There is a House bill, Neighborhood Preservation Act, passed before the summer recess which is a response to two important questions: 1.”When homeowners lose their houses to foreclosure, should they be able to stay in the property, leasing it back at fair market rent from the lender?” 2. “Should they also get an option to purchase the house from the bank at the end of the lease term, assuming they have the income to afford it?” 

The Neighborhood Preservation Act “would remove legal impediments blocking federally regulated banks from entering into long-term leases – up to five years- with the former owners of foreclosed homes. It would also allow banks to negotiate option-to-purchase agreements permitting former owners to buy back their houses”

If the bill is approved by the Senate, it would encourage banks to consider if it’s better to foreclose and take a loss now or to lease the property and then sell when values increase in a few years. There is a debate about who should own the home and control the lease agreement.

A San Diego realty broker, Al Hackman, and his partner, Tony Huerta, “contend that lease-backs with options to buy are the way to go – but not if banks run the show.”  They have a program called “the seamless short sale” where the homeowner can stay in the home before and after the settlement. The bank first sells to an investor who agrees “to lease back the house on a “triple net” basis - where the tenants pay taxes, insurance and utilities – for two to three years.”

The property value for the buy-back is pre-set to be more than what the bank sold to the investor and less “than the original price by the foreclosed owners.” For the investor according to Hackman “the internal rate of return . . . can depend on the rents and the buy back price but typically is in the 8% to 10% range. It’s a win-win. . . The owners stay in their houses. Private investors get a moderate return on what should be a safe investment and the banks are out of the equation.”

It is time to think outside of the box to solve the housing crisis of our time. The homeowner facing foreclosure should not have to bear the full burden of a lending experiment gone amok. For those homeowners who can afford the market rent rate, the seamless short sale is one solution.  Banks can slowly clear their books of toxic assets, investors can safely benefit and neighborhoods can remain intact while the country rights itself economically. 

These types of professionals or consultants can help you to evaluate, consider and decide many issues and potential remedies. Some options are:

• Modify your loan(s)
• Consider a short payoff of loan(s)
• Attempt a short sale of the property
• File for Bankruptcy
• Allow a foreclosure to proceed

A workout can include special forebearance allowing the delinquent payments to be recapitalized or added to the end of the term or forgiven. 

A loan modification may allow a change to one or more terms of the loan such as interest rate, length of time of the loan, amortization, and/or loan balance.

A short payoff settlement specifically applies to Second Trust Deeds where the lien must be completely unsupported by equity, and you must have funds to settle with the typical amount needed of 5% to 15% of the balance owed. The property need not be sold.

A short sale is a transaction in which a lender allows the real property securing the loan to be sold for less than the remaining mortgage amount and accepts the proceeds as payment in full of the loan. Some lenders are reluctant to offer this language. Work with a professional real estate agent who knows how to obtain this forgiveness from the lender.

It is important to know that the loan modification process is a 45 to 90 day process; principal reductions are rare occurrences (3% – 4% of cases); a property owner with a Trustee Sale Date less than 30 days away is too late to help. So if you are behind in your payments, have been served with an NOD (Notice of Default), or have a financial hardship that will expose you to an NOD, seek help immediately.

Hardships can be loss of work, job transfer, divorce, a health related incident affecting the wage earner directly or a loan product problem such as a loan with balloon payments or an ARM adjusting to a high interest rate.

Don’t delay. Get the facts. Call Pat Monahan at (714) 932-5529 for a free consultation.