove a hardship which is then reviewed by the lender and the home owner is approved for a “Short Sale”.

In a Short Sale, the homeowner has the opportunity to have a portion or all of their debt relieved by the lender. The impact to the individual’s credit score is minimal and related consequences or curtailed. Home owners that accept their current situation and cooperate with the bank are in the best position to recover from their financial distress in minimal time. The bad news is that they will have to vacate their home and find a new place for their family to live.

Advantages of a short sale are:

1. Your Credit score is lowered by as little as 50 points. This is dependant on the number of late payments and back payments history.

2. There is no report of a short sale to your credit history.

3. This is not reported to employer since it is not reported on credit history.

4. You are eligible for a Fannie Mae backed mortgage after 2 years.

5. There are no records of the Short Sale on your credit score reports.

Short Sale Qualifications

A Short Sale request must be submitted to a lender and a “hardship” proven. A hardship is a material change in the financial situation of a homeowner that is or will affect their ability to pay their mortgage. If the homeowner has liquid assets, they will be expected to use them to pay down their mortgage. A Short Sale is a tool for a borrower to use when they truly can’t pay their mortgage.

Acceptable hardships include:

1. Loss of job or reduction in job and pay

2. Business failure

3. Damage to property – insurance does not cover the full repair.

4. Death of a spouse – loss of income.

5. Server illness and resulting medical bills

6. Divorce or separation

7. Military service – use of the Service-members Civil Relief Act

8. Payment increase or mortgage adjustment

9. Too much debt

10. Incarceration

How does a Homeowner Get Help?

The key to preventing a foreclosure is to recognize your financial distress early in the process and seek qualified assistance. It is estimated that most homeowners can only maintain their current living less than 60 days after experiencing a hardship. As a Realtor with a CDPE designation, I have the knowledge and process in 1) assessing the current situation and 2) determining the next step. The options are reviewed and the best option for the situation is selected. Next is to assist the homeowner in working with their lender to negotiate a mortgage modification or a settlement. There is no obligation of any kind in using my services. There are no upfront fees and no fees of any kind required from the homeowner. Realtor fees are only collected from the bank proceeds if the house is sold.

If you would like to find out more about avoiding foreclosures and get FREE downloads, go to the below website. The free downloads include a paper on 1) Mortgage modifications, 2) Short sale qualifications and lots of other resources and references.

Go to http://hosted.cdpe.com/KenCanHelp

There is also assistance available on my Real Estate Website at

www.KenTibesar.com

Please feel free to call with any questions or to setup a meeting.

Ken Tibesar

Coldwell Banker Burnet

651-263-0522 ;