Forgo foreclosures Posted On: Sunday, Jul. 5 2009 06:31 AM By Don Bolding
Killeen Daily Herald

In these days when home foreclosures are epidemic, it's hard to find anyone who doesn't consider the situation a plague.

Homeowners' spirits are broken when their houses are taken away, and even people who decide to let their homes go because saving them would be too expensive find later that it's a resume and credit stain that won't go away.

Bankers and mortgage companies lose money in the deal, and their public image takes a hit because they seem to be bullies.

Although the prices of homes remain respectable near Fort Hood because the market has remained fairly strong throughout the recession, the situation is far from rosy.

According to Foreclosure Listing Service of Addison, 215 properties in Bell County had been posted by the June deadline for the July foreclosure sale, an increase of 55 percent from July of last year, before the recession set in.

But there are responses to it by the part of the business community that deals with real estate.

The Distressed Property Institute of Boca Raton, Fla., reports at least five Bell County Realtors among graduates trained to guide endangered homeowners through "short sales" when they don't have enough equity in their homes to break even on a sale.

They include Tara Campbell, Paula Flores and Mary Willingham, all of RE/MAX Family in Killeen; Elwood Smith of RE/MAX Temple-Belton; and LaDonna Wall of Exit Homevets Realty in Killeen. The institute certifies them as "distressed property experts," but the focus of the training is on short sales.

The short sale is one option, but there are others to consider.

"The first rule is to do something before a mortgage reaches delinquency status," said Matt Heaton, regional manager and loan consultant with First State Bank's First State Home Loans in Harker Heights.

"And the people to call are the servicing lenders – the people the loan originators, like us, sell the loans to. We'll help any of our customers we've originated mortgages for and welcome their calls with any concern, but these are the people that homeowners need to deal with to explore all their options. They can usually be reached by a 1-800 number on a payment coupon."

Some options might be:

Loan modification, or refinancing.

Forbearance, or negotiated time to get more money.

Transferring past-due payments to the end of the loan period.

Putting the house on the market.

A reverse mortgage in the case of elderly people with lots of equity.

Loans from friends or relatives.

Realtors have said that moving out of the house and renting it for enough to cover the payments is an option because the rental market has gained strength as fewer people qualify for home loans.

"Selling the house is an especially good option here because the market has remained strong," said Heaton's colleague Diane McLeod, area manager and senior loan consultant.

"Whatever you do, you want to check with a reputable attorney to see if your plans will damage your credit or affect your taxes."

For example, a loan that's forgiven, or any part that's forgiven, usually must be counted as taxable income.

No locally-based banks here were part of the wild subprime, variable-rate market that led to the burst bubble that caused the recession, but she said that in some cases, lenders would ease requirements a bit for customers slightly below the bar. But qualifying a "just-missed" customer on intuition is harder to do now.

"If a lender does get one of the ones who was always a bad bet, he'll exhaust all the solutions at his disposal and then call the government to try to find help," she said.

"The Veterans Administration in Houston will help people with VA loans," she said. "They'll help sell the loan, offer grace periods, side notes, other solutions. Very often, foreclosures happen around Fort Hood when a soldier has bought a house with no money down and must sell it without enough equity to break even."

At Exit Homevets, Wall said the tactics she learned about short sales start with making a good presentation to the lender.

"We prove the real estate agent understands the process," she said. "First, the distress has to be a real hardship – loss of a job, a divorce, disability, something that makes keeping up payments impossible." Another "distress" would be skyrocketing rates in a variable-rate mortgage.

"Then we put together a package with a financial statement, a hardship letter, documentation of the condition of the house with photos. This proves we know what we're doing and inspires confidence for the lender to work with us. The lender may have to forgive part of the debt as the house sells for less than the current note, and the homeowner will get a 1099 for that at the end of the year."

But the credit report stain for the homeowner can be removed in three years. The stigma of a foreclosure can prevent homeownership for 10 years, endanger job opportunities and destroy security clearances. Wall said the whole process takes about 40 days.

"One in 25 homes is in distress right now, so there's a real need for these kinds of services. I may not get a commission on a short sale, but the value to me is word-of-mouth good will for helping someone out of a jam. That person may return to me in better times and send others."

Wall said options that involve delaying payments are the best bet when the financial problems are likely short term. The short sale is a better option when they aren't.

She warned against various kinds of scammers, including people who may "take over payments" in a maneuver that actually signs the house over to them and then let it go into foreclosure.

She said graduates of the institute take continuing education by Webinars and conference calls.

McLeod said, "Under no conditions should you just give up under pressure and walk away from the problem," she said.

A foreclosure is an unpleasant last resort for everybody, and the lender will likely be just as tenacious as a customer is about finding a solution.

Contact Don Bolding at dbolding@kdhnews.com or (254) 501-7557.