Options for a Smooth Transition

February 23, 2022

Video Transcript

(calm ambient music) - [Instructor] Welcome to the Options for a Smooth Transition video presented by Michigan State University Extension. If you decide the house is not affordable, this video will explain the steps to take. Additional videos in this series discuss determining your financial situation, the options to keep the house, and the foreclosure timeline in Michigan. There are three foreclosure alternatives, which are to keep the house, sell the house, or allow the foreclosure to proceed. Your decision on which option is best in your situation should be based on good information. This video will focus on the option to have a smooth transition and move out of the house. A mortgage crisis can be a stressful time during which many decisions must be made by the homeowner. When the homeowner avoids dealing with a crisis, it can mean a loss of control over their finances and a loss of control over the impact the mortgage crisis may have on their credit report. If it is determined that you can't keep your house after a review of your finances and conversations with your lender and housing counselor, there are still options available to you to avoid a foreclosure on your credit report. Let's begin by talking about how to decide if you cannot keep your home and yet avoid foreclosure. First, gather your mortgage information and determine your situation. Answer the questions about what mail you have been receiving from your mortgage company and what the hardship was that caused you to struggle with your house payments. The best way to determine what you can afford or not afford is to figure out your budget for one month. Put a pencil to paper or use a computer to write down your net monthly income and expenses. The video in this series on Determine Your Financial Position go through more details on what to include in your budget. Mortgage companies will require your monthly budget information to work with you on selling the house, just as they do if you could keep the house. If your cash flow is negative, have you explored different ways to either increase your income or decrease expenses? Having everyone in the household onboard with your family spending plan is important. Communicate together and agree so everyone understands their contributions as well as what happens when one person sabotages the plan. Besides your monthly budget or financial statement, your lender will also ask you for your income information, recent bank statements, a hardship letter, and possibly other items. You can start gathering all this paperwork to be prepared. Based on your information gathering, what decision can you make? What did you learn about the budget process? Is your home affordable for you to keep and sustain the payments? Remember to do the debt to income ratio calculations based on the guidelines of 34% of gross income for housing, including the mortgage, property taxes and homeowner insurance, plus 11% of gross income for other debt. Refer back to the video, Determining Your Financial Situation for more information. Ask yourself, what is realistic? Make sure you're talking to the company who holds or services your mortgage. If you concluded that you cannot afford to keep the house, the next step is to contact your lender. A nonprofit agency housing counselor can assess your situation and assist you if you contact them. First, a pre-foreclosure or straight sale. Even in a bad housing market, you can put the house up for sale with a reputable realtor at a fair market price. Interview the realtor to be sure they have experience with foreclosures and short sales. Ask the lender to delay the foreclosure and for permission to complete the pre-sale. Get the agreement in writing. In a bad real estate market, do not assume that the house will sell quickly. A pre-sale works if the sale price is high enough to pay off the mortgage plus any home equity loans, back taxes, selling expenses and foreclosure fees. Second, a mortgage assumption is when a third party takes over your mortgage, brings a current and continues payment. Some servicers and investors are waiving the assumption clause in the original mortgage contract and allowing qualified arms-length assumptions to avoid foreclosure. Some mortgages are assumable while others are not. Look at your original mortgage documents or ask your lender. The person assuming the mortgage must qualify with a good credit score, good debt to income ratio and a strong credit history. See a lawyer before you proceed with a mortgage assumption because when someone else assumes the mortgage, they become the new owners of the home. It may work, but you need to fully understand it and avoid some major pitfalls. Do not work out an assumption with strangers or real estate companies who claim they want to save your house. There are scammers in the community that will offer to assume the mortgage and allow you to become a renter. While you are renting from them, they can strip or take away the equity in the home and oftentimes will leave town, allowing the home to foreclose anyway. The lender may allow you to complete a sale, even though the price is less than what you owe them. Most servicers will accept a request to sell short the home but reserve the right to finalize the agreement until a signed purchase agreement has been submitted. Most often, servicers are requiring the home to be listed at fair market value for 60 to 90 days before they will consider a short-sale offer. Use a realtor who specializes in short sales to list your property. They will need to send a workout package to the Loss Mitigation Department at your lender. Be sure to get the short-sale agreement in writing. Short-sale complications are that collection activity will continue while you are trying to sell the home. A short sale is difficult if you have a second mortgage. Negotiate with the lender to cancel any deficiency. And there are income tax consequences. Consult a tax expert. With a deed-in-lieu of foreclosure, you voluntarily turn over your house to your lender. For the borrower, it immediately releases him or her from most or all of the personal indebtedness associated with a defaulted loan. The borrower may receive more generous terms, cash for keys, to leave the property than if a formal foreclosure proceeded. Advantages to the lender include a reduction in the time and cost of reposession. To be considered for deed-in-lieu, most servicers or investors require the property to have been listed at a fair market price for 60 to 90 days. Also do not leave your property pending a decision by the servicer or investor of a deed-in-lieu. You must be living in the home to be considered for a deed-in-lieu. Ask the lender to cancel any deficiencies and fees. Eliminate negative credit references. Allow you to have extra time in the house and pay your moving expenses. You have bargaining power, you are saving the lender huge foreclosure expenses. In the state of Michigan, if the homeowner agrees to a deed-in-lieu, they've forfeit their six month right of redemption. Some general foreclosure tips are: Get all agreements in writing. Never sign a release giving up legal claims until the actual workout agreement with your lender is finalized. If you are ever unsure, seek advice from an attorney or a nonprofit housing counseling agency. Record information on calls. Keep a log with who you spoke to, when, and what you discussed. Stay organized, stay focused. There are three foreclosure alternatives which are to keep the house, sell the house, or allow the foreclosure to proceed. Your decision on which option is best in your situation should be based on good information. The next section will focus on the option to allow the foreclosure to proceed. If you cannot keep the house and have not had success selling it or negotiating with the lender for a deed-in-lieu foreclosure, your decision is about when to leave, either immediately or near the end of the redemption period. For most people, the redemption period is six months from the date of the Sheriff's Sale. It is your right as a homeowner to know what the redemption price is. Contact your local county register of deeds and ask for the Sheriff's deed and purchasers affidavit stating the exact amount required to redeem the property, who to contact, redemption dates, et cetera. You can get your property back if you can redeem it by paying the full amount to the holder of the Sheriff's deed, often your original lender or its attorney. Ask for the correct amount owed. And if you are able to redeem, make sure the redemption is properly recorded. It is your right as a homeowner to try and sell the property during that redemption period. If you can sell it for more than the redemption price owed, you keep the equity. Be sure to interview you the realtor before you list the property to be sure they have experience working with foreclosed properties. During the redemption period, go back to your budget and ask yourself these questions. Will I be better off moving quickly because the cost of rent, utilities, and renter's insurance will be less than the monthly upkeep of the house I must leave? By moving early in the redemption period, am I facing reality and the need to start over? Will I be better off staying because I can save money for the first month's rent, security deposit and moving expenses? Will staying give me more time to look for new housing and to sell items? Will staying in the house, prevent me from taking the steps to face the reality of losing my home? Beware, scam artists target people who are facing financial difficulties including foreclosure. You should be very suspicious of anyone who contacts you offering to help. One common scam is someone who offers to help save your house if you pay a fee. Another scam is an offer to buy your house and allow you to stay on as renters. A financial crisis is a very stressful time, but you are not defined by your house. You can start over and have a good life. Have hope. Things to remember as you move forward. Continue to use your budget as a guide. It is best to spend less than 30% of your gross monthly income on rent. Do not rent a storage unit. Recovering from a crisis takes time and finances will be tight. Many people and up losing their personal possessions they store due to non-payment of the storage unit. Sell your possessions or store at a friend or relative's home for free. Concentrate on the essentials. Take a money management class, use a budget, spend less than you earn. Get renter's insurance and car insurance. Search for affordable health and dental insurance. Insurance protects you from going backwards. Limit junk mails so you are not overwhelmed by credit card and other loan offers. The maximum amount of debt you should have, not counting a mortgage, is 11% of your income. Don't go overboard. To opt out of pre-approved offers, call the national opt-out line at 1-888-567-8688. To remove yourself from marketing list, you can call the national do-not-call list at 1-888-382-1222. The call must be made from the phone that will be excluded on the list. Some local assistance might be available from these resources, including the County Department of Health and Human Services plus local agencies and organizations. Call your legal aid office and ask to speak to an attorney if you question if the foreclosure process was handled properly. A local housing counselor may also help you figure out your situation and recommend resources. Call 211 if you need emergency services. Our university backed, unbiased Starting Over After Foreclosure toolkit offers research based tools and resources to help home owners who have experienced foreclosure. Accessible and easy to read, this toolkit helps Michigan resident understand their situation both emotionally and financially and is offered free online. For more information and additional resources, visit the mimoneyhealth. That is M-I moneyhealth.org website. You can also find a certified local housing counselor to talk to about your situation and possible assistance. (calm ambient music)

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