Our current housing market in Arizona has caused significant stress and heartache for many Arizona families. Foreclosure is one of the most devastating financial challenges that any family or individual can face.
And in many cases – foreclosure can be avoided.
There are many options available to Arizona Home Owners. Read further for a brief introduction to your options and the pros and cons of each option.
Reinstatement
A reinstatement is the easiest solution for a foreclosure – and at the same time – the most difficult for the vast majority of home owners. The home owner contacts their lender(s) to find out how much is required to bring the mortgage current and pays the amount owing. The lender does not need to ‘approve’ of this action and the homeowner can pay the amount owing up to the day of foreclosure.
- Pros: Does not need the approval of the lender(s).
- Cons: The home owner MUST be able to pay all back payments, fines and fees.
Forbearance
A forbearance requires the homeowner to negotiate with the lender(s) in regards to paying back the missed payments over a period of time. Usually the homeowner is required to make their current payment and in addition, cover a portion of the missed payments they owe.
- Pros: The homeowner is allowed to make up back payments over time.
- Cons: The homeowner MUST be in a financial position to pay their current mortgage payment and also a payment of the missed back payments. Most lenders will require the homeowner to ‘qualify’ for a forbearance.
Mortgage Modification
A mortgage modification involves the reduction of one or more of the following, the interest rate on the loan, the principal balance of the loan and/or the term of the loan. The result will be a lower payment for the homeowner.
- Pros: Reduces the monthly house payment and could result in the reduction of the principal balance of the
loan. - Cons: The homeowner MUST ‘qualify’ for the new payment and normally the process is similar to the full documentation similar to qualifying for a new home loan. As history as shown this past year in Arizona, VERY FEW loans were modified by lenders.
Rent Your Home
If a homeowners mortgage payment is low enough (which is a long shot in Arizona) it may well advised to rent the home as long as the rental income can cover the mortgage and expenses.
- Pros: The homeowner keeps possession of the home and can chose to sell it at a later date when the market improves.
- Cons: Becoming a landlord can be fraught with legal challenges and difficulties. Often times the rental income does not cover the entire mortgage payment as well as expenses.
Deed in Lieu of Foreclosure
Some people refer to a Deed in Lieu as simply vacating the home and giving the keys back to the lender rather than going through a foreclosure process. The lender MUST approve this option.
- Pros: In some situations a successful deed in lieu, the lender may fore go their right to a deficiency judgment.
- Cons: The home owner and vacate the property AND the deed in lieu most likely will be reported to credit bureaus as a foreclosure.
Bankruptcy
In our current market challenge many have marketed bankruptcy as a ‘foreclosure solution’ but this may or may not be true in many situations. We recommend that the homeowner consult a bankruptcy attorney before considering this option in order to know what the truth is for your specific situation.
- Pros: Does not require lender approval.
- Cons: The homeowner must be aware that a bankruptcy will only stall – not stop – the foreclosure process. Bankruptcy is very damaging to the home owners credit report and stays on the credit report for 10 years. Bankruptcy can only be declared once every seven years. Bankruptcy can be costly.
Refinance
If the homeowner has sufficient equity in their home and can qualify for a refinance, this could be a viable option.
- Pros: In a few cases this may lower the monthly payment.
- Cons: In our current housing market in Arizona many home owners are ‘underwater’ in their loan to value and refinancing is not an option. Their are costs involved in refinancing and most likely refinancing will raise the monthly payment.
Service Members Civil Relief Act
Members of the military, if experiencing financial distress and hardship due to deployment, and the service members home debt was entered into before being deployed, they may qualify for relief under the Service Members Civil Relief Act
- Pros: If qualified, the Service Member’s payments on all consumer debt will be lowered as well as the mortgage payments.
- Cons: You must be active in the military to qualify.
Sell Your Home
If the home owner has sufficient equity in their home they may list their home with an agent as normal.
- Pros: Allows the homeowner to avoid foreclosure and keep the equity they have built in their home.
- Cons: In most cases here in Arizona, homeowners do not have sufficient equity to sell their home without negotiating a short sale.
Short Sale
A Short Sale is advisable when a homeowner owes more on their home then it is currently worth. They should hire a qualified real estate professional to market, sell and negotiate a short sale with their lender(s). The home must be on the market and the homeowner must have a financial hardship in order to qualify for a short sale. A hardship can be any number of situations, loss of income or job, divorce, death of a spouse, mortgage payment is increasing, excessive debt, forced relocation and more.
- Pros: A short sale allows the homeowner to AVOID foreclosure and quite likely will salvage some of their credit rating. A short sale will keep “foreclosure’ off of the homeowners credit rating and public record and in many cases will allow the homeowner to avoid a deficiency judgment. The homeowner may qualify for a new home loan within as little as 24 months (as opposed to 5 years with a foreclosure).
- Cons: Short sales can be a challenging process in which the homeowner is best served by working with a qualified short sale agent to guide them in the process.
CDPE “Certified Distressed Property Expert”, is a real estate professional with specific understanding of the complex issues confronting the real estate industry, and the foreclosure avoidance options available to homeowners. Through comprehensive training and experience we are able to provide solutions for the homeowner facing hardships in today’s market, specifically short sales.
The prospect of foreclosure can be financially and emotionally devastating, and often the homeowners proceed without guidance of any kind. The best course of action for homeowners in distress is to speak with a well-informed, licensed real estate professional. We have the tools to guide homeowners and can find the best solution possible for their situation. Often, when other options have been exhausted, we can help homeowners avoid foreclosure through the efficient execution of a short sale.
While enduring financial difficulties is challenging at best for any family, the process of finding a qualified real estate professional should not be. Rest assured we are professionals that are trained and experienced to address your specific needs.
We don’t merely assist in selling properties, we serve and help save our clients in need of avoiding foreclosure.
For immediate assistance contact Anna ‘Banana’ Kruchten,
Broker/Owner, CDPE, CRB,CRS, GRI,SFR
602-595-8900
Phoenix Property Shoppe
