Foreclosure Strategy Unleashed

I’m browsing real estate sales in my area and in the same neighborhood you might see widely different prices on homes sold recently.

I’m guessing that the really low prices are foreclosures and the not so low prices are typical home sales. Is this the case? If so, this gives some hope to those trying to sell their home for a more reasonable price.

If not, then I’m trying to figure out what can cause such a drastic disparity. For example, two virtually identical homes in the same neighborhood sold within days of each other: one at $125k and one at $175k.

That is a very large price disparity if the homes were virtually identical.
Typically a foreclosed home by its nature is a victim of deferred maintenance and even willful damage by the owner.
You might speak to a Realtor who specializes in foreclosures to get some comps on these houses and to understand what causes the large price gap.
But don’t get your hopes up too high, if homes are selling for less in a neighborhood, buyers will not be willing to offer the higher price point. The comps tell the story.

If you are waiting for government help to stop foreclosure, you will need to wait until President Elect Obama and the new congress is seated before you have any financial difficulty.  That’s because the existing program, Hope for Homeowners (H4H) is great for the government but not so good for anybody else.  When the initial plan was unveiled by the Federal Housing Administration (FHA) the anticipation was that it would help to save over 400,000 homeowners from foreclosure.  H4H went live on October 1st, 2008 and in the first two months relatively few homeowners have taken advantage of it. There will be many articles touting it as a great thing that will help many people.  To me, it is a fairly stupid idea.

H4H requires lenders to take a serious haircut and for borrowers to give up their equity.  At first look, it seems like a good idea.  Under further investigation I think it falls apart.  Let’s take a look at how the FHA describes this will work.  For purposes of discussion, we will presume that you paid $250,000 for the house with a 10% down payment.  The example information below is taken directly from the FHA website.                                                                                          

These are examples of how the unique equity and appreciation sharing elements of this program work.  Keep in mind that these are only examples, and your actual experience will depend on many things, including how much your home increases or decreases in value1

Let’s say your home has an appraised value at the time you receive your FHA mortgage of $200,000.

And your mortgage is 90% of this, or $180,000.

This means the initial equity is the difference between 1 and 2, or $20,000.

                               

In this example, you and the FHA share this $20,000 when you sell your home or refinance your loan, because the program requires you as the homeowner to share the “equity” created when the lender walks away from $45,000 of debt.

Here’s how that $20,000 would be split:

If you sell or refinance:

During Year 1     FHA receives 100%, or   $20,000 you receive 0%, or           $0

During Year 2     FHA receives 90%, or      $18,000 you receive 10%, or        $2,000

During Year 3     FHA receives 80%, or      $16,000 you receive 20%, or        $4,000

During Year 4     FHA receives 70%, or      $14,000 you receive 30%, or        $6,000

During Year 5     FHA receives 60%, or      $12,000 you receive 40%, or        $8,000

After Year 5        FHA receives 50%, or      $10,000 you receive 50%, or       $10,000

So, if you sell or refinance right after receiving the new loan, the FHA keeps the equity that was created, and you don’t receive any of it.  On the other hand, let’s assume you stay in this loan and don’t sell or refinance for ten years.  At that point, you’re entitled to half of the equity – in this example, that’s $10,000 – and the FHA is entitled to the other half2.

In addition to this equity sharing, you will have to share any future home price appreciation with the FHA.  This means that, if your home has gone up in value between the time you receive your FHA mortgage and the time of your home sale (or other disposition); you will share the amount of this increase with the FHA (less closing costs and a portion of any improvements you have made).  This is a 50/50 split that does not change over time. 

For example, if:

1.            The value of your home when you take out this loan is……………………$200,000

2.            After some years, you decide to sell.  Now the home is worth…………………$250,000

3.            That means the appreciation is the difference between 1 and 2, or………………$50,000

In this example, you would keep half of this, or $25,000.  The FHA would also receive half, which is also $25,000.

Naturally, if the value goes down, there will be no equity to split and therefore no issue. Fortunately, given enough time, home values always improve, so you will see some proceeds from equity growth at the time you sell or refinance.  Did I mention that you also cannot go get a second mortgage except for making home improvements?  That’s right!  A second mortgage would cut into the equity, of which the government is entitled to half, unless you’re making improvements and thereby increasing the amount of equity that the government gets.  Even if you are currently in trouble, would you consider using this type of government help to stop foreclosure?  Or would you look for some sort of assistance that is not so intrusive?

Now I know what you’re thinking, what if I don’t sell my house?  I’ll just stay in it until a mortgage is paid off.  Maybe even pay it off early and enjoy the house in my retirement.  This way I’ll never pay the government anything.  Not so fast!  Take a close look at the information above and you will see which you must pay the government their half of the equity when you refinance, sell “or other disposition” of the property.  Your estate could potentially have to pay the government half of the equity when they inherit. This could force them to sell or refinance the house.  Is that what you want?

Today banks are in the mood to negotiate and modify loans in order to avoid foreclosure in the first place.  This could be a far better option for you than expecting any government help to stop foreclosure.  I’m afraid that help from the lender is the best you’re going to do, at least until the new President is seated.

Mark Elkins
http://www.articlesbase.com/mortgage-articles/no-real-government-help-to-stop-foreclosure-701113.html

I am living in a condo and the owner appears to be going into foreclosure. I have a 60 day notice to quit and I am scared! I am new to Southern California with kids and I am looking for another place with no luck. Can someone please tell me what my rights are as a tenant.
Thank you guys. This is really helpful.

If you’re month to month or if you have a lease, you’re protected under the Tenants of Foreclosure Act of 2009 that President Obama signed into law last July. This federal statute, which overrides state laws, says that a tenant of a property in foreclosure does not have to move out until 90 days after the property is bought at foreclosure auction or sold on the open market. You must, however, still abide by the terms of your rental agreement or lease (you must pay your rent, you can’t be doing any illegal activity, etc.). But, the landlord or the bank can’t force you out for no reason.

Also, California rental laws state that the person who buys the property must honor your current lease until it expires if

a) The buyer is not an individual (they’re a company or an investment group, and

b) The buyer does not intend on occupying the property him or herself.

However, the Tenants of Foreclosure Act supersedes this state law.

why did this person put the deed in his name after it was too late to avoid the foreclouse auction of the home?
facts:
He inherited the house in Oct. 2008.
He was the sole will executor and sole beneficiary.
He chose to drive the highly valued used car he inherited and ignored the mortgage.
He was served foreclosure papers in Nov. 2009.
He let the deadline to settle with the bank pass.
Then only 4 weeks before the auction of the house he puts the deed in his name.
This was 16 months after the death. Probate did not delay his putting the deed in his name. I know the probate process and I have compared his parent’s will to my father’s will and my father’s will is more complicated and the minimum time to end probate in my county is 9 months and the maximum is 13 months, so why he waited 16 months to put the house in his name, when it was too late to avoid foreclosure, is an unanswered question for some of you legal minds in Yahoo land.
He was quoted as saying he is "trying to keep the house". Not sure how he could arrange financing since he is the one being foreclosed on.
he is the will executor & benfeficiary of the house as I saw the deed of distribution myself & deed was put in his name on 2-10-2010.
Why he waited 16 mo. is a mystery. The lawyer who is researching the title 4 me say the guy’s title is worthless as he waited too late, & house will be auctioned. I’ve tried 2 talk 2 the bank & offer them all the debt they are owed. They say they can’t talk 2 me until after the auction. I’m wondering if the guy will be at the auction & bid himself based on some way he has got some financing. The debt is $38K so the mortgage well under $250. My $47,000 mortgage on a sale that didn’t occur was $250 a mo., so this guy has ignored a small mortgage payment for 16 mo. while driving the expensive inherited car. Sell the car & down grade 2 a more modest car & foreclosure never happens. I’ve seen the will and it is very simple with he being the excutor and sole beneficiary. The nerve of him to drive the car and live in the house and ignore the small mortgage.
wait a minute. I’ll be borrowing the money to pay for this house, and my mortgage and bank arrangement should include home owner’s insurance for a year as well as mortgage insurance. This should go into effect the date of closing and the Master in Equity court allows about 20-30 days after the auction to be paid the 95% not paid the date of the auction, paid by the high bidder. My own mortgage should insure it. Not sure.
You can’t "get out of" your mortgage, by giving your house to someone else.
……..he gave it to himself, he was the will excutor and the beneficiary. Maybe he had legal advice and maybe not. He sure waited at least 3 months after probate should-could have been closed.
when the auction occurs on March 8th, I’ll know what value the deed transfer was to the individual and whether it was good or bad legal advice, or maybe the person did not get legal advice. In my county, deeds of distribution do not require a lawyer. It’s recommended since the asset is large as compared to as car, etc. but a lawyer is not required.
the house got pulled from the auction docket. The foreclosed on person got financing or something. I’ll ask the lawyer that did my title search what happened.

Some people think they know a way around the inevitable. Bottom line, if you do not pay, you are going to lose the asset.