1. What is a Forbearance Agreement?

A Forbearance is an Agreement between the Bank and the Homeowner who has defaulted on his mortgage payments. The main qualification criteria are the Homeowner is currently able to afford his mortgage obligations. This situation applies to Homeowners who have experienced a temporary reduction of income or an unexpected event that forced them to skip a few mortgage payments.

The Bank may decide to add the defaulted, past due amount, to the principle balance. In this situation that monthly mortgage payment will increase, but since it is prorated for as long as the life of the loan, it is most of the time a small increase.

The Bank may also prepare a Re-Payment Plan that will allow the Homeowner to cure the defaulted, past due amount, in a small period of time. During this time the Homeowner should keep making his regular mortgage payments.

Once again a Forbearance Agreement situation applies to Homeowners that "can" afford their mortgage payments but have unfortunately fallen behind a few payments due to a temporary reduction of time or some unexpected event forced them to stop performing his mortgage obligations.

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2. Who may qualify for a Forbearance Agreement?

The homeowners who may qualify for a Forbearance Agreement are those who can provide evidence of 2 important facts:

First the homeowner needs to show capacity to pay his mortgage obligations, including Property taxes and Fire Insurance (HOA if applicable) now a days Banks don't want to make the same mistakes as in the past. Those programs that were allowing homeowners to only "state" their  income are pretty much gone. If you are considering applying for a Forbearance Agreement you must be able to provide your Bank with solid evidence of your income. Banks will requests copies of your Income Tax Forms as well as an executed 4506T Form, which authorizes them to get copies of your Tax Transcripts directly from the IRS. If you cannot document your income your chances to be declined are extremely high.

Second the homeowner needs to provide proof of the unexpected events that stopped him from making his payments. Some of the most accepted events are a temporary lost of income, like a lay off or a change of employer. Illness is also one of the most accepted events. If you can provide evidence of the health condition that forced you to incurred in unexpected expenses, you will most like it be granted with a Forbearance Agreement.

The Banks may be a little flexible with the events that pushed you to get in default, but most likely they will not approve the Forbearance Agreement if you are unable to proof or provide evidence of your actual income.

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3. What is a Loan Modification?

A Loan Modification is an Agreement between the Bank and the Homeowner in which the Bank accepts to modify some of the terms of the original Loan with the intention to lower the monthly payments and allow the homeowner to stay in the property and keep his house.

Now, what is important to analyze is which terms of the original loan are most likely to be modified. With no doubt most homeowners that apply for a Loan Modification owe the Bank much more money than what their property is worth. In other words they are, what is most commonly known as "upside down". Under this condition the homeowner is unable to sell or refinance the property and looks at the Loan Modification as the only way possible to keep his property.

Unfortunately, most Banks, in most cases do not want to modify the principal, they are willing to modify other terms of the loan but not the principal. Even worse, most Banks will approve the Loan Modification adding all the past due payments on top of the original principal. Now, you may be thinking, if the principle is going to be higher, how are the payments going to be lower? Well the answer is very simple. Banks find up to 3 different ways to lower your mortgage payments even though they have increased your principal:

1. They will give you a lower interest rate, that could be between 1% to 3%. This lower rate is NOT permanent. It will last between 3 to 5 years and after that you will have to start paying according to the real interest rate. Once your payment will be calculated based on the lower starting rate, your monthly mortgage payment will lower, even your principal now is much higher than what it was originally.

2. They will differ some part of your principal. Let's say your original principal was 350,000 and now due to the addition of all your past due payments it is 390,000. They may differ 120,000 and calculate your new monthly payment based on the remaining amount which would be 270,000. Of course when your payment will be calculated based on 270,000 it is going to be lower, But do not forget about the differed 120,000  which will be converted into a Balloon loan, which will become completely due and must be totally paid 15 years from now or when you may sell or refinance your property, whichever occurs first.

3. They will re-start the length of your loan starting now. So if you bought your house 5 years ago, all those years are gone. You will start a new term today, and if necessary they will add another 10 years to the life of your loan, which will be now a 40 years term instead of the average life term of 30 years. By calculating your new increased principle into 480 payments (40 years) instead of 300 payments (25 years that you had left from your original 30 years loan) the amount that you will have to pay every month would most likely lower. Now you could use a calculator and time your new monthly payment into your new 40 years term loan.

As you can see if you get a Loan Modification approved it may be not a solution to your problem, at all. It would be just like a pain reliever that will take the pain away. But as you know, once the effect of the pain reliever goes away, the pain will come back. If you are so fortunate to get your modification approved after several months of work and several thousands of dollars, take your time to analyze every part of it. Because as we have mentioned before it may not be what it looks or what you expect it to be.

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4. How do I know if I qualify for a Loan Modification?

According to published statistics the chances to get your Loan Modification approved are very slim. Banks are making the qualification processes more and more complicated. Every piece of information regarding your income and expenses must be documented. For some homeowners that are self employed and get paid cash or do not deposit their income checks in his checking account it is impossible to provide the Bank with some proof and at that point the modification can be declined.

There are many Banks that will take your information regarding income and expenses and based on that stated information may give you a Trial Periods which is not your permanent modification, but the banks requires you to start making payments until they get to a complete review and give a response to your Loan Modification request.

Very recently there were some numbers published by the Washington Post regarding Loan Modifications based of data provided by Bank of America:

Out of 1,600 applicants only 1 gets his Loan Modification request approved. That is like 0.0625%.

Now out of these 300 approved Loan Modifications, 299 get some of the terms of their loans modified but just as a temporary relief, like lower starting rates, defer amounts from their principles or extended loan length terms that can go up to 40 years. In all these 299 cases the loan balance, also called principle, will be much higher than the original loan amount after the modification.

Only 1 out of these 300 approved applications gets his loan balance or principle reduced. So if we make some numbers we can say that 1 applicant out of 480,000 gets his loan modification approved with a reduction of his loan balance. That is 0.0002%.

So the main question is not if I may qualify or not, but if I would be that 1 applicant out of 480,000.

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5. What is a Deed in Lieu of Foreclosure?

A Deed in Lieu of Foreclosure is when a homeowner is unable to make his payments and decides to give the property back to the Bank. Most Banks will require the property to be professionally marketed for at least 90 days and if no any offer is received they may consider take back the property.

It is very unlikely that a property in an Urban area will not receive any offer within a 90 day period of time. That' shows us that this possibility will mostly apply for properties that are in rural areas or areas that are not attractive at all. In most cases the property listed and marketed properly will get an offer and then the Bank would rather work out other alternatives like a Short Sale instead of a Deed in Lieu of Foreclosure.

It is very important that homeowners do understand that by giving back the house to the Bank does not represent a release of their responsibility. This means that even the Bank may take the house back they are not providing the homeowner with a release of his obligation in paying the Banks loss. This loss is the difference between whatever the bank lent the homeowner and the amount they were able to receive as net proceed once they were able to sell the house as a Bank Owned Property. This loss can easily represent hundreds of thousands of dollars under the current market condition.

If you get a loan of 350,000 to buy a property back on 2006 and now you give the property back to the Bank and they end up selling the property for 200,000 you will be responsible to pay the bank's loss of 150,000. Now the Bank may not come back to you now, but they could do it in a couple of years, when you are probably getting back on your feet.

You could receive a deficiency judgment from your lender any time in the future.

At this time the ONLY process that can guarantee that the Bank will release you from your obligations to pay the total balance and will at the same time give up its right to initiate any judgment against you now or in the future is an Approved Short Sale.

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6. What are the consequences of a Foreclosure?

There are mainly two major consequences.

One is the fact that a Foreclosure and even a Deed In Lieu of Foreclosure WILL NOT release you from your obligation to pay the Banks' Loss. Of course the Bank will not try to collect this huge amount from you at this time but could do it later when you will be in a better financial situation. Remember a debt does not expire or vanishes in time, it could be enforced and executed at any time. Notice that the Bank is not only NOT releasing you of your obligation to pay but it is NOT giving up its right to initiate a deficiency judgment against you sometime in the future.

The second is the way it will affect your Credit Report. Right after the Foreclosure will take place, the Bank will report it to the Credit Bureaus and they will make a notation on your credit history informing other creditors of this situation. Once your Credit Report will show a Foreclosure record, your chances to become eligible for a mortgage loan in the future are pretty much null. Just so you will understand this better, it works the same way in the auto loan industry. If you get an auto loan and you stop paying your loan, the Financial institution will start several attempts to help you get back on track, but if you don't do it after several months (average 3 - 4) your lender will request a repossession of the vehicle. Once this happens and the lender informs the credit bureaus about your vehicle repossession, your chances to get an auto loan in the future are pretty much none.

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7.Will I keep my property by filing Bankruptcy?

NO. By filing Bankruptcy you will get a immediate protection not only on your property but on every other asset you may own. This is known as the "automatic stay", this will protect you by stopping any lawsuit filed against you and most actions against your property by a creditor, collection agency, or government entity; especially if you are at risk of being evicted or being foreclosed on. Now you need to understand that the Bankruptcy will give you a temporary protection typically 2 to 3 months which is the average time in which your case will be reviewed by a Bankruptcy Judge and it will be either discharged, cancelled or dismissed. After any of these happens you will have to give the property back to your Lender.

The consequences that you will have by filing Bankruptcy will be the cost that it will represent to you, normally varies from $1,500 to $3,500 on a case by case situation. The way your credit will be affected, by staying on your credit history from 7 to 10 years and the fact that it will block your ability to be eligible for credit for as long as it will stay on your records.

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8. How do I know if a Short Sale is my best option?

If you are experiencing financial difficulties or hardship and are unable to make your mortgage payments, the Short Sale will be with no doubt your best way out of this situation. It is better explained by mentioning the main 4 benefits that you will get once the Short Sale will be accomplished:

1. You will be able to stay at your property for as long as the Short Sale process may last. In average, a Short Sale process may last from 4 to 6 months and in some cases it may last even longer. During this period of time you are not obligated to make any mortgage, property taxes or fire insurance payments. This will represent with no doubts a very important aspect to consider due to the substantial savings that you will get. On most cases Lenders will stop all foreclosure activities while in a Short Sale process.

2. Once the Bank will approve the Short Sale, they will not only accept to sell the property for less than what you owe, but will release you from all responsibility on the remaining balance and the Bank's loss. This is known as a full release of your debt. You must pay special attention to this benefit since most people believe that by having their properties foreclosed or by walking away from their properties automatically eliminates the debt. This is not true. If you don't get a full release on your debt in writing from your Bank, you will still be liable for your debt and for all the Bank's loss. Only the Short Sale will give you this benefit. It will be like a new fresh start for you.

3. After the Short Sale is satisfactorily accomplished, the bank will report this account to the Credit Bureaus as an "account settled" or "account legally paid" with a balance $0.00. This will give you the benefit to be eligible for a new Mortgage Loan in as little as 2 years. Fannie Mae and Freddie Mac, who control about 90 percent of the nation's secondary mortgage market will find you eligible according to their guidelines. This will never happen if you end this situation through a Foreclosure or Bankruptcy.

4. The Federal Government is trying to motivate Banks and Borrowers to avoid Foreclosure and participate in Short Sales and as an incentive to Borrowers who opt for this option the government has created the Home Affordable Foreclosure Alternatives Program (HAFA). Under this program borrowers become eligible for up to $40,000 assistance for their relocation  costs.

All the above mentioned benefits are a win win situation for any borrower who is unable to pay or afford his mortgage responsibilities. As an added benefit PLATINUM REALTY & MORTGAGE CORP. will not charge anything for assisting homeowners to participate in Short Sales. This process is absolutely FREE and it has NO COST at all to all our clients.

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9. Can I stay in my property during the Short Sale review process?

YES. The bank wants you to stay on the property during the whole Short Sale process (typically 4 to 6 months) until the Short Sale is closed and you deliver possession of the property to the new buyer. They do not want to take the risk of having a vacant property that can be affected by vandalism and will have all utilities stopped, making it very hard to market it. By letting you stay in the property, Banks know that the property will be protected and well maintained, making a lot easier the marketing process.

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10. How much time will it take for a Short Sale to be approved?

A Short Sale may typically last from 4 to 6 months. But this may vary on a case by case scenario. Some properties may need a longer or extended period of marketing the property and getting a potential buyer. At the same time Banks may vary on the time they take to accomplished all their guidelines and processes. The Investors who own your Loan may also take different periods of time to come to a decision regarding the approval of the Short Sale.

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11. How much will a Short Sale cost?

NO COST to you. Absolutely nothing. We will assist you in the whole process and will work on getting you the best benefits out of this Short Sale process. We are extremely experienced in this field and have closed hundreds of successful Short Sales. Most of our clients are referrals from previous satisfied ones. We will of course get paid a commission which will be approved and paid by your Bank during the Short Sale process. Even if your particular case takes longer than average time, we WILL NOT demand any fee or payment from you. It will be completely cost and risk FREE.

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12. Will my credit get damaged by doing a Short sale?

The impact that your credit will get after doing a Short Sale will be a lot less harmful than doing a Bankruptcy or a Foreclosure. The most important sign that your credit will be less affected is that after a satisfactory Short Sale, the Bank will report your account to the Credit Bureaus as an "account settled", "account legally paid" or "account legally paid for less than the full amount". The balance that will be shown on your credit will be $0.00.

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13. Will I be responsible for the Bank's loss as a result of a Short Sale?

NO. The Bank will issue a Short Sale approval letter which will not only show the acceptance to the Short sale but to accept to sell the property for less than what you owe and also will release you from all the balance on your debt and from the Bank's loss as a result of the Short Sale. Your Bank will also give up its right to initiate any legal action against you, now or in the future, with the intention to collect these amounts. This is known as a "Full Release" which will allow you to have a fresh start and get out of this situation without future consequences.

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14. How soon can I be eligible for a new mortgage loan after closing a Short Sale?

After the Short Sale is satisfactorily accomplished, the bank will report this account to the Credit Bureaus as an "account settled" or "account legally paid" with a balance $0.00. This will give you the benefit to be eligible for a new Mortgage Loan in as little as 2 years. Fannie Mae and Freddie Mac, who control about 90 percent of the nation's secondary mortgage market will find you eligible according to their guidelines. This will never happen if you end this situation through a Foreclosure or Bankruptcy.

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15. Will I get any money through the Short Sale?

The Federal Government is trying to motivate Banks and Borrowers to avoid Foreclosure and participate in Short Sales and as an incentive to Borrowers who opt for this option the government has created the Home Affordable Foreclosure Alternatives Program (HAFA). Under this program borrowers become eligible for up to $10,000 assistance for their relocation costs; plus an additional $12,000 on incentives by the secondary mortgages.

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16. What is "HAMP"?

On March 4, 2009, the U.S. Department of the Treasury announced details of the Home Affordable Modification Program (HAMP) as part of the Making Home Affordable program. The Home Affordable Modification Program is a loan modification program designed to reduce at-risk borrowers' monthly mortgage payments. Freddie Mac is pleased to play a leadership role by implementing this program.

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17. What is "HAFA"?

Home Affordable Foreclosure Alternatives Program (HAFA) HAFA® provides homeowners the opportunity to exit their homes and be relieved of their remaining mortgage debt through a short sale or a deed-in-lieu of foreclosure (DIL). It also provides homeowners with $10,000 in relocation assistance.
Application Deadline: December 31, 2016
Prepare What You'll Need
When applying for mortgage assistance, you will need to provide your mortgage company with information about your mortgage and finances. The exact information required will depend on your specific situation and mortgage company. However, you should be prepared to provide information about your income, expenses, assets, debt and hardship. The following is a comprehensive list of the documents required to support your application.
TO APPLY FOR HELP THROUGH THE MAKING HOME AFFORDABLE PROGRAM BE PREPARED TO PROVIDE:
• Your monthly mortgage statement
• Information about any other mortgages on your home or other property
• For salaried employees or hourly wage earners, 2 recent pay stubs (not more than 90 days old) that reflect year-to-date income
• For self-employed homeowners, your most recent signed and dated quarterly or year-to-date profit and loss statement
• Documentation of additional income received from other sources (tips, commissions, bonuses, housing allowances, overtime, etc.)
• Documentation of any benefits received (Social Security, disability, death benefits, pension, public assistance, or adoption assistance, etc.)
• Documentation of any other income you want considered (alimony, child support, separation maintenance payments, etc.)
• Two most recent bank statements
• A utility bill showing your name and property address
• Unemployment benefits letter, if applicable
• Information about your savings and other assets
• Your two most recent federal tax return with all schedules, including Schedule E
• It may also be helpful to prepare a letter describing the circumstances causing your hardship

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