The Best Outcome to a Foreclosure Situation…
Many homeowners facing foreclosure would probably agree that the best outcome for their situations would be that they can work something out with their lender to Avoid Foreclosure …and stay in their homes. While a loan modification or forbearance agreement is a possibility, a distressed homeowner is wise to consider other options to prevent foreclosure should a loan modification, forbearance, or some other agreement not be in the cards.
This includes options where the homeowner no longer stays in the home, like the short sale option and the mortgage assignment option.
The Short Sale Option…
When the market value of the home is less than what is owed, the home owner is said to be “upside down”. They owe more on the home than it is worth. The homeowner typically engages a real estate agent or real estate investment company to work with the lender to negotiate the terms of a short sale.
If the lender is willing, the property can be put on the market at a price that is less than what is owed to the lender. Unfortunately, the short sale process can take 3 to 6 months to complete. And, things can go wrong…including the lender changing their mind about going through with the short sale…or the possibility of the home not selling.
And, to add insult to injury, the homeowner
- May be taxed on the difference between the amount the house sells for and the amount they owe
- Will likely take a credit report hit for doing the short sale
The Mortgage Assignment Option…
The basics of a mortgage assignment are that another party takes over making payments to your lender. The underlying mortgage you have stays in place. Your home becomes their primary residence. You are seller-financing the home to the new buyer.
Typically, the buyer is someone who cannot get a conventional loan for one reason or another (perhaps because they work for themselves). They may have a ding or two on their credit report, but they have good income and can make the payments. Through the seller-finance arrangement, they typically demonstrate they reliably make payments. In 2 or 3 years, they they seek to refinance to a conventional loan.
Benefits of a mortgage assignment:
- If a buyer stops making payments, you can get your house back. Or, another buyer can be put in the house to resume payments
- There are generally buyers waiting in the wings
- A mortgage assignment is typically much quicker than a short sale, and it can take place in 1 to 6 weeks
- There are no real estate agent commissions to pay
- Works in no-equity situations…and certain upside-down situations
- The short sale tax liability is vanishes
- No credit report ding for doing a mortgage assignment
A popular misconception dispelled…
There are those – incredibly including some real estate agents and brokers – who seem to be under the impression that a mortgage assignment would not be allowed by the lender because of the “Due on Sale” clause in the mortgage paperwork. Real estate industry expert Harold Moses is emphatic that the “Due on Sale” clause gives the lender the option to call the note due…not the obligation to. He says, “Look at the clause yourself”. Moses indicates that the lenders are happy to still receive the payments.
Least Worst Option…
As with other options to prevent foreclosure, mortgage assignments are not perfect…and may not be for everybody. But, as Moses put’s it, “It’s definitely a solution for your problem”.
Mortgage assignment expert Phill Grove indicates that really none of the options a distressed homeowner faces are ideal. And, he goes on to say that mortgage assignment is a homeowner’s “least worst option”. Find out if a mortgage assignment is right for you.
Don Roberts