Foreclosure question?
Question:
Wait for Gregg to answer this question. He has alot of answers for the situation your in.
Do you have at least 30% equity in the rental property? If you do, I would sell it to an investor because chances are you could get cash back.
If they can't afford the home they are in they must sell it or give it back to the bank. Even if you had equity you're just delaying the inevitable. If the rental property is more affordable I suggest they move into that property, take some cash out on an equity line (before their credit gets bad if it's not already) and let the other house go. If they are severely delinquent have them call the bank and negotiate a "short sell" price (less than what is owed). This may spark someone's interest. Maybe someone will bite on the offer and your parents are off the hook. That is really your only options. The neg am loan is going to keep adjusting. If they are making the "neg" payment each month there is no light at the end of the tunnel. Try to refi the 2nd home into a long term ARM or fixed. Try calling the bank and see if they will "re write" the loan on a fixed program.
This is not a simple question to answer. Your best bet is to sit down with a knowledgable and reliable loan officer in your area to see what their options are before they lose any more equity in their property. I am also working with a journalist with the Wall Street Journal that may be interested in their story. It's a shame that it happened but meet with a lender and see what they can do. I may be able to provide you with a free consultation depending on your state.
Also, what happens after foreclosure depends on your state as well.
Good luck.
Another example of why the lending industry will likely face even greater oversight by government. This is not to say that your parents didn't play a significant role, but nonetheless, the situation is what it is.
First, have them contact the lender and explain the situation..there will be no more payments coming in. Ask the lender if they want to foreclose or work with you on a "short sale." Anything short of a yes from the lender, tell them you'll put the keys int the mailbox for them. To keep throwing good money after bad is ludicrous. Neither foreclosure nor bankruptcy equals the end of the world. They will have to rebuild their credit one month at a time.
Wow...that is a bit of a pickle, eh?
If I understand the situation correctly, your parents have one house, where they live, with an adjustable rate mortgage. The second house, a rental, has some equity.
It is possible to take out a home equity line against the second property and use that to pay down the refinancing costs on the first property.
Unfortunately, this is a situation that many people have found themselves locked into when they weren't aware of the consequences of the adjustable rate mortgage. Provided that their credit is acceptable, this would probably be the best method to maintain possession of both properties.
As for the foreclosure option, you would be best to avoid that if at all possible. Any foreclosed property can be resold for market value, potentially costing even more money to your parents. Foreclosure costs would be added in to the money owed, with no property to stand behind it. For example...
Cost of house: $250,000
Foreclosure cost: $10,000
Price of house at auction: $200,000
Your parents would be on the hook for the difference in the loan and selling price ($50,000) plus the cost of foreclosure, totalling $60,000. Not a good situation to be in...because then liens would be applied to the existing property (their 2nd property) which could not be sold until the lien was satisfied.
Can you see the problem with that? I hope my explanation helps a little.
That is a shame. The best long term information you will receive is that you should NEVER do this yourselve when you are their age. Learn from the experience that property does not ALWAYS go up to a never-ending cloud in the sky. Also, you don't get something for nothing, if you don't understand something - someone else smarter than you probably does --- so why are you getting the deal, and finally -- money has time value!
This is a bad market where if you need to sell to an investor you need to underprice the home 20% off market value to sell unless it's located in a very desirable location with great schools and affluent neighbors (those sell faster)
to save on money and stop retirement $$ drainage, I would stop making payments on one property and short sell it..
Short sale: You can sell the property and lenders may agree to accept less than you owe. This saves you from having a foreclosure on your credit record.
but you can also do the following things
Forbearance: Lenders may let you make a lower or no payment temporarily—say for three to six months. You’ll likely have to make higher payments when you start paying again to bring the loan up-to-date.
Repayment: If you’ve recovered from your crisis, lenders may allow you to pay more each month for a set period to make up missed payments.
Modifications: Lenders can reduce interest rates and extend loan terms to reduce the monthly payment.
************* SORRY LONG POST, SHORT AS I COULD MAKE IT ************
Wow.
How old are you? You seem extremely mature and bright. Okay you dont have to answer the question, you question seemed well thought out.
Okay I agree with pretty much with what Greg said. Just a few things I wanted to add. I agree with Greg you should get out of the primary and move into the investment. Try and get a new loan on the second and the first go or try for a short sale. It sounds perfect but you might run into a couple problems.
First concern, you said both propertys were Neg Am loans done by the same loan officer. Im worried that the Primary and the Investment home are with the same lender. I dont see them giving you a short sale on one if the other has equity. Sure they are different and they cant foreclose on both unless both are in default. But they arent stupid either.
Second Concern, you mentioned that the Investment house was up for sale. Its going to be almost impossible to get a loan if the home has been up for sale in the past 6-12 months. Lenders wont do them, for odvious reasons.
Third Concern, Greg mentioned a Home Equity loan on the Investment property. Sounds good, but it goes back to my second concern, I dont think you can get a new first. Without getting a new first, there is no way you will get a Stand Alone second on that property even if it was now your primary residence. I do loans with over 200 wholesalers (well havent checked htis week, might only be 100 now) but none of them will give you a second behind a Neg Am loan.
Fourth Concern, you havent brought up if there are prepayment penalties. Most Neg Am loans and Interest Only loans have them. What are you going to be able to do, can you pay it off with a new loan? Ive never done a Neg Am loan or an Interest Only loan I refused (not that im better then anybody else, but everybody knew this was going to happen).
Here is my only suggestion and its not cheery. You need to find a damn good loan officer (clearly not the one you used last, keep your documents on him and sue that company before everybody else does) okay im kidding. sorta. These are the questions you ask the new loan officer.
1. Ask the loan officer if he/she runs their own DU/LP (they dont know what that means or dont run their own, find another one), what DU/LP means is they underwrite the file on a computer. I had to run one 20 different ways yesterday to get it approved. An underwriter will never take the time to do that, you have to have a good loan officer.
2. Make sure they are FHA approved. If they arent, find one that is. They have more programs and you are more likely to get an FHA through then a Fannie Mae/Freddie Mac. You will have to make sure you are withing limits for your county. The loan officer will know.
3. Work on the short sale, have them call tomorrow. Get a loan officer to work the DU/LP tomorrow they can tell you by the end of the day if they got a DU/LP approval. With that they can take it to any FHA wholesaler and its a good loan. One good thing about FHA is they allow 95% cash out, with interest penalty.
My personal opinion is you try and get the investment as a primary residence, change the loan if you cant. Work on the short sale, if you cant get a short sale try and rent your current primary residence. You might need to so you can qualify to refinance the investment property to a Primary Residence. Im still worried about my 4 above concerns. Your loan officer will have the same, but you need to start now. He/She can help you work through as many as possible.
I assume your rations and credit were good, they would have had to been to get 2 Neg Am's including a Neg Am investment (very rare) unless your loan officer lied to the lender. Im having major issues with old loan officer right now. I cant see how he could morally do this, let alone legally. The loans dont make sense to me.
Get a good loan officer. Pick somebody with alot of experience in short sales (you might need their help), as well one that knows alot. You need a really good loan officer that works at a brokerage that can find you as many options as possible.
Good Luck. I wish you the best. I suggest printing all of these reponses and find a Loan Officer that not only agrees with them but understands where your loans are at.
You can email any of us on here, you would be amazed at how many loan officers are upset about what the few bad loan officers did to the market. I literally dont know 1 loan officer that did a Neg Am or Interest only loan. And I know a ton of loan officers. Its just amazing to me.
Just to correct one thing.
You don't "give a house back to the bank." The bank never owned the home. You and the bank did not purchase the home together.
If you default on a loan, the bank will foreclose and take possession of the home. That would be the first time the bank has any ownership interest in the home.
You force the bank to foreclose if you don't make the payments, and the bank will take the house. To state you "let" the bank implies the bank wants to do this. Banks do not want your home. Banks want to be repaid the money you borrowed to finance the home.
"Let the bank take back the house" makes it sound like this is a choice that is just as viable as making the payment. It is not. You trigger foreclosure by not making the payment on a loan. In foreclosure, the bank is forced to take the home because it is no longer getting paid.
I have helped many people like your parents. Check this out it may help!
http://marksaveshomes.com
Good luck
Mark
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