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Real Estate Options 101 – For the Unemployed

March 4th, 2009 · 4 Comments

Today, it’s my pleasure to introduce a fellow reader and guest blogger to you. Jane Wolfla is a Licenced Realtor in in Westfield, NJ. Jane made a very interesting comment on this blog a few days ago:

“I was laid off from my 6 figure job in NYC in Oct 09 and with my severance running out soon, and no job prospects in sight, I fired up " Plan B" – get a real estate license. I am now a licensed real estate agent and am trained to handle short sales and other complicated real estate situations. Would love to share my knowledge and experience with your group in the spirit offering assistance only – no sales.”

What a great story! I think we could all learn a few things from Jane in term perseverance, resourcefulness, and determination during this difficult time. Jane has written a great article on how to deal with real estate issues for the unemployed. Learn and Enjoy.

Real Estate Options 101 – For the Unemployed

Regrettably, many Americans have lost their jobs. Your ability to stave off foreclosure depends on your ability to quickly acquire the knowledge regarding the stages of foreclosure and the understanding of your alternatives should your source of income become limited or – worst case scenario – non-existent. But first, let’s get this out of the way: There is no help for the unemployed in the stimulus plan. Get over it and move on.

NEXT: What to do if you DO NOT want to keep your house?

Do NOT walk away from your house. Your financial institution will track you down and you will sue you and you will still have to pay. Instead, ask your financial institution if they will accept “Deed in Lieu of Foreclosure”. This is the right way to turn your home over to the bank. For more information read Homeowners Who Just Walk Away.

NOW, assuming the rest of you want to keep your home, here is an overview the Stages of Foreclosure, what to expect at each stage along with tips, tricks and options for dealing with each scenario:

Stage One: 1st missed payment: The mortgage company sends you a notice that you missed your monthly payment. They would prefer NOT to foreclose as it creates a problem for them to dispose of your property. A vacant property is subject to vandalism and decay.

Move to “Plan A”

Stage Two: 2nd missed payment: The mortgage company files a legal document call “Lis Pendes” – simply stated it is a notice that is a recorded document stating there is a possible legal action pending against you for non-payment of your mortgage which could result in a possible ‘lien’ against your property.

Move to “Plan B”

Stage Three: 3rd missed payment: You receive a Notice of Default and your file is turned over to their attorney for legal action The good news (if you call it that) is the mortgage companies are so inundated with foreclosures that yours will be put on the bottom of the pile and will probably take a long time to actually work its way into the system. However, it is possible the mortgage company has hired extra help and the foreclosure process could start immediately following your second missed payment.

Move to “Plan C”


PLAN A: NOTIFY YOUR LENDING INSTITUION

The day you lose your job, call and let your mortgage company that you have joined the ranks of the unemployed and “will more than likely be late on your payments until you secure a new job. Lenders can make it tough to get to the right people. The folks you want to talk to are in the "loss mitigation" department. But many lenders don’t routinely route borrowers to that department until they’ve missed several payments. Until then, you might be dealing with the lender’s collections department, which typically offers one option: Pay up now. If you’re serious about keeping your home, you may have to really push to get to right people

Ask them questions regarding your options given their policy. Listen and take notes. If your mortgage is insured by the Federal Housing Administration (FHA loan), you may qualify for an interest-free (and payment-free) loan to get your mortgage current. The money doesn’t need to be paid back until you pay off the mortgage or sell the house. Or, they may offer you temporary relief such as:

  • Temporarily reducing or waiving payments.
  • Setting up short-term repayment plans to help you make up the deficit.
  • Adding the unpaid balance to the principal of your loan and increasing your payments slightly to cover the extra amount.

BEFORE YOU CALL TO WORK OUT ‘ A PLAN’ WITH YOUR LENDING INSTITUTION, YOU MUST MAKE A BUDGET

Sketch out a spending plan for the next several months, including expected income and expenses. See what costs you can trim to free up as much money as possible for home payments. You may need to pay the minimums, or even less, on other debts. In certain very limited circumstances — such as when you are absolutely sure your financial hardship will be short-lived — it may make sense to skip payments on some bills so you can pay your mortgage. Another option: borrowing money from friends or family, or tapping retirement funds. Do the latter only if you’re convinced you can make future payments; you don’t want to drain your retirement funds if you’re only going to end up losing the house.

Enlist the services of a housing counseling agency approved by the Housing and Urban Development Department by calling (800) 569-4287. If you have a Veterans Administration loan, you can call (800) 827-1000 to get a referral to a financial counselor.

  • Check Your Refinance Options. If you have equity in your home, your credit rating is relatively intact and your lender hasn’t yet filed a notice of default, you may be able to get another loan with more affordable payments. An experienced mortgage broker, preferably one affiliated with National Association of Mortgage Brokers. Be cautious about jumping into another risky loan, though: adjustable, interest-only or "option" mortgages might just put off the day of reckoning and you could find yourself facing even higher payments down the road.
  • Get Organized. If you are going to try for a loan modification, you’ll need to prepare a small mound of documentation. The lender will specify what it wants, but typically you’ll need to supply the details of your financial situation, a budget, documentation of your hardship (a letter from your doctor explaining an income-reducing illness, for example, or your layoff notice from your employer) and a "hardship letter" that outlines, in heart-rending detail, the circumstances that led you to fall behind and the improved prospects that will allow you to get your financial life back on track.

You may also want (or be required) to provide a market analysis of your house,to document how much equity you have in your home. A real estate agent can typically prepare this for free in exchange for the chance of winning your business should you decide to sell.

PLAN B: DEVELOP AND IMPLEMENT YOUR OWN PLAN OF ACTION

Your main goal should be to avoid losing your home to foreclosure. It is critical to move quickly at this stage. Here are your choices to avoid foreclosure when your mortgage company won’t work with you.

1. Continue to search for a new job and, in the meantime, think about a career change or entrepreneurship. This is a perfect time for you to reinvent yourself! I went to real estate school. It has helped me to stay sharp and given me the knowledge to write this article, even if I have not yet done a deal! If this option is not possible and unemployment does not cover and if that does not cover the mortgage, move to #2.

2. Find someone else to pay your mortgage – Lease out your house and move in with a relative or friend for 6 months with the agreement that you will pay them rent after you land a new job. (Note: This was the option I chose. I found a couple who needed a furnished house for 6 months. By then, I will most likely have a job….Perfect!)

3. Dip into your retirement savings. Yes, there will be a penalty but it beats losing your house. Or, borrow from family or friends, documenting the loan in an agreement.

4. Sell your house – A short sale is a popular option for homeowners mired down with financial problems. They may be willing to ‘eat’ some of your loss on the sale price.

What is a “Short Sale”? When you sell your home for less than what you owe, your lender must approve and be willing to absorb the loss. Experts advise that you pursue this option the minute you realize that you are falling behind in your payments (Stage #2) and most likely won’t be able to catch up. The longer you wait and the greater the amount you are in arrears, the less likely it becomes that your lender will even be willing to entertain a short sale. BTW: Your mortgage company would prefer NOT to foreclose as it creates a problem for them to dispose of your property. A vacant property is subject to vandalism and decay. A short sale is a complex transaction, involving a lot of paperwork and constant communication with your lending institution – DO NOT make the mistake of enlisting the assistance of amateurs for this transaction; instead enlist the help of a trained team:

1. A realtor who is trained to properly complete the appropriate paperwork; someone who will ONLY bring you qualified buyers (pre-approved) who can afford to buy your home. The realtor should also be able to recommend an attorney(ies) who are trained and experience in short sales – who can effectively negotiate with your lending institution regarding your short sale transaction.

2. A real estate attorney: Do even think of hiring an inexperienced attorney who has never processed a short sale. Your financial institution will know they are working for an amateur and that alone could be a ‘deal killer’. The attorney’s job is to convince your lender to agree to a short sale and communicate directly with them every step of the way. Note: In some situations (where the financial institution stand to lose a lot of money on the sale of your house), they may balk or refuse the transaction.

Ramifications of Short Sale:

Credit: While a short sale will save you from foreclosure, it will also have a negative effect on your credit score, frequently lowering it by as much as 200 points. This can be overcome more quickly than the black mark of a foreclosure, especially if you manage to retain one or two credit cards and keep them current.

Taxes: Adding insult to injury, the Internal Revenue Service frequently deems the difference between the mortgage balance and the amount realized from the short sale to be taxable income despite the fact that the debtor never saw a dime of it. Research and understand your rights in this regard. The Mortgage Forgiveness Debt Relief Act 0f 2007 that went into effect on January 1st, 2008. The new act essentially eliminates this problem but there is paperwork involved.

PLAN C: YOUR LAST OPTION IS TO STALL YOUR LENDING INSTITUTION

Call up your lending institution and say these words – verbatim: “Produce The Note” . These are fighting words to your lender. Here are two video clips that explains how it works: see Produce the Note on Good Morning America” and “Mortgage Squatting

Chances are it will take them a while to do this. It is the least talked about option but proponents say it works beautifully – especially if your mortgage has been sold one or more times to different lending institutions.

CONCLUSION: Exercising one of the above options is highly preferable to sitting back and allowing foreclosure to happen. In foreclosure, you will not only will you lose your house; your financial institution will file a judgment against you for the arrears (missed payments) plus all legal costs for incurred as a result of the foreclosure action. If that isn’t enough, your credit report will be in terminal condition for many years to come. There is no upside to foreclosure. It should be avoided at all costs. Indeed, do everything you can to fend off foreclosure. Work as quickly as humanly possible to in-act one of the above solutions so that foreclosure does not happen to you!

Compliments of Jane Wolfla, Licenced Realtor; Weichert – Website: www.realestategenie.us

Tags: Beat Recession · Real Estate Concerns

4 responses so far ↓

  • 1 uflesch // May 16, 2009 at 3:09 pm

    If you have a non-recourse loan the lender can not go after any personal property in a foreclosure. Thus it is important to know what kind of loan you have.

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