Putting The Pieces Together

Agenda

• What is the definition of Pre-Foreclosure?

• Why Should I Care?

• How Does the Process Work?

Embarrassment

2nd Mortgage

Timeline Commitment

Started too late

When a seller is in financial distress and a lender approves a sale even though the property

will sell for a price less than what is owed the lender.

AKA: SHORT SALESHORT SALEAKA: SHORT SALESHORT SALE

SHORT SALESHORT SALE 30days

60days

120days

90days

Because of Third Party Approval it Typically Takes 120 Days To Close

Who is the Third Party?

Your Mortgage Lender

Might Be an Option When…

• A home is worth less than is owed

• A potential seller has a demonstrated financial hardship (definition later)

• The potential seller submits all required verification and documentation to their lender within timeframes

• Junior (HELOC) lenders are willing to accept little or nothing

Pre-foreclosuremight not be an option…..

• Seller is an investor

• Seller has ability to pay/refinance

• Seller has filed for Bankruptcy protection

• Seller isn’t willing to participate

• Defaults are up 115% nationwide • National Delinquency Rates Rise for Seventh Straight Quarter, Up Nearly 12 Percent From the Previous Quarter and 54 Percent From One Year Ago

Sub prime foreclosure rate:

• Florida Loans made in 2006 = 17% (up to 30% by year end)

• National rate is approximately 15% (according to Center for Responsible Lending)

• Number of homes entering foreclosure to top 1,000,000 plus

• 60% of those will be subprime(according to Freddie Mac)

Why Should I Care?

• Fully 1/3 of all loans made in 2006 in the US were considered subprime (USA Today)

• Subprime foreclosure rates (650 FICO or below):– Florida rate of loans made in 2006 = 17%– National rate anticipated to be approximately 15%

(Center for Responsible Lending, 2007)

• “The number of homes entering foreclosure is expected to top 1 million this year, with 60% of those being subprime mortgages,” says mortgage giant Freddie Mac.

Why Should I Care?

• The Mortgage Bankers Association predicts that “adjustable-rate subprime foreclosures, already at a record, will rise into 2009, affecting borrowers, lenders and such Wall Street firms as Goldman Sachs and Bear Stearns, which packaged subprime loans into bonds.” (USA Today, 6/14/07)

PFS Benefits

• Credit rating can be preserved

• Less stressful than foreclosure

• Preserves other assets (non-judicial)

1. Be Honest

1. Be Honest

2. Communicate with Workout Specialist

Seller Must have a workout in progress

1. Modification2. Forbearance3. Pre-foreclosure4. Bankruptcy

1. Be Honest

2. Communicate with Workout Specialist

3. Prepare The Pkg. And Summit To Lender

1. Hardship Letter

2. Third Party form

3. Financial information 1003

Starting The Process

PFS Approval Process

• Borrower to call loss mitigation and talk to a Workout Specialist.– Inform of intention and commitment to

timeframes.– Ask about current turnarounds.

• Prepare and submit Borrower Approval Package

Pre-FS Approval Process

Borrower/Seller Approval:• Submit financial information (varies by lender) but

includes:– Financial Statement (basically a detailed 1003, see example) – Hardship explanation form and/or letter– Most recent checking and savings account statements for all

borrowers. Some lenders require 6 months.– Proof of all sources of monthly household income, such as pay

stubs for the last 30 days, or if self-employed, profit and loss statements for the last two quarters along with the most recent federal tax return. Leases and social security, pension, or disability statements are required if applicable.

– Any other documentation or information you feel may be relevant to the situation

Your Real Estate Agent needs the ability to discuss your situation with your bank or mortgage company the next form gives that ability.

The typical Real Estate transaction requires a level of confidentiality but in the process of a pre-foreclosure there is a need to discuss information with other entities. You will need to sign special disclosure forms between the Real Estate Agent and yourself giving permission to work outside the norm.

Third Party Form (Sample)NOTE: If you would like IndyMac Bank to discuss your loan with a 3rd party such as a spouse,

relative, friend, realtor, attorney, or lender, etc… you MUST complete and return this form to us first.

THIRD PARTY AUTHORIZATION FORM I hereby authorize IndyMac Bank to discuss my request for payment assistance with the individual(s)

that I have identified below as my designated agent(s) (hereinafter the “Designated Agent”). Further, IndyMac Bank is hereby authorized to negotiate the terms of a workout agreement with my Designated Agent and to deliver documents to my Designated Agent which concern my request for payment assistance. I understand that I will be fully responsible for reviewing any information that is sent by IndyMac Bank to my Designated Agent. This Authorization will remain effective until I specifically notify IndyMac Bank’ Workout Department in writing that this Authorization is of no further force and effect.

My Designated Agents are: _______________________________ _________________(Insert name of 3rd party) Phone # _______________________________ _________________(Insert name of 3rd party) Phone #Date: / /

BorrowerDate: / /

Co-BorrowerLoan # _______________________

1. Be Honest

2. Communicate with Workout Specialist

3. Prepare The Pkg.

1. Hardship

2. Third Party form

3. Financial information 1003

Pre-FS Potential Pitfalls

• Tax implication to the seller (debt “forgiveness” can result in 1099 income – consult tax professional)

• It can take up to 90-120 days to get approval from some lenders

• Meeting all lender timeframes is paramount• Typically requires seller to continue to make

mortgage payments (workouts and payment plans are possible)

1. Sellers Lender Selects Closing Agent

1. Closing to take place at the listing Realtor® Office or mobile to you.

2. Timeframe to Close is Much Longer

Your Lender may require up to 3 BPO’s to determinethe sell-able value of your home.

Third Party Broker Buyers AgentSellers Agent

May Not Be Required

Pre-FS Approval Process

Property Approval:

• A signed and ratified listing agreement• A sales contract signed by buyer & seller, subject to

Lender Approval.• An estimated settlement statement showing all proposed

seller paid closing costs.• Proof of Buyer’s financing (i.e. pre-approval letter, etc…)• Broker’s Price Opinion (BPO) or (CMA)

– Some lenders require up to three different BPO’s.

• Title report• Junior lien holder release agreement

This value will more thanlikely be less than you owe.

Value you currently owe Lender for

home loan.

Even if forgiven by Lender, the IRS currently considers

this income and will tax you.

For tax implications contact an Accountant