[I] have read alot about it. I don't think i would qualify for a short sale as i have income, but bank only wants to lower interest for five years on a loan that is $100k underwater. I hate the abandoned neighborhood and the house is falling apart even though it was built in 2003. AZ is a non-recourse state.
I am current on 1st mortgage there is no second. I need to find somewhere to live.
1.) WHEN SHOULD I TRY AND RENT A NEW HOME?
2.) How long does "freddie Mac" (serviced by wells fargo) take to evict you once payments are stopped?
3.) should i occupy the home until evicted?
I am nervous, worried and frankly afraid. I am a disabled single dad with NO-ONE to help me. I am confused in spite of my reading about what to expect. Please respond as I am fairly desperate. I don't know if I have asked all the right questions or considered all of the possibilities yet. PLEASE HELP!
Thank you for writing to us.
First of all we can understand why you are seriously considering a strategic default. It is for good reason. You are not happy with your neighborhood, your property is $100,000 underwater, and your property needs repairs. This is not an optimum living situation under any circumstance. Most important, you need to take care of your health needs. In addition to the emotional toll, the financial toll is great. We are confident you can successfully navigate this important decision in your life. You just need solid information and competent guidance. We are here to help you.
You need to ask yourself the following questions with respect to your lender’s willingness to lower your mortgage interest rate. “Does it make financial sense to accept the reduction of monthly loan payments for a home that is underwater, broken, and in a “bad” neighborhood?” What if the lender agreed to the lower interest rate for 30 years instead of 5 years? What if your lender reduced the loan principle balance? For example, Bank of America is offering principle reductions to certain homeowners. Even if you are not with Bank of America your lender may offer a principle reduction. Did you contact your lender to see if there are other options? What if your lender is willing to reduce the interest rate and the principle balance? Will it justify the emotional costs?
You should not worry about eviction at this point. Instead you should focus on the amount of time you can remain in your property from the moment you decide to strategically default. All lenders utilize a straightforward process when a homeowner defaults on a home loan. First the lender will attempt to collect the past due payments through periodic phone calls and written demand letters/notices. If the initial collection efforts fail the lender will start a foreclosure case. You need to understand how long it takes to complete a foreclosure case in Arizona. You also need to understand the foreclosure process. Arizona allows foreclosures to be processed in a non-judicial procedure. This means that there is no court involvement. Please read our post Understanding the Difference Between Judicial and Non-Judicial Foreclosure by Kenneth F. McCallion, Esq. Remember that your lender must legally and successfully foreclose on your property before any attempt at eviction. If and when you lose your property at a foreclosure auction sale, the new owner (successful bidder at the auction or your lender) must go to court to evict you. You need to understand how long it takes to complete an eviction action. The key concept is to know the time frame and the procedure for the foreclosure and eviction process. You need to know the procedures so you can be conscious of each step of the process. You need to have a time frame so you can map out a strategy for leaving your property in an orderly manner. Please visit Azlawhelp.org for free information and legal assistance.. You should search the Azlawhelp.org website for foreclosure and eviction related information. You can also contact the organization directly. I also recommend that you go to the courthouse in your area to review any materials on non-judicial foreclosures and eviction procedures. You can also consult with a competent attorney.
Your question on whether you should occupy your home during a strategic default is connected to your emotional comfort zone and your desire to preserve your financial resources. If you decided to stop making loan payments and decide to occupy your home until an actual eviction you can save money and perhaps use the money to make more money. For example, if you can stay in your property for 24 months how much money can you save? Of course, this must be balanced with your discomfort with the home and the neighborhood, including the pressures from your lender’s debt collections tactics. Keep an important principle in mind. If you decide to stay in your home after a strategic default it is in your best interest (and your legally contracted right) to use every available legal strategy to stay in your home for as long as possible. Therefore you must learn about the various strategies and consult with professionals whom can help you execute the appropriate strategies. For example, lenders may no longer be allowed to continue with a foreclosure action while a loan modification is pending. Once you decide to strategically default it becomes all business all of the time.
You want to know if it makes sense to move now or stay in your property for as long as possible. First, you need to decide where you want to live after you move or are “evicted” from your home. You want to know if credit matters. It appears you have good credit because you are current with your mortgage loan. Normally, if you want to rent, the landlord will do a credit check. In addition, the landlord will be interested in your current income to make sure you can make the payments. The landlord will want to know how much money you have in your bank account. Once you strategically default your credit score will drop so you must consider how this will affect your ability to rent. We believe that there are landlords who will rent to people who strategically default as long as one can establish the appropriate income and savings. You should contact real estate agents in your area to discuss the impact of a low credit score. For example, a low credit score may require a larger rental security deposit. At this present time “money talks”. A savvy landlord can be made to understand that a decision to strategically default is a good business decision, especially when you can give the potential landlord a straightforward and honest explanation as to why you stopped paying your mortgage. The key principle is to save your money so you have enough resources to cover moving expenses and to establish your ability to afford an apartment.
As you correctly pointed out Arizona is a non-recourse state. You want to make sure that you are fully protected under Arizona’s anti-deficiency laws. In addition to other requirements under Arizona’s anti-deficiency law, the law requires that your property be on “a parcel of real property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling”. Please visit this LINK to learn more about Arizona’s anti-deficiency law. Also Arizona increased protection for homeowners facing deficiency. Please visit this LINK to learn more. If you are unsure about Arizona’s anti deficiency law, you should seek the advice from a competent attorney who is well versed in debtor creditor law and foreclosure defense. You should also seek the advice of an accountant regarding the tax consequences for the forgiveness of any unpaid debt.
A short sale is when a lender allows for the sale of the property for an amount less than the entire balance due the lender. Generally speaking a lender focuses on the value of the property in relation to what is owed when deciding to accept a short sale. During the short sale process the lender will request proof of your income and savings. The lender wants to know if you can contribute cash towards a short sale based upon your current income and savings. The lender wants to collect as much money as possible from you. In other words, if the lender approves a short sale and the lender knows you have cash in the bank the lender will seek a cash contribution from you. Therefore, your income will not prevent you from obtaining a short sale. Keep in mind some lenders are paying homeowners up to $40,000 to complete a short sale.
So here are a few steps to help you begin on your path to success:
- You will need to create a written action plan. A well thought out action plan will help you better allocate time and resources towards a strategic default. It requires discipline, patience, research, and competent advice. It requires a thorough understanding of the risks and rewards. It requires a team of trusted and experienced professionals with expert knowledge. In our strategic default guidebook, we discuss the various parts of an action plan and the steps to successfully initiate your action plan.
- Please read What Everyone Should Know About Debt Forgiveness, Obligations and Deficiencies to learn more about debt deficiency. Please read our post on the Difference Between Recourse and Non-Recourse States to learn more about anti-deficiency rules and regulations.
- The Mortgage Debt Relief Act is set to expire the end of this year, 2012, unless extended by Congress. The Mortgage Debt Relief Act provides tax relief for forgiven debt. Please read this LINK to learn more.
- If you decided to strategically default, you need to make sure your assets are protected. Remember do not keep your cash with any bank that you owe a debt.
- Please read Developing An Action Plan and Putting Together Your Financial Snapshot and Gathering Documents from our Planning For A Strategic Default Series.
- While living in your home make sure to maintain property and liability insurance. Also make sure that all real estate taxes and water bills are kept current. In some cases, the lender will make the real estate tax and water bill payments. Remember unpaid real estate taxes and/or water bills can lead to a lien and an eventual foreclosure by the municipality or city. Under no circumstance should you allow your lender to provide insurance coverage for your home. This is called “forced placed insurance”. Forced placed insurance only protects the lender for the value of the home in case of a fire. It does not protect your for injury on your property or theft of personal property. In fact, forced placed insurance does not provide you with any protection at all.
- You should take your time to read all of our Got Questions? Get Answers… posts on our blog.
- You should seek the assistance of a competent and knowledgeable attorney and/or accountant if you are unsure of the legal and accounting issues that can arise during a strategic default.
Yes we know. Lots of information. It is for your own good so take the time to understand the impact of a potential strategic default.
You need to focus on your best interests. I believe your best interests are served by conserving resources and saving money. You mentioned that you have a disability. Given the high cost of medical care preserving your financial resources is critical.
All that you seek is in front of you. Once you gain more information about the strategic default process you will be able to make a decision with confidence. You need to put pen to paper and develop a plan. You need to speak with competent professionals who can guide you.
We have started to offer flat fee consultations. Our method is straightforward. We act as a guide and help you navigate the strategic default landscape. We achieve success by pointing you in the right direction. We help you put all of the strategies together so it makes sense. Also we are available to answer your questions on a monthly or quarterly basis. Keep in mind that we do not provide legal or financial advice.
If you would like to learn more about our personalized consultations please email us at email@example.com. All initial consultations are free. We only accept payments for services actually rendered. We do not ask for upfront payments. We provide references upon request.
A. A. Diji