Finding Alternatives to Home Foreclosures
Foreclosure, short-sales, REO sales, trustee auctions, deeds-in lieu ” what do all of these technical words mean?
Last month, Lisa Sennott and Diane Corvo, both with Pinnacle Real Estate Group in South Lake Tahoe, attended the Frontline Real Estate Institute Seminar entitled “The Foreclosure Specialist.”
Armed with insight gained at this cutting edge conference, Sennott and Corvo are well versed in the California foreclosure market and recently offered some insight into what may be ahead.
“Adjustable-rate loans are about to re-set at mass volume,” said Sennott, a licensed California attorney and real estate broker. “Homeowners who can no longer afford to keep their mortgage payments current need to know that there are alternatives to bankruptcy and foreclosure proceedings. And these homeowners have options if they act sooner than later, if they become educated on these alternatives before it is too late.”
One alternative is, simply, mortgage re-finance. Even if the terms of the loan prohibit re-financing, or provide for a pre-payment penalty, borrowers are highly encouraged to explore this option.
“Everything is negotiable” maintains Corvo, a long-time Tahoe resident and veteran real estate broker. “A simple phone call to your lender could go a long way these days”.
Banks are facing un-chartered territory, and their loss mitigation departments are becoming more flexible, and more agreeable to simple loan modifications.
The reason why is a bank loses an average of $60,000 each time it acquires and sells an REO (bank-owned) property. There is a huge incentive for banks to get creative and agree to foreclosure alternatives such as loan modification.
Another option available to distressed homeowners is a short sale. A short sale is when the borrower can’t maintain mortgage payments, and the bank allows the property to be sold at a loss, instead of going through the foreclosure process.
With a short sale, the borrower can walk away with his credit mostly intact. There are tax consequences, however, where the difference between the loan balance and purchase price could be treated as ordinary income to the homeowner, according to the IRS. Consulting with a CPA or a tax attorney is always recommended when doing a short sale.
“This seminar really stressed the dire straits of today’s real estate market, and according to these professionals, it is just the tip of the iceberg,” said Sennott.
The number of recorded notices of default is up approximately 250 percent from a year ago. And this trend is expected to continue through 2008.
Education is the key to all of this, and homeowners, and even homebuyers, can really benefit by learning about their options. Sennott and Corvo are both California real estate brokers with Pinnacle Real Estate Group. They can be reached at (530) 543-6676.