Government programs for those that qualify to Deed in lieu of foreclosure AZ
More Deed in Lieu of foreclosure help is being offered by lending giants Fannie Mae and Freddie Mac, which will now make it easier to get out of a loan that has gone underwater. Borrowers who have stayed current on their mortgage payments even as their home values declined will be able to give up their properties and wipe their debt slate clean, thanks to new rules that will be going into effect this month.
Initially, at the end of the last year, short sales became widely viewed as the best way to relieve homeowners dealing with an underwater mortgage. Short sales allow homeowners to sell their property for less than the amount owed, thus purging their debt albeit at a loss to the lender. Now, homeowners can apply for something called a deed in lieu transaction, which eliminates the difference between the amount owed and the property value for homeowners who have a) remained current on their payments and b) an eligible need to move, which may include sickness, death, job relocation, etc.
A deed in lieu of foreclosure is intended to help homeowners who have remained dependable borrowers at a time when most foreclosure-prevention programs are helping only those who are financially burdened. Now homeowners do not have to be on the verge of losing their home to enjoy a financial reprieve.
Underwater Real Estate
The beginning of the U.S. housing market collapse in 2008 saw real estate property values decrease by nearly one-third. With the biggest foreclosure crisis the country has seen since the Great Depression leaving prices, mortgages, and home values at rock-bottom, market activity remained stagnant and little could be done for a period of four years. Last year saw the first major signs of growth since then – home prices increased by 7 percent and the number of underwater properties decreased from 11 million to 7 million from the year prior.
Often called “upside-down home loans,” underwater properties are worth less than the mortgages owed on them. They are a product of the foreclosure crisis, but new programs set forth by the major lenders are slowly decreasing the inventory. Those that needed to short sale in AZ were seen in the thousands, but now JPMorgan Chase & Co. believes that nationwide number could fall to as low as 4 million by 2015, a sign of the strengthening market.
The Taxpayer Bailout
The new deed in lieu program will likely see the use of taxpayer dollars as well. Most financial consultants consider this a good thing, some even arguing that Fannie and Freddie should have jumped on this much sooner. It will offer an exit to homeowners who most likely would have kept paying mortgages for a property that just wasn’t worth it.
Better Late Than Never
Although short sales have skyrocketed in the past year, there is one down side to this popular foreclosure alternative: the fact that homeowners are typically forced to default on their mortgage, which can result in abandoned homes, decreased property values, and an overall less amount that Fannie and Freddie are able to recover.
The deed in lieu transactions prevents all of this from happening. Homeowners are able to get out of their debt without defaulting and are forced to leave their home in good condition. They offer homeowners who may feel stuck a chance to move and start fresh elsewhere. It’s important to note that these transactions are unique from the Making Home Affordable foreclosure-prevention programs run by the government, which require homeowners to default or be turned down for a modification before further action can be taken.
Although such a program should have gone into effect much earlier, it’s still great to see that these lending giants are finally recognizing the responsible borrowers.
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A main reason for the change was a directive given by the Federal Housing Finance Agency to allow applications by more non-delinquent buyers to be approved.
Borrowers who keep current with the mortgage payments during the deed in lieu process will not have their credit score affected. Meanwhile, borrowers will only be eligible if they put 55 percent of their monthly income toward debt payments (known as a 55 percent debt-to-income ratio).
Other eligibilities include documentation for a hardship or job relocation and a confirmation that the property is being given up in good condition. These strict requirements will ensure that a deed in lieu of foreclosure will be given to only the most deserving applicants.
A Way to Get Out
Problems may arise when a second lender is involved. Fannie and Freddie have no control over second mortgagers, and in some cases those mortgages will not want to give up the property, resulting in more time needed and additional money given to allow a deed in lieu to go through.
Because delinquent underwater homeowners are still the top priority, Fannie Mae and Freddie Mac may require borrowers who have the funds to repay some or all of the difference between the home value and mortgage balance. Deed in lieu applications may be asked to pay up to 20 percent of their available financial resources to make up some of the loss cut by the lender.
Paying a small amount of a mortgage’s shortfall is still a better option than defaulting or walking away from the property. In recourse states, lenders are fully allowed to require borrowers to pay the full deficiency amount if they decide to walk away. In Arizona and other non-recourse states, mortgages are subject to deficiency judgments if homeowners decide to walk away.
In this case, if you are a homeowner who has stayed current on your mortgage payments and are itching to get out, a deed in lieu of foreclosure AZ may be the best option to consider.
If you’d like to see if you qualify for Deed in Lieu of foreclosure AZ, or if a short sale might be right for you, please call us today at 602-741-1602.
Tracy (G+) is an Arizona Short Sale Realtor, Investor, Rehabber, and Foreclosure Expert.
She also is an avid blogger, vlogger, contributor to the Bigger Pockets Blog, and consultant on all things Arizona Foreclosures.