Not to offend anyone, but if you are a homeowner facing foreclosure, chances are pretty good that you are not thinking straight. You have no money, you can’t pay your bills, and the bank is sending you one notice after another warning you that if you fail to do something promptly, they will be forced to kick you out of your home. Unless you win the lottery, what recourse do you have?

It’s easy to get overwhelmed in these dire situations — so overwhelmed, in fact, that you may not even realize that you have numerous options to explore. In this blog entry, I explain the most popular options, along with a few that are not quite so common. Depending on your situation, not all of these solutions will be available, but it’s likely that at least a few of them will be.

Tip: Contact the bank who holds your mortgage immediately to discuss your options. One of the worst things you can do is avoid discussing the situation with your bank. I know it’s uncomfortable, but how uncomfortable are you going to be when the sheriff shows up to evict you?

Staying put

If you really want to remain in your home and are willing to work hard to keep it, you probably have several options that enable you to do so:

• Reinstate the mortgage: If you can borrow some money from relatives or friends, you can reinstate the mortgage by catching up on missed payments along with any interest, penalties, and fees your bank has applied to your account.
• Negotiate a forbearance: Your bank may be willing to set you up with a payment plan that enables you to catch up on your payments. Just be careful that the payment plan is affordable, so you don’t end up in the same situation six months down the road.
• Refinance: If you have equity built up in the property, consider refinancing the current mortgage to reduce payments. If you have credit card debt, you may be able to consolidate all your debts into a single monthly payment that is less than the total payments you are currently making.
• Sell to an investor and buy it back: If you are running out of time, you may be able to sell your home to an investor and purchase it back with a lease-option agreement or a land-sale contract (also called a contract for deed).
  
  A lease-option agreement is sort of a rent-to-own deal in which you rent the property for a fixed period of time and then have the option to buy the property back at the end of that time. With a land-sale contract, you simply make payments to the investor who purchased the property rather than to the bank. In both cases, you sign a contract that almost always has a forfeiture clause stating that you lose the house and everything you paid on it if you do not honor the agreement, so check with your attorney before signing anything.
• Sell to an investor and rent it: If the investor is buying the property for long-term rental income, he or she may be willing to rent it back to you, assuming you have proven that you properly maintain the property. This is an excellent option if you have kids in school and need several months or even a year or two to get them through school before moving.
• Redeem the property after the sale: Many states have a mandatory redemption period, during which time you can purchase the property from whoever bought it at the auction. You have to pay the buyer the amount he or she paid plus interest and any qualifying expenses the person paid (such as property taxes and insurance). Contact the register of deeds at your local county courthouse to find out whether your area has a mandatory redemption period and how long it is. This option typically requires borrowing money from a relative, friend, or private investor.

Selling your home

In almost 90-percent of foreclosure cases, distressed homeowners are best served by selling their home and finding more affordable accommodations. This is especially true if you have equity in the home — that is, if you can sell the home for more than you owe on it. That way, you don’t lose the equity (along with your home) in foreclosure.

Here are some options for selling your home:

• Place your home on the market: Hire the Realtor in your area who seems to be selling the most homes to list your property. Tell the Realtor that you are facing foreclosure and ask whether he or she would be willing to accept a lower commission. (Some will, if only to generate a little positive PR.) On average, a Realtor can sell your home in half the time and for significantly more money than you can sell it for by yourself.
• Sell your home to an investor: If you don’t have at least a couple months to sell your house, you may be able to sell it to an investor who can pay cash and close the deal in a hurry. In most cases, however, you are looking at having to accept about 20 percent less than the true market value of your home.
• Negotiate a short sale: If you cannot sell the home for enough to break even, your bank and other lenders may be willing to negotiate a “short sale” — that is, accept less than the full amount owed on their loans. Lenders who hold second mortgages or other liens against your property may be more willing to negotiate, because they stand to lose everything if your home ends up being sold at auction.

Walking out

If you have little, no, or negative equity in the property, don’t really care (and couldn’t do anything about it even if you did care), consider walking away prior to eviction day. This will at least save you from the embarrassment of a forced eviction.

Here are your options when choosing to walk away:

• Offer a deed in lieu of foreclosure: Your bank may be willing to let you off the hook for the money you owe by turning in your keys and signing the deed to the property over to the bank. Make sure you have legal representation if you choose this option, so that the bank can’t come after you later for any shortfall.
• Gift the house and your problems to an investor: You may be able to deed the property over to an investor, who would be in a better position to negotiate short sales with your lenders to make the transaction profitable for himself or herself. Again, consult an attorney before moving forward.
• Walk out the door: Your credit is already going to be damaged if your home is sold at a foreclosure auction, so why not just walk away? Banks rarely pursue homeowners who simply abandon the property. Again, not the best option but certainly an option you have at your disposal.

Buying yourself some time

You can buy yourself some additional time in the property in various ways. Here are what I believe to be the three most common options:

Doing nothing

The absolute worst thing you can do upon receiving a foreclosure notice is nothing. I recommend that you at least contact your lender. Better yet, try everything:

• Place your house on the market.
• Talk to a loan officer about refinancing
• Discuss your situation with a real estate investor.
• Work on tightening your financial belt, so when you do finally get through this crisis, you come out of it in a little better shape.

In my latest book, Foreclosure Investing For Dummies, I discuss these options in greater detail, because anyone who’s investing in foreclosures needs to know how to provide assistance to distressed homeowners. Be careful though when dealing with investors. Some will intentionally mislead you and fail to inform you of all of your options, just so they can scoop up your home for pennies on a dollar.

Now that you know your options, I hope you’ll agree that you are in much better shape to protect yourself, your family, and your home.

My recent commentary, “A Mortgage Meltdown Quiz,” inspired a great deal of feedback both positive and negative. Most of the negative feedback came from mortgage brokers who were understandably upset by the fact that I was placing much of the blame about the current mortgage meltdown squarely on their shoulders. Most of the positive feedback came from homeowners who were about to lose their homes because they followed the advice of misdirected mortgage originators and purchased risky products promoted by mortgage lenders.

I do stand corrected on two points. First, not all mortgage brokers are to blame. Every industry has its share of top-notch professionals who look out for the best interests of their clients. Although I single out loan originators in this particular commentary, in my book Protect Yourself from Real Estate and Mortgage Fraud, I list nearly a dozen professions that contribute to real estate and mortgage fraud, including real estate agents, appraisers, loan originators, title company representatives, REO brokers, and notaries. You can find good and bad professionals in all of these groups. Second, as at least two people have pointed out, mortgage brokers are not typically the people who package up the mortgage loans and sell them to investors. The broker may earn a commission or fee for processing the loan, but the mortgage lender actually is the one who packages the loan with other loans and then sells it to investors for a markup. In addition, the broker and originator play no role in creating the product; they didn’t invent the risky products or allow homeowners to take out these loans without setting up escrow accounts for paying taxes and insurance.

Although I do stand corrected on these two points, I stand by the premise of my commentary–the major cause of the current mortgage meltdown has less to do with the fact that homeowners are not making their payments and more to do with the fact that mortgage companies are having to buy back their bad loans. And when they run out of cash and cannot buy back the loans, their warehouse line gets cut off, they are basically forced out of business, credit becomes tight, and homeowners can’t refinance their way out of trouble.

Several disgruntled readers (primarily mortgage loan originators) have pointed out that mortgage lenders (not brokers or loan officers) are to blame for creating high-risk mortgage products and for encouraging their brokers and loan officers to push these products. One person went so far as to describe the broker as “the tool of the lender,” simply marketing whatever products the lender chooses to place on the market.

I agree that lenders and Wall Street are to blame for making risky products available, but lenders can’t force brokers to sell these products to clients who are ill-served by them. As a Real Estate Agent, I would never think of selling a particular home to a buyer who couldn’t afford it or selling defective homes to my clients simply because a builder was pressuring me to sell those homes. I believe that Real Estate professionals who deal directly with consumers should be responsible to their clients, not to the manufacturers of certain products.

Let’s not forget who the customer is!

Trying to figure out how to get your house off the market this fall? This article, from RISMedia, is packed great tips and insights you should consider.

Many homeowners and buyers have their eyes peeled on the housing market. While groups like the National Association of Realtors continue to manage consumer expectations and provide reassurance that the housing market will steadily improve by 2008, hopes can fall hard for homeowners who are preparing their home for yet another month on the market. In this buyer’s market, the American Society of Home Inspectors (ASHI) reminds homeowners that a pre-listing inspection or a general maintenance inspection can be a great tool for selling and maintaining your home.

“Pre-listing inspections (conducted on behalf of the seller) and general maintenance inspections are valuable investments for homeowners eager to sell their home,” said Frank Lesh, 2007 ASHI president. “Buyers today have the option to be choosy. A pre-listing or general maintenance inspection will help homeowners catch repairs before they become bargaining chips.”

In addition to the transaction going more smoothly, ASHI says that a pre-listing inspection ensures that sellers can enter negotiations with confidence regarding the quality of their home. That confidence often equates to more dollars in the sellers’ pocket.

Maintenance Checklist

According to the National Association of Realtors, one of 16 American households will buy a home this year. To make sure your home stands out from the crowd, consider using ASHI’s maintenance checklist, a helpful list of items around the house that should be evaluated and repaired year-round.

“People need to think of their home as a machine,” added Lesh. “If one thing is off balance, everything else is compromised. Our goal is to keep our customer’s homes working like well-oiled machines.”

Below are the top ten items to check-off your maintenance list this fall:

1. Check the chimney for deteriorated chimney caps or loose and missing mortar.
2. Check vents, louvers (a frame with horizontal and vertical slats on a building that is angled to admit light and air, but keep out rain and sunshine) and chimneys for birds’ nests, squirrels and insects
3. Check flashing around roof stacks, vents, skylights and chimneys which can be sources of leakage
4. Check the roof for damaged, loose or missing shingles
5. Check for leaking, misaligned or damaged gutters, downspouts, gutter guards and strainers
6. Evaluate your landscape and cut back tree limbs that may be growing too close to the roof. Also consider cutting back and trimming shrubs away from exterior walls
7. Check caulking for decay around doors, windows, corner boards, and joints. Recaulk as needed
8. Check glazing putty around windows as well as weather stripping
9. Check your faucets, hose bibs and valves for leakage
10. Keep your garage doors closed to conserve energy and insulate exposed water lines in cold climates

While some of the items on the list can be easily inspected by a homeowner, ASHI encourages homeowners to considering hiring an ASHI Certified Inspector to conduct a thorough pre-listing or general maintenance home inspection on their behalf, particularly on areas of the home that homeowners may not be familiar with or feel safe inspecting themselves.

Not everyone is cut out to invest in foreclosures. Some people would rather watch TV, invest in stocks and bonds, spend time with family members, or hang out with their friends. Others have a low risk tolerance and can’t convince themselves to borrow money.

Do you have what it takes to successfully buy, fix, and sell foreclosure properties for a profit? The following list describes the bare essentials:

• Sticktoitism. That’s a word I use to describe a combination of the determination and hard work required to overcome adversity. When you’re flipping houses, you have plenty of adversity.
• Time: If you can scrape together enough spare time to go house hunting, supervise repairs and renovations, and consult with a real estate agent, you have all the time you need. Many of the most successful investors are weekend warriors, devoting their evenings and weekends to the pursuit of profitable flipping.
• Money: You don’t need to be rich to buy and sell foreclosure properties, but you do need to be able to get a loan. You can finance your investments in several ways–by using your own cash and the equity in your home, borrowing from friends and family members, or getting a loan from a private lender. Talk to a mortgage broker in your area.
• Guts and gusto: Guts and gusto combine to create the perfect personality for a real estate investor. You need guts to purchase a house with tens to hundreds of thousands of someone else’s dollars in the belief that you can sell it for substantially more in a few weeks or months. A certain amount of gusto is also required to generate the energy and perseverance required to turn trash into treasure.
• Family: When a spouse and children are involved, everyone has to sacrifice family time and other indulgences to contribute their fair share to the venture. Families who work well together can make an investment property a family project that draws them closer together. If family members are already a little testy, however, the stress and sacrifice can drive them apart.
• Tools: You don’t need a truckload of power tools to flip houses, unless you plan on doing most of the repairs and renovations yourself. A pen, a pad of paper, a calculator, reliable transportation, and a cell phone are the only tools you really need.

Tip: Don’t get hung up on what you don’t have, just be honest about it. Do what you’re good at and hire out the rest… or get a friend to help.

For additional tips and tricks about investing in real estate, check out my other site, GetFlipping.com, where you can sign up for a free 31-day email course on flipping houses the right way.

The origin of the word “mortgage” is intriguing. It is a French word generally believed to be derived from two Latin words–”mort” (meaning death) and “gage” (meaning pledge or something of value that’s forfeited if the debt is not repaid).

Although you might feel as though you are signing your life away when you take out a mortgage, that’s not really what the word means. The part of the word dealing with death applies to the passing away of the agreement. When the homeowner eventually pays off the loan, the lender’s claim to the property is dead. If the homeowner fails to make payments in accordance with the mortgage, the homeowner’s rights to the property cease to exist (or die).

A mortgage is a contract that enables people to purchase property without paying the full value upfront. In essence, a mortgage pledges the property to the lender (the mortgagee) in the event that the borrower (the mortgagor) fails to repay the debt according to the conditions stipulated in the mortgage.

Although a mortgage is the most common way to finance the purchase of a property, it is not the only way. The seller can also finance the purchase of the property by way of a Land Contract or Contract for Deed. Instead of allowing the lender to place a lien against the property, a Land Contract or Contract for Deed typically contains a forfeiture clause. The clause states that if the loan is not repaid in full, the property reverts to the possession of the seller (the person who financed the purchase).

To answer the question posed at the beginning of this blog entry, mortgages actually have little to do with death, unless, of course, you take out a mortgage to buy a funeral parlor. Mortgages have more to do with life–being able to purchase a home you cannot afford to pay cash for, so you can enjoy your life and raise a family sometime before you hit your golden years.

For more information about how mortgages work and which kind of mortgage may be right for you, call our office at (586) 751-0000. As a full-service real estate company, we’re here to help you succeed!