Foreclosure laws vary in each state. The view the law for your state, visit www.foreclosurelaw.org. The basic process, however, is pretty much the same.

The lender will notify the homeowner mail that the loan is in default. Default means a debtor has not paid a debt which he is required to have paid. The homeowner will be given a certain amount of time to pay the overdue amount plus fees and reinstate the loan. This is paying all past-due installments and bringing the mortgage to a current status. If the homeowner does not comply by the given date, the lender will proceed with the foreclosure by filing a lawsuit to get permission from the court to sell your property.  If the court finds for the lender, you will be given a notice of a foreclosure sale. The may arrange a public sale by auction to sell your property to the highest bidder. If the offers do not cover the original loan amount, the lender may submit a credit bid based on the amount you owe on your mortgage. If the property doesn’t sell, the lender will sell it at a later date as a private sale. The homeowner must vacate the property by the time of the foreclosure or he will be evicted by the lender filing a lawsuit of unlawful detainer.   This is the act of retaining possession of property without legal right

At any time during the foreclosure process, the homeowner still has the option of paying the overdue amount and the foreclosure costs. Some homeowners may seek out an investor. Many short sale investors enter during this process and try to work with the homeowner and the bank to seek a solution that will help all parties.

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Myth: The lender wants your house
Truth: The lender does not want your house, it wants the money it lent you paid back with interest. Lenders hate going through the foreclosure process and will bend over backwards to work with homeowners in avoiding a foreclosure. Often, the lender’s flexibility still doesn’t go far enough in stopping the home foreclosure. Don’t confuse that with the lender wanting your house. Treating the lender with contempt or completely avoiding them on that basis will only serve to speed up the result that neither of you want, that they get your house.

Myth: The lender will not take my payments, I can do nothing else
Truth: At some point, many lenders say if you do not make payment in full they will not accept a partial payment. Maybe a month later you get that amount together only to find the lender sends it back because another month has gone by and now the amount is larger. However, if you and the lender can not get together on a solution for stopping foreclosure, a mortgage negotiation professional can set up a plan for you to pay just a portion of the payment now if, along with the partial mortgage arrears payments, you set a plan to pay future current payments and catch up on the remaining payments over time. The foreclosure process stops and you keep the home. You can’t miss a payment under the new plan or the foreclosure process can pick up where it left off and lenders rarely give second chances with this type of plan for avoiding foreclosure.

Myth: I received a foreclosure notice; I have to move out now
Truth: Most states have a very long foreclosure process, even after failure avoiding foreclosure you do not have to move. Following a foreclosure you must go through an eviction hearing. Eventually you will have to leave. Don’t try staying until the end, just know that you do not have to leave immediately. Time can be on your side if you take action early and don’t waste the opportunities for stopping the house foreclosure.

Myth: I’m in foreclosure, no lender will refinance me out of this foreclosure
Truth: If you have enough equity in your home, typically 60%-70%, specialty lenders will refinance the house to pay off the old lender and stop the foreclosure.

Myth: If I go through a foreclosure I can never buy a house again
Truth: From a banking point of view foreclosures can be viewed as one of the worst things ever on a credit report. Even so, some lenders will make you a loan very soon after a foreclosure. Be prepared for very large down payments and high interest rates. Most often the terms of these loans prevent people from buying another house. In time, provided you work hard to rebuild your credit, you can go to a lender almost as if the foreclosure never happened. That may take 4 to 7 years.

Myth: When the lender takes the house our dealings are done
Truth: In many states if the house sells for less than you owe them even after the foreclosure you will still owe them the amount they lost. They can still get interest on that too. If you think you will face a deficiency you should think harder about a deed in lieu of foreclosure where they will forgive it or a chapter 7 bankruptcy where it can be wiped out. See a chapter 7 bankruptcy attorney in your state if you have questions.

Myth: Even if I get together all of the money I owe the lender once I’m deep into the foreclosure process it’s too late
Truth: In most states if you have all of the money you owe the lender for back payments and legal fees, late fees etc, they have to take it and stop the foreclosure. It is not their choice it is the law, but where it applies you need to catch up in full.

Myth: If I file a chapter 13 bankruptcy I get to keep the house automatically no matter what
Truth: A chapter 13 bankruptcy must be approved by the courts and you must follow all of the payment rules under that plan. Then, you can keep the house.

Myth: The lender can’t expect me to pay their legal fees
Truth: You may have to if you want to keep the house. Look in your mortgage documents.

Myth: No one can help me in stopping my home foreclosure
Truth: Many methods and many professionals can help avoiding foreclsoure. A short sale can be very helpful in this situation. Lenders don’t want to lose money. They don’t always recoup the money they are owed with foreclosures. However, a buyer can help you strike a good deal with the lender where they will accept a lower payment and not require you to pay the deficit. You get out of a mortgage you can’t pay, and the buyer gets the home.

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To make a short sale possible, you will have to deal with the loss mitigation department at the lender. After working with the homeowner and receiving your approval to contact them, call the lender. Ask for the loss mitigation department. Keep in mind that some lenders will use different names for that department and the customer service representative may not know exactly who you need. If loss mitigation department doesn’t work, try the foreclosure department, the loan modification department, or the reinstatement department. Keep trying until you get who you want on the phone.

Once you have the loss mitigation department on the phone, be courteous. Getting off on the wrong foot can kill your deal. Give your name, the name of the homeowners, and tell them that you want to fax them your “authorization to release information” form. This is the form the homeowners signs that allows you to speak with the lender. The lender will not speak with you or release any information to you without it. Stay on the line with the person or get their direct line number so that you can verify receipt. Give a little background on the situation the homeowners are in and how you will be able to help both the homeowners and the lender. Be sure to use the names of the homeowners and don’t come across as an investor.

After you’ve spoken with someone in the department, send the short sale package. Call again to confirm receipt and try to call once a day for updates. Ask who will make the final decision and try to get an estimated time frame. The process can take awhile so be patient. Always remain courteous and pleasant. Your contact can make or break your deal so remain in her good standing.

When your short sale deal is accepted, be sure to get it in writing and find out the due date. Some are only good for thirty days so don’t sit idly by. Get your deal closed quickly. After closing, be sure the thank the representative that assisted you. You may need to speak with this person again so it is always a good idea send a thank you note for her help.

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If you’re thinking of getting into short sales, now is the time. With more and more homes facing foreclosure, the market is ripe with the opportunity. Homeowners are looking for a way out of this mounting debt. Facing foreclosure is a major hit for any homeowner, short sales can help. And, if you’re thinking of investing, you can make a great profit.

In Phoenix, first time buyers is becoming the largest group of buyers. This group is looking for home below $150,000. Investors account for 35 to 40% of the area home sales. They are fixing them up and making a great profit.

Lenders are having to deal with large numbers of foreclosures costing them thousands. A short sale investor is in a position to help both homeowner and lender. The time to start moving on this is now!

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In the short sales process, part of your application process is going to include the hardship letter. A hardship letter is an explanation given to the lender detailing why the homeowner is unable to pay his current mortgage or has fallen behind payments. In some cases, it can assist with stopping the foreclosure process and will allow the homeowner to work out a payment plan with the lender. In a short sale, it shows the lender how the homeowner is having difficult and will assist with the potential sale.

The following are some reasons the lender will accept in a hardship letter.

* Adjustable Rate Mortgage Reset-Payment (on the rise)
* Illness
* Loss of Job
* Reduced Income
* Failed Business
* Job Relocation
* Death of Spouse or Co-Borrower
* Death
* Incarceration
* Divorce
* Marital Separation
* Military Duty
* Reduced Income
* Medical Bills
* Damage to Property (natural disaster)

The hardship letter should describe the situation in detail, but should not be overblown or drawn out. Be concise. The letter is only a small of the short sale process and should be accompanied by additional documentation. Medical bills, divorce decrees, deployment orders, and a death certificate are some examples. The hardship letter is a very important part of the process.

In the short sale process, the hardship letter comes after the potential buyer has contacted the lender. It is a vital part of the process and should be prepared professionally. Keep the letter detailed and short.

Example of a Hardship Letter:

Your Name

Your Address

Your Lender

Loan #:

To Whom It May Concern:

I am writing this letter to explain my unfortunate set of circumstances that have caused us to become delinquent on our mortgage. We have done everything in our power to make ends meet but unfortunately we have fallen short and would like you to consider working with us on our short sale request.

The main reason that caused us to be late is (insert reason here and keep it short). Soon after being late and our income not being nearly enough, we had fallen further and further behind. Now, it’s to the point where we cannot afford to pay what is owed to (lender). It is our full intention to pay what we owe. But at this time we have exhausted all of our income and resources so we are turning to you for help.

(The approximate date of hardship) and we believe that our situation is Permanent.

Our situation will not get better because (reason here) and we feel that a short sale would benefit all parties. We would appreciate if you can work with us in our short sale request.

We truly hope that you will consider working with us and we are anxious to get this settled so we all can move on.

Sincerely,

Borrower’s Signature

Date

Co-Borrower’s Signature

Date

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During the short sales process, the lender will request a Broker Price Opinion (BPO). A BPO is like an appraisal. A broker or agent will prepare an assessment of the property using similar properties for comparison. That BPO goes a long way towards making your breaking your purchase. You need to know what a BPO is and how it is performed in order to help your deal go smoothly. Two types of BPOs exist, the internal BPO and the drive by BPO. The internal is what you want, so push for it if you can.

An internal BPO is very involved. The agent or broker will physically enter the property to make an assessment. Any damages to the home can be viewed and documented. Photos will probably be taken. The agent will perform room measurements, prepare estimates for repairs and clean up, and check comparables. The homeowner and buyer can tour the property with the agent and offer insight to the home and the nature of the short sale.

The drive by BPO does not involve the agent stepping foot on the property. The agent will usually look at the surrounding homes, the outside of the property, take a couple of pictures, and estmate the room sizes. Without viewing the interior at all, the value of the property is determined based on these limited measures. The broker can actually price the value of the property higher than your estimations, because clean up and repair costs will not be figured in.

During this part of the short sale process, the lender has the final say in the type of BPO. This is why it is imperative that you document all necessary repairs and clean up costs. If the lender is agreeable to internal BPO, be sure to meet the agent at the property. Be courteous and professional and explain the situation. Be sure to point out anything the agent may have missed.

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Reading the headlines today, nearly 1 out of 172 homeowners are now facing a foreclosure. With the state of the economy and the housing bubble burst, the numbers of foreclosures rose to a record level. While some areas of the country face relatively stable markets, all areas have foreclosures to some degree. Homeowners who fall behind by two or more payments receive a legal notice that the lender is going to take steps to take possession of the property.

For a homeowner facing this prospect, there is another option, short sales. Once relatively unknown, short sales rose in the 1990s. The basics behind a short sale are:

• A homeowner falls behind on his mortgage and cannot catch
• The property’s value is estimated to be below the value of the mortgage
• The lender would have a difficult time recouping its money with a foreclosure
• The buyer offers to contact the lender to purchase the home at a price lower than the current mortgage but at fair value
• If accepted, the lender discharges the remaining debt
• The homeowner must vacate the property immediately after it is sold

When investing in short sales, those are the (very) basic steps you need to know. The actualy process is very detailed requiring a purchase agreement, financial and legal documentation, legal counsel, and an agent BPO. However, for an investor considering short sales, or for a potential homeowner considering a short sale, this can be a lucrative market. You must learn the steps to take and you will become successful. With lenders becoming agreeable to the practice, now is definitetly the time.

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Short sales offer a major benefit to homeowners, their credit reports takes less of a hit than if they went through a foreclosure. In either case, the delinquent mortgage will negatively affect their credit rating. The difference is how it is reported on the credit report.

If a homeowner loses his home to foreclosure, his credit report will have “debt discharged due to foreclosure”.  A foreclosure on your credit report is the second worst result, after bankruptcy, and will reduce your credit score by over 250 points. Also, it can take up to three years to qualify for a mortgage at a reasonable rate.

A short sale, on the other hand, will show up on a credit report as a “pre-foreclosure in redemption” status. It can result in a credit score reduction of 100 points or less. The mortgage may show up as “discharged.” Also, a former homeowner who went through a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 18 months.

When considering a entering into a short sales process, an investor needs to know the outcomes of the sale for the homeowner. This way, you can present your request to the homeowner and show him how the different outcomes will affect his credit rating. This is the first step in the process of short sales.

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With a real estate short sale, the lender will hire a broker, appraiser, or real estate agent to perform a Broker Price Opinion (BPO). A BPO is The estimated value of a property used by the lender as a grounds to accept or deny your offer. A BPO is usually performed by checking the value of surrounding properties and sales trends in the neighborhood. If an appraiser is used, he may perform a complete appraisal report. If a local agent is used, he may physically go to the property for an analysis.

During this process, you should make sure the bank orders an interior BPO. Often, these BPOs are based solely on a “drive-by” report. This will make it harder on you as this does not provide the lender with any interior damages. Since most short sale properties need interior repairs, the lender needs an interior BPO performed. However, be sure to have your own documentation and photos along with estimates of any repairs needed.

If the lender agrees to an interior BPO, you should meet the agent at the property. Again, have your documentation ready and go over the circumstances of the short sale with the agent. Be sure to point out all of the damages you have documented and explain your numbers if necessary. It is also in your best interest to give a background of the short sale, including the financial situation of the homeowner, condition of the house, and whether it has been on the market for some time. Making a good impression with the agent goes in your favor.

Working with the agent during the BPO process will help you in the long run. Agents appreciate the effort you put into your short sale request, especially if you show them the numbers to back up your claim. Agents will not necessarily know the costs of repairs and replacements, so having estimates handy is always a plus. You may find that the agent will ask you what your offer was and agree with your assessment. Your footwork will help you in your success.

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During the short sale process, you may have to go back and forth with the lender regarding costs, the value of the property, and your offer. First, remember to always be courteous, even if you have a difference of opinion. Be professional and stick to your guns. You may have to go up slightly on your offer, but that all depends on your circumstance.

Do hesitate to go to the lender or your attorney/counselor with any questions you may have. Get the facts; don’t try to take a guess at anything. You have spent a lot of time and put a lot of effort into this process and you don’t want it to fail over a misunderstanding. If the lender counters your offer, find out exactly why and what process was used to determine the property’s value. Remember, the lender may simply have had a broker drive by the property or use a modeler.

Have all of your documentation handy and be available to speak with the lender if they need you. Be ready to respond to their questions with your paperwork and photos you may have regarding the property. The homeowner should also be prepared to field any questions regarding his financial situation.

If your short sale package was thorough, it is likely that you will just be waiting for approval. The quality of your market analysis and comparable properties is important, and there may be questions as to how you chose them. Once you get an approval act quickly to pull the closing together. Most approvals have a time limit, many only 30 days. You can lose your deal if you let it drag on so be prepared, move quickly, and close your deal. Congratulations on completing the short sale!

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