Mike’s Real Estate Show

Questions and Answers over Property Foreclosures
by Nicolla Moore
In today’s real estate marketplace, the number of property owners who are behind in their mortgage payments has dramatically increased. The number of default notices and foreclosures is also rising. Unfortunately, a significant number of property owners who are in danger of losing their homes instinctively take actions which are detrimental to maintaining their property. Property owners need to be educated about the financing options available to them. Implementing the proper strategies early on is the key to helping property owners preserve their investment and protect their credit.

Scott Sawyer, Executive Vice President of Vendor Relations for I Short Sale, Inc. is a twelve year veteran in the default mortgage and loss mitigation industry. In this exclusive interview, Sawyer shares his expertise in providing financing solutions which create “win-win” outcomes for both lenders and borrowers.

Question: When borrowers get behind in making their mortgage payments, many don’t feel that they can contact the lender. In fact, they often actively avoid the lender. Why is this such a big mistake?

Answer: From the lender’s standpoint, we have many options we can offer the borrower that the borrower is usually unaware of (which is one of the reasons why they actively avoid us). Whether they can afford to stay in the home or not, foreclosure is not the right solution in either case. It’s not a way for them to get out. There are options for them to keep their home if it’s affordable to them and there are options for them to get out of the home if they can’t afford to make payments any longer. That’s where the mistake is made — there are options available to the borrower, but in most cases they don’t seek those options.

Question: How would you describe the relationship between lenders and borrowers? Aren’t they dependent upon one another in terms of working together, especially when problems arise?

Answer: The biggest concern is that a lot of times when a borrower is going into default, instead of turning to their lender as their partner and saying, ‘I need help. What should I do?’ They sometimes turn to outside options like bankruptcy attorneys, thinking it’s their only option. The most important thing in working together with their lender is that they learn there are better options for them that wouldn’t harm their credit as much and wouldn’t be so detrimental to their future.

Question: Most borrowers don’t understand this, so they panic and run in the opposite direction, don’t they?

Answer: They have this view of the bank as the “big bad lender” who wants to take their home. The last thing the lender wants is their home. Something that I always urge people to understand is that the bank does not want your house in any form or fashion. That is actually the worst option for both the borrower and the lender.

Question: Most borrowers really don’t understand the lender’s perspective in a default situation. What’s at stake for the lender?

Answer: The lender has a secured interest in the property, but if we have an asset that is not making any money for us it puts us in jeopardy. The borrower looks at the situation like, “Well, the bank is huge. They have lots of money, so my house is not going to harm them.” However, as a lender, the more loans we have in our portfolio that go into default the more at risk we are as far as maintaining our cash flow and it puts our financial situation in jeopardy as well.

Question: What are some options a lender may provide to borrowers who have fallen behind in their payments?

Answer: We definitely have to get them to their loss mitigation department, which most every lender has. In loss mitigation, we send out a financial package for the borrower to complete to get a good picture of where the borrower is at today. Let’s say they’ve had the loan for five years. If I pull the original file, looking at their original financials means nothing because their lives could have changed dramatically in five years. We then see if the ability is there for the borrower to make the payment. Modification or forbearance agreements are good options to help them get their loans current and keep them in the property.

If the borrower cannot afford to make the payment and they know they are going to lose the property through foreclosure, a good option is to get them to list the property and possibly do a short sale if they owe more than what the property is worth. If they owe less than what it’s worth, obviously selling the property and getting the equity out would be a good option. Often a borrower will want to do a deed in lieu, where the turn the property back over to us. In doing a deed in lieu, usually the borrower doesn’t have a whole lot of equity, but they don’t have a lot of time either with a foreclosure encroaching on them and they just want to give the property back. These are all options that are available through loss mitigation to assist borrowers.

Question: You mentioned short sale as one of the options for a borrower. How do most lenders view short sales?

Answer: For the lender, since the property is already upside down, meaning more is owed on the property than it is currently worth, and the borrower can’t make the payment, one of two things is going to happen: 1) we are either going to do a short sale and agree to sell the property, or 2) we are going to foreclose on the property. If I have a borrower who is willing to work with me — let’s say the property is worth $500,000 — and they are getting an offer for $400,000 and that is truly what it’s worth today; then they sell it, close in thirty days and pay me back, I can take my $400,000 and lend it to another party on a new loan that is going to make money.

Now if I go the foreclosure route the difference is that it will take me six months to a year to get the process done and get the borrower out of the house. I then have to look at the property — does it need work? Does it need property preservation? Is there damage? Are there delinquent taxes? All these different aspects need to be considered. At that point, after I’ve foreclosed on the property, in addition to making any needed corrections, I also have to carry the property the whole time it is being listed and marketed for sale, which means there is another period of time that my money is out there and I’m not getting paid.

Question: You also mentioned forbearance agreements and modifications. What are these options and how do they work?

Answer: A forbearance agreement is when you take the delinquency on the property when the borrower has gotten past due, have them submit their current financial information and set up a plan to let the borrower pay their monthly mortgage payment along with a portion of the delinquency until they get their loan current. They pay a little more to work on catching up their delinquency. Once the loan is current they go back to regular servicing and just make their regular monthly payment.

If I look at their financials and they have the ability to pay their regular mortgage payment, but they really don’t need a bigger payment because they don’t have the extra amount each month that a forbearance agreement would require, then I would put them on a loan modification. They still have the ability to afford the property and make the monthly payment, but they don’t have the ability to pay extra. The loan modification is when you have a written agreement between you and the borrower and it changes one or more terms of the original note. You can add the delinquency to the balance, you can extend the maturity date out to possibly get the payments a little lower, or you can change the interest rate if necessary. There are lots of options, but the most common is to take the delinquency, add it to the end of the loan and reset the maturity date. The borrower then goes back to making their regular monthly payment.

Question: Some property owners opt to vacate the property when they find they can no longer afford to make the payments. Why is this not the best approach to take?

Answer: In this case, borrowers likely think to themselves, “Okay, I can’t afford it and I have to get out because the bank is going to take it,” and they go find somewhere else to live. If they had known about the potential options available to them through the lender they may not have had to move. Even if they have to move out due to pending foreclosure or short sale, we can at least give them time to transition from the property. A vacant property is never a good asset. It’s subject to damage from vandalism and looting. While the home is occupied it is generally being kept up — the lawn is being watered, the pipes aren’t rusting out because they’re not being used and the house is not being broken into because it looks vacant.

Question: Is refinancing an option for a proactive borrower who contacts their lender to talk about their situation?

Answer: Yes, it is. However, for borrowers who have got some equity, yet they are delinquent and just can’t get the amount of money they need to catch up, if their loan is not so good, the rate is not that great and everything is not where they would like it to be, I suggest they go ahead and refinance the whole thing because that way they take the delinquency and the loan balance and get a new payment; then they’re back current again. There is also the option of getting a short term or long term second mortgage. They may pay a point or two more in interest but if they’re only borrowing $10,000 just to catch up on their $150,000 mortgage, they’re borrowing at a higher interest rate. If their first interest rate on the loan that is in delinquency is a good rate, why change that for a rate that is not going to be as good? Just get a second and get yourself caught up, or possibly even consolidate some additional debt to make your life a little easier.

Question: Where can borrowers turn for expert advice on their financing options?

Answer: The best option for borrowers is to call their mortgage company. Talk to the lender and see what they have available to you. If you don’t get enough options through them, contact a consumer credit counselor, a non-profit consumer agency that helps people alleviate their debt, and see what options are available. There are consumer credit agencies all over the country.

Keep in mind that the best option is to start with your lender. Lenders have so many options available to the borrower that there is no reason to hide from them. They are there to help you. The last thing they want is no contact with you and to have to take the house back. That is exactly what the bank does not want.

Question: What are the options and services that your company, I Short Sale, Inc. offers to clients who may be facing the prospect of losing their home?

Answer: We consist of a group of people who have all worked for lenders in the past doing loss mitigation, for instance. We come with years of experience at this and we educate borrowers about what their options are. In most cases, their lender has not told them about what they can do for them. Unless you work for a mortgage company why would you know what options are available? Hence, the borrower is left in the dark and they come to us for assistance.

We educate the borrower on their options, then we go through the financial package with them and we discuss with them the options that may work best in their situation. We help them implement the option that works best for them. For example, we help them get their property listed and negotiate the short sale for them. The idea behind I Short Sale is that we are there to assist those borrowers to get them through the negotiation with their lender because they don’t really know what to do with the lender. We get their deal closed, whether it’s a short sale or other solution and either we get them out of their debt because they can’t afford it, or we develop a payment plan to get them caught up so that they can stay in their home.

Question: What is the best way to create a “win-win” for the lender and the borrower in the case of a property in default?

Answer: A lot of people don’t like to state their financials because they’re afraid to look at it. My number one “win-win” for the borrower and lender is to educate the borrower on what to look at regarding their financial situation to determine a definitive “yes” or “no” answer on whether they can afford the property.

I educate them on whether there is a way for them to save the property or a way for them to get out of their debt. The reason this is also a “win-win” for the lender is because when the lender understands the borrower’s financial situation and the borrower accepts and acknowledges their financial situation, now we know which way to move forward in partnership and either sell the property or maintain the property. That is a true “win-win.” It’s basically turning on the light for everyone involved to see the best course of action.

Question: Any other advice?

Answer: Never be afraid to contact your lender. Contact professionals who can help you so that you don’t end up making a mistake and risking your financial future.

For more information on short sales and other financing solutions offered by I Short Sale, Inc. call 877-907-4678.