The most common ways to do a loan modification is to lower your interest rate to the current market rate or stretch the mortgage payments over a 40 year period.  You will still pay as much, but you will have longer to make those payment with the latter choice.

For those that have a higher adjusted rate, you may  have be a good candidate for a new modified loan, even if you’re already in the foreclosure process.  The overall goal of the bank is to calculate and meet a monthly payment that is no more equal to 31 percent of your monthly income.  Thus, you will still need to meet this requirement for a loan modification.

In some rare cases, lenders may be willing to lower the principal on the property to a level of your home’s current level due to the fact that many homes currently have mortgages bigger than what the home is worth.

The program is entirely voluntary, so it is up to the lender or the mortgage company servicing the loan for the investors.

Unfortunately though for families that want to live in the home, will not be looking to purchase these homes.  Investors may like this idea, but the investor/landlord will have to deal with the tenant that Fannie Mae decided to keep in the property.

In many cases for these situations…

• The family that is looking at the property to purchase, will pass on the property because they cannot immediately live in the house.
• Quality landlords may pass on the property since they have no prior relationship with the tenants and there may be a high risk to taking it over.
• The property sells for less, or doesn’t sell at all, and then continues to depress the property values.

The buyer must have approved funding to convince the bank that they are serious about the transaction.  They can still obtain an inspection, but the bank will not pay for any repairs.  This is why most offers on short sales are far below the value of the home.

Short sales are a great solution to foreclosure and it’s important to hire a realtor who specializes in short sales and foreclosures to get your highest chance of getting it completed.

Buying a bank owned property…

There is a lot of interest in buying bank owned properties these days.  Most REOs need repairs and banks usually won’t provide any inspections, so make sure those inspections are alloted in your funds.  After you determine how much it will cost to repair, you will be able to determine if the foreclosure is truly a good buy.  Don’t underestimate the real cost of paint, carpet, landscaping, appliances, light fixtures, mold remediation, dry rot repair, central heat & air, new roof, plumbing, faulty or missing electrical.

What’s an REO…

REO stands for “Real Estate Owned”.  These are properties that have gone through foreclosure and bank or lender has purchased the property back.  An REO is a “cleaner” transaction, in which the bank has removed all the tax liens, evict the occupants and prepare for the issuance of a title insurance policy to the buyer at closing.

It an REO a bargain?

It’s assumed that an REO is a bargain, but it isn’t true.  You need to be careful about purchasing an REO if you intent to make money off of the home.  If you are looking to purchase an REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of the repairs and remodeling needed to prepare the house for sale.

Ready to make an offer?

Most banks have an REO department that will work with with you.  Typically the REO department will use a listing agent to their REO departments listed on the local MLS.  Banks usually sell REO properties “as is”, you’ll want to make sure that you include an inspection contingency in your offer to check for hidden damage and terminiate the offer if you find it.

Once an offer is made, you can expect to receive a counter offer.  It will then be up to you to expect the offer or make another counter on this offer.  Expect to not get immediate responses as the offers are only considered on business days, not on weekend.

Fees include:

• Missed Payments and Interest
• Administrative Fees totally $10 to 15K for going into default
• Auction will total about $15,000
• If nobody bids 90% of the appraised price, they will end up owning the property at Auction.
• If the bank now owns the property, they need to hire a listing agent to sell the property
• During the listing, the banks loses money each month owning the property

If you cannot afford making your payments, typically banks will work with you and be accomodating if you tell them what is happening to your finances.  They do not want to foreclose.

A lot of short sales have been sitting on the MLS during the last few months and it’s reported that typically lenders are only able to successfully complete about 6 to 7 percent of the short sales coming in. That means many of those short sales will be entering the market within the next few months as foreclosures and will bring home prices down even further down.

People are being mislead by ill advised real estate agents encouraging their clients to entertain counter offers in this down turning market! Many of these properties have been on the market for quite sometime and/or have a lot of properties in different stages of foreclosure. The listing agent is not out for the homebuyer’s best interest.

How would you be when all of these pre-foreclosures hit the market in the next 90 days. You will realize you’ve paid too much. You’ve lost instant equity and a down payment.

The end of the year is expected to yield a bigger wave of foreclosure properties due to the ARM resets that occurred the past couple of months. The next wave of foreclosures is being called the “tsunami” and it’s expected to create a very soggy market to a over-supplied real estate market.

It can’t be stressed enough that there will be a surge in foreclosures entering the market very soon.

When a property is being sold, the seller is in control of the process (listed and marketed for sale). For a property to be sold as a short sale, the seller needs to be qualified by proving hardship that has been in result of or will be a result of missing payments. Lenders will require the seller to be 30 days behind payment. After 6 months of missed payment, most lender will sell the property as a foreclosure, in which afterwards the lender will not negotiate a short sale…so the seller needs to act quickly.

When offers come in for the home, the seller will review all offers. All the offer terms will be reviewed with the seller and at this time, it’s up to the seller and the agent to decide on accepting, countering or rejecting the purchase agreement so that it meets your best interests.

Usually the agent will try to obtain an offer within the first 30 days, so the agent will require that the seller has all of the documentation together that the lender will need to approve the short sale application.

Once the offer and short sale application have been submitted the agent will work with the lender to negotiate the best short sale terms possible to eliminate the need for the seller to bring cash to closing or sign promissory notes. The lender will send a short sale approval letter and if the terms are acceptable, the seller will move forward closing the property.

The seller will need to sign legal documents to transfer ownership of the short sale property and the title company will make arrangements for the closing agent to pre-sign all documents.

Generally the closing costs and commissions will be paid out of the sale proceeds with lender approval.