Foreclosuresolutionsmanual

Digital
www. StopForeclosureBlog.net
Edition

The Foreclosure
Solutions Manual:
The Complete Guide to Saving Your Home and Credit

WWW.STOPFORECLOSUREBLOG.NET


Legal Notice

The Publisher has strived to be as accurate and complete as possible in the creation of
this report, notwithstanding the fact that he does not warrant or represent at any time
that the contents within are accurate due to the rapidly changing nature of foreclosures.

While all attempts have been made to verify information provided in this publication, the
Publisher assumes no responsibility for errors, omissions, or contrary interpretation of
the subject matter herein. Any perceived slights of specific persons, peoples, or
organizations are unintentional.

In practical advice books, like anything else in life, there are no guarantees of results.
Readers are cautioned to rely on their own judgment about their individual
circumstances to act accordingly.

This book is not intended for use as a sole source of foreclosure advice. All readers are
advised to seek services of competent professionals in the foreclosure field.

You are encouraged to print this book for easy reading.

Copyright © 2008-2009 by StopForeclosureBlog.net

All Rights Reserved.

Reproduction or translation of any part of this work beyond that permitted by Section
107 or 108 of the 1976 United States Copyright Act without permission of the copyright
owner is unlawful. Request for permission of further information should be addressed
to: StopForeclosureBlog.net, 3956 Town Center Blvd, Suite 293, Orlando, Florida
32837.

Page 2


Table of Contents
Introduction ...............................................................................................................................6

Useful Internet Resources ........................................................................................................7

Foreclosure ............................................................................................................................. 10

What is Foreclosure?................................................................................................... 10

Foreclosure Process.................................................................................................... 11

How Your Lender Views Foreclosure.......................................................................... 11

Avoiding Scams ...................................................................................................................... 12

Self Assessment ..................................................................................................................... 13

Your Circumstances, Temporary or Permanent? ....................................................... 13

Income ......................................................................................................................... 13

What Initial Actions Can I Take to Ward Off Foreclosure?......................................... 13

Work it Out: Lender Workout Solutions .................................................................................. 15

Forbearance Agreement or Repay ment Plan ............................................................. 16

Special Forbearance Repay ment Plan (delayed repay ment plan) ............................. 16

Loan Modification......................................................................................................... 17

Deed in Lieu / Surrender Title in Lieu of Foreclosure ................................................. 17

Bankruptcy ................................................................................................................... 18

Alternatives to Lender Workout Solutions .............................................................................. 20

No Home Equity Solutions........................................................................................... 20

Non- Profit Credit Counselors ..................................................................................................... 20

Short Sale ................................................................................................................................... 20

Private Investor Sale Leaseback ............................................................................................... 21

Sub- Prime Lenders .................................................................................................................... 22

Private Loan ............................................................................................................................... 22

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Borrow From Your Retirement Plan........................................................................................... 23

Home Equity Solutions ................................................................................................ 23

Government Help ....................................................................................................................... 23

HELOC ....................................................................................................................................... 24

Second Mortgages ..................................................................................................................... 24

Cash out Refinance.................................................................................................................... 25

Straight Refinance ...................................................................................................................... 25

Fractional Ow nership ................................................................................................................. 25

Vacating the Property Solutions .................................................................................. 26

Sw ap Your House ...................................................................................................................... 26

Rent Your Home......................................................................................................................... 27

Solution Considerations.......................................................................................................... 28

Contacting Your Lender.......................................................................................................... 30

Acceptable Hardships.................................................................................................. 30

Step-by-Step Directions for Creating a Lender Workout ....................................................... 32

Here Are The Steps to Follow when Working With Your Lender: .............................. 32

Do I Have Rights?........................................................................................................ 33

Don’t Pack Up and Leave!........................................................................................... 33

How will a Foreclosure, Bankruptcy, Short Sale, or Deed-In-Lieu Affect My Credit score? . 33

Contacting A Private Investor ................................................................................................. 34

Finally, The BIG Secret Revealed! ......................................................................................... 34

FAQ’s ...................................................................................................................................... 34

Appendix 1: Foreclosure Law s by State................................................................................. 39

Appendix 2: Loss Mitigation Departments ............................................................................. 41

Appendix 3: Monthly Profit & Loss Worksheet....................................................................... 42

Appendix 4: Hardship Letter Template (1) ............................................................................. 45

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Appendix 4a: Hardship Letter Template (2) ........................................................................... 46

Appendix 4c: Authorization..................................................................................................... 48

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Introduction
Don't despair times are tough! In this mortgage crisis...It doesn't matter if you received a
sub-prime mortgage, are a Hollywood celebrity, a person in politics, or someone with
excellent credit who has lost income, endured illness, divorce, etc., have faith: finding
yourself in this position can happen to anyone no matter what your title is, or station in
life.

The home foreclosure report from RealtyTrac dated June 13, 2008 states this:

Foreclosure filings are UP 7% from April, and 48% from last year!

1 in every 483 households received a foreclosure filing during the month of May.

The hardest states hit are: California, Nevada and Arizona.
This proves that you are not alone. Understandably fear may have griped you, because
you are treading in unknown waters. There is no need to worry. This book will give you
the power to deliver yourself from that place of uncertainty. It will put you in control of
your circumstances. Rest assured, you and your family will not be homeless or
surprised by an immediate eviction by an armed Sheriff. Instead, shortly you will have a
Plan of Action.

This Plan of Action will be clear because:

1) You reviewed every foreclosure avoidance-tactic in this book.

2) You learned the benefits and disadvantages of each tactic.

3) You will understand the unique circumstances required for each tactic.

4) You will be familiar with the expected outcome of each tactic.

You are in control of what happens next. This does not mean that you must bear the full
burden of the tasks at hand. Foreclosure can be difficult to endure because it threatens
your basic need for shelter and triggers emotions of fear. To ease the physiological
effects of this experience rely on family and friends for support. Instead of quietly
handling this yourself, contact your friends and family and tell them about the Plan of
Action you are considering, and allow them to offer their insights and help.

There are automatic responses to fear: fight, flight or hide. Intuitively we want to
respond to foreclosure by hiding. Hiding is a great response when the threat is
unknown. It gives us a moment to assess the situation. Time spent in hiding should be
used to assess the threat and determine a Plan of Action where you continue to hide,
run away, or stay and fight. This book is your moment in brief hiding where you consider
your Plan of Action.

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Useful Internet Resources
If you’ve printed out this book, then please go back to your computer and open the
digital version. Each blue title is a link to the relevant website. Click on them and you’ll
be taken to that resource. I want this list to be ever expanding and useful, so if you
have a website you think is helpful and want to share it with others please contact me
and let me know. I will be sure to include in future versions of this eBook.

YoureApproved.org
This site was created to help those who have bad credit find the credit they deserve.
Personal loans, business loans, credit cards and mortgages are all within your reach
with them. No matter how bad your credit situation is, you will not find a better resource
than YoureApproved.org

37 Days to Clean Credit
An effecti ve credit repair strategy that instantly deletes inquiries, charge-offs, late
payments, and judgments from credit reports. The report will show you how to boost
your credit score by 135 points or more in just 37 days.

Landlord’s Guide To Renting
Should you be considering renting your home then this book is a must read, especially if
you are a first time (or reluctant) landlord. There are many costly mistakes that new
landlords make that can turn your bad situation into a living nightmare. There’s nothing
more frustrating than dealing with a home you cannot afford AND a terrible tenant. This
book was designed to teach you how to screen, interview, and manage your tenants for
stress-free property management.

How To Sell Your Home Faster
You’re running against the clock if you want to stop your foreclosure. You need to sell
your home fast, and the best way to do that is to stage it correctly and develop a
strategy to get it sold FAST. This guide is one of best on the market on how to do that.

ING DIRECT
This is probably the last thing you want to hear right now considering your situation, but
I must emphasize it: you need a savings account! I don’t care how bad things are, you
can spare a few dollars every month to place into a savings account. And don’t bother
with the puny returns you get from your local bank, use a trusted online bank to get the
best returns on your savings and have your money start working for you. When you get
back up on your feet, please remember this advice and start saving!


Bad Credit Loan Sources
Bad Credit? No Credit? No Problem! Guaranteed Approval Loans Are Available Up To
$25,000.

National Foundation of Credit Counseling
Each year more than one million people receive counseling and educational services
from NFCC member agencies. More than one-third of all consumers who come to an
NFCC agency for counseling are able to manage their debt on their own after receiving
financial education and counseling.

Association of Independent Consumer Credit Counseling Agencies
The AICCCA is a member-supported national association representing non-profit credit
counseling companies that provide consumer credit counseling, debt management, and
financial education services.

FreeCreditReports360.com
Obtain your credit report from all three credit bureaus from one source. The service will
also offer you credit monitoring and letter templates to correct any inaccuracies on your
credit history. A service such as this one is instrumental in rebuilding your credit after
you’ve gone through any of these workout solutions, especially considering that you
have missed several mortgage payments.

RentLaw.com
An e xcellent database of legal information for landlords and tenants.

Zillow.com
An online real estate service that provides lots of valuable information on home prices
and sales around your neighborhood. The website uses interactive maps and features
lots of useful tools that will help you sell your home fast.

ZipRealty
One of best real estate brokers I’ve ever used. They helped me to sell my home
through a short sale. They also give back 20% of their commission to the buyer and
you can save up to 25% when you sell a house with them. They have an e xtremely
large network and are the largest broker online, so you get the benefits of those
searching online for a home.

Trulia.com
A real estate search engine that helps you find homes for sale and provides real estate
information at the local level to help you make better decisions in the process.

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Craigslist.com
If not the largest local online classifieds, it certainly is one of the largest. Here you will
be able to use the boards to announce your home for sale, rent as well as look for an
apartment or home to rent.

DebtAvenger.com
Should you be $9,000 or more in debt, then you should visit this site to get credit
counseling. They ha ve an excellent network of advisors who will help you gain control
of your finances and get back up on your feet, no matter the circumstances.

IRSTaxFreedom.com
If you are having problems paying your taxes as a result of a deficiency judgment or
short sale, you can use the services provided by these expert tax relief specialists to
reach a settlement with the IRS. They settle tax debt; give you back control of your
finances; end wage garnishments; stop levy, liens, and property seizure; remove
penalties and interest charges; remove tax liens; and settle state and payroll tax.

Web2Carz
Should you be looking to refinance your existing car loan, and have bad credit, then it
gets no better than Web2Carz. 99% of applicants are accepted, even with bankruptcy.

Up2Drive
Get the lowest rates and the fastest service for auto financing, their secure online
application takes less than 5 minutes, they have e xpedited check available for those
approved, and they can make the check to you or the dealer. They offer new, used,
private party, and car loan refinancing. You tend to need to have stronger credit with
this lender and I’ve placed the link here for those of you who may still have decent
credit.

Lower Your Insurance Premiums!
The following are all excellent comparison sites for insurance rates. As you look to cut
your expenses you should look to these websites to get lower premiums. Don’t worry,
they work with people from a variety of credit backgrounds, so you don’t have to worry if
you’re credit is not strong:

Auto Insurance

Home Insurance

Life Insurance

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Health Insurance

Foreclosure
What is Foreclosure?
Foreclosure is a legal process. The end result of this legal process is the termination of
an owner’s right to a property. Usually a lender initiates a foreclosure process when a
borrower defaults on a mortgage loan. A foreclosure process usually involves the forced
sale of the property by a sheriff, where the proceeds of the sale are applied to the
mortgage debt.

There are two types of foreclosure: judicial and non-judicial. In judicial foreclosure
states, a mortgage is the contract between you and the lender, and you must appear
before a judge during foreclosure. The judge will order your home to be sold at the
Sherriff’s sale unless you have a good reason for not making your payments (highly
unlikely).

Under a non-judicial foreclosure, the agreement between you and the lender is held in a
deed of trust, which is a three party contract involving the beneficiary (the lender), a
trustee (a third party who looks after the agreement, usually an attorney), and the trustor
(you). Foreclosure is easier for a lender in non-judicial states because no court hearing
before a judge is required. The trustee will process the necessary paperwork and the
sale of your home. Most times you’ll see a “substitute trustee” handling your case
because the actual trustee is too far from the courthouse where the sale is being held.

In some states, you may redeem your property after the foreclosure sale within a
specified number of days. This is known as the redemption period. However, the
homeowner must follow specific procedures and make all back payments to the lender
including interest, penalties, legal fees, redemption fees, and any home improvements
made after the sale.

If your home is auctioned and the amount it sold for is less than the amount owed on
your loan, then the lender has the right to sue you for a deficiency within a specific
window of time after the foreclosure sale. A judge could also order that you pay the
difference. Depending on the laws of your state, a mortgage foreclosure may not result
in an automatic deficiency judgment. The lender will have to motion for a deficiency
after the foreclosure sale. If you can prove that the home was sold at its market value
on the sale date, then the court will not grant a deficiency judgment. You may present
evidence of the value of your home through an appraisal or other formal opinions of
value.

Page 10


Should you be concerned about your lender obtaining a judgment against you, you
should seek professional help from an attorney and pursue an asset protection strategy
using Land Trusts, Personal Property Trusts, etc. The harder you make it for the
creditor to collect assets from you, the less likely they are to motion for a deficiency
judgment.

Foreclosure Process
1. Notice of Default, likely taped to your front door or delivered by mail.

2. Deficiency Judgment, A legal judgment in favor of the lender against the
borrower that allows the lender to recover losses related losses incurred through
the foreclosure and sale of a home

How Your Lender Views Foreclosure
Your lender does not want to foreclose on your loan. By foreclosing the lender
accumulates the following expenses:

1. Loss of Mortgage payments while you live in the home

2. Legal Expenses (estimated at $10,000 a month)

3. Loss between the mortgage amount and the price the home sells for at auction

4. Loss of all income between the time the home is foreclosed and the purchase

5. Depreciation of the home’s value during the foreclosure process

It will cost your lender at least $30,000, and much more if you have a large mortgage in
a neighborhood with rapidly depreciating home values. These costs give you room to
bargain with your bank. Your bank will be motivated to work out any deal that will result
in less expense than a foreclosure.

Here’s a secret. Your lender probably doesn’t even own your loan. Your lender likely
sold the loan within the first two months after it was originated. Your lender cares about
foreclosures because their foreclosure rate set the value they can sell their loan portfolio
for. The truth is your lender probably sold your loan to an investment bank like Morgan
Stanley two months after the loan was originated. Yes, I know that you still call your
lender about your loan. When the bank sold your loan they made an agreement to
“service” your loan. That means that at this point the only real objective of your lender is
to avoid foreclosure and “servicing” you.

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Avoiding Scams
Be careful to avoid foreclosure rescue scams. Companies that promise to rescue you
from foreclosure may solicit you. Some of these companies are legitimate, but some will
try to trick you into signing your home over to someone else or other disadvantageous
solutions.

Here are some red flags to look out for:

1) Over-promised results. Foreclosure rescue service promised to sell your home in
7 days, or assures you that they will fix your credit.

2) Amateur Advertising: Business uses flyers or solicits foreclosure services door-
to-door.

3) Transfer of Home Ownership. Beware of solutions that offer to lease back your
home, so you can buy it back over time. Look out if you are asked to sign Quit-
Claim Deeds, Powers of Attorney, or asked to put your home in a Trust.

4) Question large up-front payments, where no guarantee of performance is
promised.

5) Claims to cancel your mortgage

6) Deed In Escrow. Where an investor loans you enough money to stop the
foreclosure and then holds a deed from you to him “in escrow” until you pay him
back. He will put you on a payment plan, but if you miss one payment he’ll
record the deed and take ownership of the house. You’ll have no proof of the
amount you borrowed and he will have a signed deed to your house.

7) Seller leasebacks are not necessarily scams, but there are very difficult to
execute for both parties because they often go sour. This will be covered in
greater detail later in the book; however, this is not an ideal option.

8) Bankruptcy is also a possible avenue of fraud. Lawyers are quick to tell you that
bankruptcy is the only way to stop foreclosure, but keep in mind that is how they
stay in business and feed their families, so of course they will recommend this
option over all others. Bankruptcy should be your last resort and you should be
sure to explore the other options presented in this book.

Once you find a foreclosure rescue service or attorney that you might consider, make
sure you take the following actions:

1) Get all promises in writing.

Page 12


2) Review the paperwork with a lawyer before signing it.

3) Go online to the Better Business Bureau (www.BBB.org) and look up the
company’s history of complaints.

If you have already fallen victim to one of these scams, then you should contact the
Attorney’s General’s office of your state and report the company to the Better Business
Bureau. You should also get to online forums like http://www.MortgageFit.com and
http://www.BKForum.com and post your experience.

Self Assessment
Your Circumstances, Temporary or Permanent?
As you will find in this book, there are numerous options for avoiding foreclosure.
Selecting the right solution for you depends upon your circumstances. The most
important circumstance is whether the events that lead to your delinquency are on going
or whether they are temporary. Temporary circumstances are great candidates for
solutions that involve a workout with your lender. If your circumstances are on going,
and not likely to cure within a known period of time, then the alternatives to a work-out
with your lender are your best options.

Income
Your lender will want to see your income so that they can evaluate whether you have
the ability to repay your delinquent amount. If you are asking your lender for a workout
solution where you keep your home, then your records of income should substantiate
that your delinquency is related to an acceptable cause, and that cause is temporary. If
you are looking for a solution that avoids foreclosure but does not allow you to keep
your home, then your income documents should substantiate that your delinquency
was/is for an acceptable reason, and that reason continues to be an expected and on-
going condition.

What Initial Actions Can I Take to Ward Off Foreclosure?
Put Some Money Awa y for a Rainy Da y
Whenever it is possible, put money away in the event “life” happens. The experts say
we should have an emergency fund, at least 6 months of income saved, that you could
utilize, in order to avert financial disaster. You may say I only ha ve enough to take care
of my current month-to month obligations. That’s okay, save what you can. Every little
bit helps. Make your savings automatic by using direct deposit. In this way you never
“miss” the money or forget to save. Pa y yourself first no matter what, otherwise you’re
just working for your creditors, not yourself.

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Save On Your Cable Bill
Isn’t it true that we love cable? But, let’s be honest. How many cable channels do you
really need? Here’s a strategy-call the cable company and cancel all of the excess
features/stations that you can live without. You can always get them back when your
financial situation improves-the cable company will welcome you back with open arms!

Limit Your Meals Out
Consider limiting your restaurant visits, for lunch & dinner. It’s amazing how much we
spend to have meals out. Here is a two-fold benefit that you will receive. First-the
difference between the money you save by shopping at the grocery store instead of
eating out can be put into the bank, or towards your mortgage. Second-cooking at home
can be healthier, and you can share that time with extended family and friends.

Shop Around For Lower Insurance Rates
Now is a great time to look for lower insurance premiums and to work with your credit
card companies to get a lower rate. As Ramit Sethi explains in his blog and book, “I Will
Teach You To Be Rich”, you do have negotiation room with your insurance company.

If talks do break down you can always look for lower auto, health, life, and home
insurance rates on the Internet. Getting a lower credit card rate or your fees waives is
much easier than you think. A simple phone call to the customer support department
informing them of better offers you get in the mail and a threat to deflect is usually all it
takes for them to play ball. Should the person you talk to resist lowering your rate or
waiving a late fee, and then ask to speak to a supervisor. Do not hang up until you get
some type of concession. The book, “I Will Teach You To Be Rich” outlines this
strategy in better detail and also offers lots of other phone scripts to lower your fees and
interest rates from a variety of companies and banks.

Monthly Memberships
If you are paying for monthly memberships that are only used occasionally, cancel them
and save the money. As in any of the above suggestions, once you have taken care of
the most important financial issues in your life, you will always be able to reactivate
those luxuries.

Page 14


Refinance Large Ticket Items
Your lender will want to look at your debts. Your lender will look to see whether your
delinquency is caused by a yacht pa yment. If you have a yacht, now is a good time to
sell it.

Here is an example of another way for you to create more money in order to stay
current with your bills. If you have a large car payment, look into refinancing to lower
your monthly payment. Or, sell the car and buy one that is less expensive to conserve
costs. Sell other assets: a vacation home, fine jewelry, or your second car. These are
just a few suggestions to get you thinking.

Your lender will be more inclined to provide a workout agreement if they see that you
have taken action to mitigate your delinquency. Meaning, you should show that you
have made an effort to cut costs.

I Can’t Afford to Keep My Home
You’ve been painfully honest with yourself, and decided that it’s just too much to keep
the house. So, consider selling it, before the foreclosure process begins. Then, you
may be able to purchase a home with a lower mortgage. Or, even consider renting until
you get back on your feet. Either way, your credit should stay intact.

For your convenience, I have included a worksheet in appendix 3 to help you organize
your monthly expenses. Feel free to share this worksheet with your lender to
demonstrate your hardship.

Work it Out: Lender Workout Solutions

A “Workout Solution” is a one that allows you to workout a solution with your bank.
There are two types of workout solutions: The first type of solution is where you keep
your home. The second type of workout solution is where you leave your home.

The solutions that allow you to keep your home require that you have, or will shortly
have the ability to pa y your e xisting mortgage payments, and that you have the ability to
pay off your delinquent amount over time. Conversely, the workout solutions that result
in you moving out of your home require that you do not have the ability to pay your

Page 15


existing mortgage payments, and that you do not have the ability to pay off your
delinquent amount over time.

Forbearance Agreement or Repayment Plan
A Forbearance Agreement with your bank is the most common solution for avoiding
foreclosure. This solution requires that you contact your bank and ask for a
Forbearance Agreement. Just because you ask for a Forbearance agreement does not
mean that you will receive one. Lenders do not want to create forbearance agreements
for borrowers that have on-going financial problems that will not allow them to re-pay
delinquent amounts within a reasonable amount of time (6-12 months). A lender will
want you to qualify for a Forbearance Agreement by providing your recent financial
documents and an explanation for your delinquency. If you don’t provide an acceptable
reason or if you don’t show enough income, you will not qualify for a Forbearance
agreement.

Advantages:
• Keep Your Home.

Disadvantages:
• You keep your existing loan, which is bad if you have an ARM.

• Requires that the hardship is temporary.

• You will have higher payments to pay back the delinquent amount.

Special Forbearance Repayment Plan (delayed repayment plan)
Like a regular Forbearance Agreement, this agreement allows you to re-pay your
delinquent amount over time. You will be required to provide your recent financial
information and an explanation for your delinquency. However, in this work-out solution
the lender considers an on-going financial situation, such as a hospital stay.

In this agreement, you pay back the delinquent amount, but your payments are also
lowered temporarily while the on-going circumstance persists.

Advantages:
• Keep Your Home.

• Temporarily lowers payments.

Disadvantages:

• Requires that the hardship is on going.

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• You will eventually have to make higher payments, once your on-going situation
is resolved.

Loan Modification
You can also contact your bank and request a loan modification. This is where the
lender adds the delinquent amount to your loan balance and adds additional time on
your loan. The bank will consider your total delinquency amount to include attorney
fees and late fees. The bank will not accept a loan modification if you have very little
equity in the home and/or your total delinquency is greater than 12 of your loan
payments. In other words, the bank does not want to accept a loan modification if you
do not have a significant amount of money invested in your home (equity), or if you are
so delinquent that a loan modification would require adding more than one additional
year to the term of your loan.

Advantages:
• Keep Your Home.

• Ma y be able to turn an ARM loan into a Fixed Rate Loan.

Disadvantages:
• Requires that you have equity in the home.

• You will likely have to make higher payments.

Deed in Lieu / Surrender Title in Lieu of Foreclosure
This solution differs from the other workout solutions because in this solution you do not
retain the property. In other words, you will have to move out of the home.

This solution is similar to the results of a foreclosure, but instead of the lender forcefully
taking away your property rights, you surrender the property rights. In exchange for
surrendering the deed to the house, you will not have a foreclosure on your credit
report. Your credit report will still be damaged, but you can recover and get another
mortgage in about two years.

Here are some helpful tips to acquiring a Deed in Lieu agreement:

• Find a real estate attorney to help you through the process and the
paperwork.

• Have your home appraised so that you know the fair market value of the home.

Page 17


• You can offer a rental agreement with your offer for deed in lieu of foreclosure so
that you still have a place to live.

• If the fair market value exceeds what you owe on the mortgage, you can
negotiate for a cash consideration from the lender to make up the difference.

• Most lenders will require that you try to sell the home for 90 days before allowing
a Deed in Lieu agreement.

• Negotiate with the lenders what will be reported to the credit bureaus.

Court Protection
If you are unemployed or underemployed, you can seek court protection. The laws vary
by state, but you are usually able to delay foreclosure for up to six months. Within this
period you should save money and look for another place to live or this may be enough
time for your hardship to pass.

Bankruptcy
Bankruptcy is a big pill for a big illness. It is a powerful cure that should be administered
by a trained professional; an attorney. This cure has side effects, and these side effects
should be considered before using bankruptcy.

You cannot file a Chapter 7 bankruptcy for your home loan. Chapter 7 is reserved
strictly for unsecured debt such as credit cards, personal loans, and store cards. You
may use a Chapter 7 bankruptcy to free up money so that you may repay back
payments on your home or establish a repayment plan with your mortgage company. If
you allow your home to be foreclosed on, the lender may still come after you for a
“deficiency balance”. This balance is what is owed to lender after your home is
auctioned at the courthouse. Following the auction, a Chapter 7 bankruptcy can be filed
to clear you of this obligation. However, you will have both a foreclosure and
bankruptcy in your credit history, which will make life very ugly for the first four years
after filing.

Under Chapter 13, you reorganized your debt and consent to a reasonable repayment
plan mandated by the courts. You cannot file Chapter 13 unless your income is great
enough to pay all priority and secured debts, and 25% of your unsecured debt over a 5-
year period. Additionally, your mortgage may rise because you will have to continue to
pay the lender in addition to any amount that you missed during the proceedings or
leading up to the proceedings. If you fall behind on your mortgage payments after
securing a Chapter 13, then the mortgage company will ask the court to lift the stay and
proceed with a foreclosure and you may find your home on the auction block in a matter

Page 18


of weeks. A homeowner can file an individual bankruptcy in only their name and it will
not affect their spouse’s credit so long as their spouse did not sign the mortgage.

Chapter 13 Advantages
• Delays Foreclosure Proceedings

• Allow you to build savings while the process is underway.

• Lets you pay off the past-due amount over the length of a repayment plan.

• Ma y help you eliminate the payments on your second or third mortgage if you no
longer have the equity with which to secure the later mortgages.

Chapter 13 Disadvantages
• Need enough income to at least meet your current mortgage payment.

• Will damage your credit score for many years.

Chapter 7 Advantages
• Delays Foreclosure Proceedings

• Allow you to build savings while the process is underway.

• Ma y help you eliminate the payments on your second or third mortgage if you no
longer have the equity with which to secure the later mortgages.

• You will be clear of debt and able to start building new credit.

Chapter 7 Disadvantages
• Does NOT cancel the Foreclosure.

• Ma y have to secure new housing.

• Might cause you to lose property you don’t want to give up.

• Not eligible if your average gross income for the six-month period preceding the
bankruptcy filing exceeds the state median income for the same size household.

• Will damage your credit score for many years.

One last note regarding bankruptcy. Be wary of an y one who aggressively solicits you
by mail or phone regarding bankruptcy. You cannot be assured they will advise you
honestly if their primary goal is to get you to file bankruptcy. Furthermore, big city law
firms might let your case fall through the cracks because they have so many clients.

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You should look through your yellow pages for a smaller firm that will be familiar with
your case and give you the attention you deserve.

Do not wait until the last minute to file bankruptcy. Some states require that you
complete credit counseling 7-8 days before filing your case with the court, so time is of
the essence if you have already received your Notice of Default.

Alternatives to Lender Workout Solutions
No Home Equity Solutions
Contact A Housing Non-Profit
This is a very good resource. The HOPE National helpline @ (888) 995-HOPE, helps
homeowners 24 hours a day, 7 days a week with their foreclosure concerns. It’s FREE!

Non-Profit Credit Counselors
You may also seek counseling from HUD-approved counseling services. These
agencies will help you create a budget so that you may pay your debts and cover your
living expenses. They will also call your lender to arrange a workout, protect you from
future credit problems, and provide you with information on assistance and housing
programs in your area. To contact a counseling service now, just visit
www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm. You may also contact counselors associated
with the National Foundation of Credit Counseling or the Association of Independent
Credit Counseling Agencies (see the appendix for more information).

Update: Lenders and banks who are members of the U.S. Treasury-backed Hope Now
Alliance have voluntarily agreed to follow new guidelines to help homeowners avoid
foreclosure (http://www.hopenow.com/); you can get a list of contact numbers for these
lenders/banks here: http://www.hopenow.com/loanservices/servicerdirectory.html.

The guidelines shorten the time homeowners receive and get a decision from their
lender, and homeowners will usually know within 5 business days if they will receive
help from their lender. Lenders will make a decision on the loan within 45 days. The
guidelines also push for deed in lieu or short sale to help homeowners avoid
foreclosure.

Short Sale

A “Short Sale” is when you get the bank to allow you to sell your property for less than is
owed on the mortgage. This means that you are paying off “short” the balance of your

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mortgage. In other words, the proceeds from the sale will fall short of paying off your
remaining mortgage balance. In this solution the lender agrees to accept the sale price
of the home as the total loan pay-off even though the amount is less than the mortgage
balance.

A short sale is a viable alternative when the borrower is over financed. That is, the
buyer’s home is worth less than the balance remaining on the mortgage. If the homes in
your neighborhood are selling for less than they used to sell for when you purchased
your home, the bank may be willing to allow a short sale. A bank is motivated to permit
a short sale when the bank’s expected costs to foreclose are greater than the loss on
the sale of the property.

If you do an approved short sale (all lien holders must approve the short sale), then,
strictly speaking, there is no "deficiency balance". A deficiency balance only arises in
the foreclosure context. In the short sale context, there is "forgiven debt", the
difference between how much you owe and how much you sell the house for. Granted,
the phrase “deficient balance” describes both situations but that is technically
inaccurate.

But, make no mistake, you are liable to pay income tax on the forgiven debt of a short
sale, unless you qualify as insolvent (See IRS Form 982), and the mortgage company
will send you a 1099 (assuming the amount is over $600). However, if a foreclosure
happens within the context of a bankruptcy you do not pay income tax.

Advantages:
• Shows “paid in full” on your credit report. Short sales are tricky; they do not
damage your credit score if the lender reports this as a “settled debt.”

Disadvantages:
• The homeowner is taxed the “short” amount on the form of a 1099 for income
taxes.

• You have to move

Note: The tax on forgiven debt is suspended due to the Mortgage Forgiveness Debt
Relief Act of 2007.

Private In vestor Sale Leaseback
In the investor leaseback tactic, an investor will purchase your home. This purchase will
stop foreclosure proceedings because your mortgage will be paid off. The new owner
will then lease your home back to you. Depending on the situation, an experienced

Page 21


investor may negotiate a short sale with the bank and then lease your home back to
you.

Advantages:
• Gives you time to rebuild your and credit history.

• You will have the opportunity to buy back the home.

• It does not hurt your credit.

• You do not have to move.

Disadvantage:
• You lose ownership in your home.

• Your interest will be higher than the current typical rate.

• The IRS will take a close at your finances and tax returns to ensure this isn’t a
scheme to hide assets and change the appearance of ownership.

Sub-Prime Lenders
If you have decent credit, and your situation is temporary, then you should consider
contacting sub-prime lender. This company contains a database of sub-prime lenders
who will lend you the amount you need to make up your mortgage back payments.
They have been in business since 1998 and they specialize in helping people with
terrible credit. In fact, they guarantee you a loan.

Private Loan
You will likely need an amount equal to 3-4 mortgage payments plus attorney’s fees in
order to stop your foreclosure. If you cannot do this through traditional lenders, you
should try a private lender. Their rates will be much higher, but such is the cost for
obtaining “private money”.

ForeclosureFish.com is one such private lender that is backed by Adama Properties
LLC, which has been around for some time. This company matches borrowers with
private lenders and also provides additional resources for those facing foreclosure.

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Borrow From Your Retirement Plan
You can take a withdrawal from your IRA or 401(k) to prevent foreclosure. You will lose
a big chunk of that withdrawal to taxes and penalties. The full amount of your
withdrawal will be treated as taxable income and the IRS will hit you with an additional
10% penalty if you are under 591/2.

The better choice would be take a loan from your retirement plan, instead of a
disbursement. As long as you are employed you are able to take a loan from your
employer’s 401(k) plan. If you leave or lose your job, you won’t be able to continue
borrowing from the plan. This option works for those who are self-employed as well and
have established a SEP (Self-Employed 401(k)).

Home Equity Solutions
Government Help
The U.S. government is offering ways to help homeowners facing foreclosure. The
Federal Housing Administration (FHA) may grant FHA refinancing to borrowers who can
show:

1) Delinquency related to a change in interest rates.

2) Mortgages where the interest rates will reset between June 2005 and December
2008.

3) 3% cash or equity in the home

4) Enough income to make the mortgage payment.

This tactic is not good for those who don’t have enough income to make mortgage
payment, or for those whose home value has declined. Keep your eyes on the FHA web
site. There might be more solutions offered during this foreclosure crisis.

The FHASecure program provides homeowners with refinancing of up to 97.75% of
their home’s appraised value into a FHA-insured mortgage. A FHA-insured mortgage
usually has lower monthly mortgage payments. There isn't a limit on how far behind
you can be on your mortgage.

Both first and second mortgages can be included in FHASecure so long as the
combined amount is within the FHA loan limit. If the combined amount exceeds the
FHA loan limit or the loan-to value limit, you can ask the lender for a second mortgage
to make up the difference.

Page 23


Advantages:
• Keep Your Home.

• You will have lower payments

Disadvantages:
• Loan will only cover a percentage of the appraised amount.

• Must be related to interest rate changes.

HELOC
A HELOC or Home Equity Line of Credit is a line of credit where the collateral held on
the line of credit is the equity you own in your home. This means that if your mortgage is
for $100,000 and your home is worth $200,000, then you have $100,000 in equity in
your home. Your lender will likely grant you a HELOC if your credit has not deteriorated
too much. You can use this line of credit to pay off your delinquent mortgage amount.
One disadvantage of these loans is that they tend to be an adjustable rate.

To begin looking for a HELOC visit www.bankrate.com to view rates from banks
nationwide.

Advantages:
• Keep Your Home.

• Your credit remains intact

Disadvantages:

• You have another loan payment.

Second Mortgages
Unlike the HELOC, a 2nd mortgage is usually a fixed rate loan. This loan also uses the
equity you have in your home as collateral for another loan. 2nd mortgages cannot be for
100% of your equity. Rather, lenders grant second loans where the total of the two
loans equal 75-85% of the current value of the home.

To begin looking for a second mortgage visit www.bankrate.com to view rates from
banks nationwide.

Advantages:
• Keep Your Home.

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Disadvantages:
• You keep your existing loan, w hich is bad if you have an ARM.

• You have another loan pay ment.

Cash out Refinance
A refinance is when you acquire a new loan with better terms and you pay off your
existing loan with the proceeds. In a cash-out refinance, the new loan is for more that
the current mortgage amount, so the excess is given to you as cash.

To begin looking for a refinance visit www.bankrate.com to view rates from banks
nationwide.

Advantages:
• Keep Your Home.


• You get extra cash

Disadvantages:
• May have a higher loan payment w ith longer terms

Straight Refinance
Like the Cash out Refinance, this refinance is where you acquire a new loan with better
terms and you pay off your existing loan with the proceeds. In a Straight Refinance, the
new loan is for the current mortgage amount.

Advantages:
• Keep Your Home.


Disadvantages:
• May have a higher loan payment w ith longer terms

Fractional Ownership
If you have equity in your home then your lender is interested in loaning you money
where the collateral is the equity in your home. Rather than get a loan based on this

Page 25


equity, you can sell this equity outright. Perhaps a family member or friend or even a
private investor is interested in buying your equity in the home.

For example, if your father would like to invest in your property, you could sell part of the
property to your father. In e xchange your father would give you cash, and he would
receive partial ownership in the home. If the home appreciates and you decide to sell it,
your father will be entitled to a proportional share of the profit from the home sale.
Likewise, if the home depreciates in value and you realize loses by selling the property,
then your father will also bear a proportional share of the losses.

If you want to grant the investor the right of ownership in the event that you die, they
should hold title as “joint tenant”. Should you sell your home to a non-family member,
their name would be added to the title as “tenant-in-common”. Holding title as tenants-
in-common gives the right of survivorship to the investor’s heirs in the event they die.
Obviously, their heirs would only be entitled to their share of the property. In either
scenario the investor’s ownership interest should be designated on the title as well.

The investor has the right to sell their interest anytime they wish to get their money
back. So you may be co-owner of the house with someone else in the future. When
you want to sell, you may only sell your ownership interest. Both you and the co-owner
must agree to put the entire home up for sale. Also It is recommend that you place in
writing who will be responsible for mortgage payments, taxes, insurance, and repairs so
there is no misunderstanding.

Advantages:
• Keep your home

• Receive cash to bring mortgage payments current

• Ideal for temporary hardships

Disadvantages:
• Must get investor’s consent to sell the entire home

Vacating the Property Solutions
Swap Your House
You can trade your home for a motor home, free rent or even a boathouse. You can find
a trade opportunity in the local newspaper, www.Craigslist.org, neighborhood fliers, and
local real estate investment clubs. If you have equity in your home and you cannot sell
it, this could be an option for you. If you want to downsize your home and you find

Page 26


someone who wants to up-size his or her home, there is an opportunity to trade. To
trade, both participants must have the same amount of equity in their properties. Both
parties take on the payments of the other, and they switch properties. The equity in one
property is transferred to the other party and vice versa. If both properties do not have
the same equity, you can use cash or another asset (e.g., car, boat, motorcycle) to
make up the difference.

Advantages:
• You still own a home

• You have lower payments

Disadvantages:
• You may hold a property that does not appreciate as quickly as your former
property.

Rent Your Home
If you can rent your home for a price that can allow you to make your mortgage
payments, then this is a good solution for you. The advantages are:

1. You keep the home
2. Your credit is not affected
3. You solve your delinquency problem
4. The IRS allows you to write-off interest, some monthly expenses, and
depreciation

For this solution to work, you have to rent your property quickly and at the highest rent
possible. To pull this off you need to research the rent on homes in your area. If you
know what other homes a potential renter has to choose from, you can promote your
home for rent with terms that beat out the competition. For more information on how to
do this check out this very helpful guide.

I have had great success with bandit signs and Rentals.com. Bandit signs are a great
way to get your home noticed. Put them up around Wal-Mart Stores, Home Depots,
supermarkets, major neighborhood intersections and shopping centers, and outside
apartment buildings/complexes. Be careful to follow your local laws with regard to
signs.

Once you have researched the market and you know what qualities make your home
better than the competing homes for rent, it is time to advertise and show the home. It
is critical that you advertise if you want to rent your home quickly. The first step of your
advertising campaign should be to put a “For Rent” sign on your lawn. Provide a fact

Page 27


sheet next to, or attached to your sign so that prospects can quickly learn the details of
your offer. Here are some additional quick-rent techniques:

1. Keep the shades open so that people can peek in

2. Hold an Open House several nights a week

3. Get the contact numbers of those people who are interested and follow-up with
them just like any salesperson would

4. Accentuate any impression that other renters are competing to rent the property

Once you have an applicant make sure you screen the applicant before you sign any
agreements. Have the potential tenant fill out an application. Check out Landlord’s
Guide To Renting where you can find my information on how to get a nice, loyal pay-on-
time tenant.

It is important that you check the tenant’s rental history, references and credit. Lots of
local companies will do this for a small fee. Don’t move from the frying pan to the fire!
The most important step is screening your tenants, because the wrong tenant can be a
nightmare and make your situation a lot worse. The Landlord’s Guide To Renting has
lots of additional useful information that can help you act wisely. Once you are satisfied
with the tenant’s ability and willingness to pay rent, sign a rental agreement.

Solution Considerations

Update: The Mortgage Forgiveness Debt Relief Act of 2007 is effective through
December 31, 2009 and it “excludes discharges of indebtedness on principal
residences from gross income”. This means that you will not be liable for income taxes
on forgiven debt in solutions such as Short Sales, Deed-In-Lieu, Foreclosure, or
Bankruptcy. The only e xception is for those whose residence is in California where you
will be liable for income tax.

Solution Damages Credit? Tax Pay ments? Keep Home?
Short Sale Discretion of Yes No
Lender
Deed- In-Lieu Yes Yes No
Forbearance Agreement Yes No Yes
Repay ment Plan Yes No Yes
Loan Modification No No Yes
Leaseback No No No
HELOC No No Yes

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2nd Mortgage No No Yes
Cash Out Refinance No Yes Yes
Straight Refinance No No Yes
Fractional Ow nership No No Yes
Rent Your Home No Yes Yes
Trade Your Home No Yes No
Chapter 7 Bankruptcy Yes Discretion of court Yes
Chapter 13 Bankruptcy Yes No Yes
Private Loan No No Yes
Borrow From Retirement Plan No No Yes
Ear ly Withdraw al From Retirement Plan No Yes Yes

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Contacting Your Lender

If you’re reading this chapter it’s probably because you want to go forward with a
workout solution with your lender. This option is for borrowers that have temporary and
acceptable reason(s) for their delinquency. The exact meaning of “acceptable
hardships” is covered in more detail later in this chapter.

The first step in getting a workout solution from your lender is for you to contact your
lender. The lender likely has a department that handles workouts. These departments
are typically called the “Loss Mitigation Department”. Once you have established
contact with your lender tell them that you are experiencing hardship and that you would
like to work out a solution that will allow you to pay back the delinquent amount and
avoid foreclosure.

Your lender will request proof of your hardship and will ask for a letter describing your
circumstances, as well as some financial documentation. The rest of this chapter is
devoted to providing you with the documents your will need to provide to your lender.

Alternatively, you can pay someone to do this for you. This is a fairly time consuming
process, but you can get through it, especially if you want to keep your home. Though
for some folks they may not have the time, patience, or confidence to speak with the
lender and negotiate a workout. In which case, I recommend you seek the help of loss
mitigation service.

Last but not least, you can find more hardship letter templates, bank forms, and
financial worksheets at the U.S. National Housing Authority.

Acceptable Hardships
If you’re asking your lender to workout a loan solution for you, be prepared to answer
your lender’s questions about the nature of your hardship. Your lender will not be
inclined to provide you with a workout if your reason for delinquency is gambling debts
or a shopping addiction. The lender wants to workout your loan if you have a temporary
reason for delinquency, and that reason is mostly due to no fault of your own.
Acceptable hardships include:

1. Unemployment

2. Illness

3. Bankruptcy

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4. Divorce

5. Disability

6. Loss of Rental Income

7. Death in Family

8. Reduced Income

9. Acti ve Duty/ Military

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Step-by-Step Directions for Creating a Lender Workout
The Loss Mitigation Department is set up to handle delinquent accounts and alleviate losses. They really
do want to speak with you.

Always open mail from your lender, and take their calls! It may seem like a scary
proposition because you don’t know how to explain the situation, or you may be
embarrassed and just don’t want to talk to them before you have it all figured out.

Don’t waste time! Avoiding the lender will not make your troubles go away. Quite frankly
the situation will get worse.

And who knows, your lender may offer great options that you have not considered

Here Are The Steps to Follow when Working With Your Lender:
1. Call. Get the name of the person you are speaking with and their direct extension.

Since you will have multiple conversations with loss mitigation, try to establish a

relationship and maintain communication with the same person.

Always be POLITE! You can attract more flies with honey, than with vinegar.

2. Have your account information ready. Take notes. Record the date/time of

your conversations.

3. Be honest, inform them that you are experiencing a financial hardship. Let them

know if it’s temporary, or long term.

4. Confirm the amount you owe. Get a breakdown if necessary.

5. Be prepared to provide income statements, most recent pay stubs, and bank

statements along with your budget. And, assure them that payment of your mortgage

is your first priority.

6. The lender may want you to complete a “loan work-out package. Get the specific
date

it needs to be returned. Then, complete it ASAP!

7. Ask if the foreclosure sale of your property will be placed on hold, while they consider

the work-out. If the answer is yes, get it in writing.

8. Keep copies of everything you send to the lender, and what you receive from them.

Page 32


9. Continue to follow-up until the final arrangements are agreed upon.

Do I Have Rights?
As a homeowner, you do have mortgage rights, but there is a limited time frame in
which you can exercise them. Read your loan documents in order to understand what
your lender may do if you default. Learn about the specifics of foreclosure for your state,
and take action immediately. The lender is working on a schedule, dictated by laws of
the state and the financial institution. Therefore, being proactive will send a message to
them that you are serious about reaching a beneficial outcome. When in doubt, consult
a lawyer or contact legal aid for reputable advice.

Don’t Pack Up and Leave!
Don’t abandon your home! Under most circumstances, you need to be living in it to
qualify for assistance. It’s understandable if you’re emotionally down however, taking
this action may put you in a no-win situation.

How will a Foreclosure, Bankruptcy, Short Sale, or Deed-In-Lieu Affect
My Credit score?
A foreclosure and deed-in-lieu can lower your credit 200-280 points, while a short sale
can lower your credit score 75-125 points. The general wisdom is that a short sale will
show up on your credit report as a “settlement”, or a “pre-foreclosure in redemption.”

In a bankruptcy your credit score is frozen during the bankruptcy process, and is
unfrozen after you have completed bankruptcy. So if your credits score was 650 before
bankruptcy, it will remain 650 when you come out of bankruptcy.

This is not the case with a foreclosure, short sale, or Deed-In-Lieu. Every time you miss
a mortgage payment it hurts your credit score and because you are still obligated for
those payments you cannot claim them as errors. You are on the hook until foreclosure
procedures are complete or you sell the home through a short sale.

A foreclosure on your credit report can stay 7-10 years, and lower your FICO score 200-
280 points.

Page 33


Contacting A Private Investor

Your best chance of meeting a reputable private investor to buy or trade your home with
is through a local real estate investment club that is affiliated with a national
organization such as the Real Estate Investors Association. You should either attend a
meeting or ask for a newsletter to obtain the contact information for the investors who
are members of these organizations. Be sure to ask for at least three to five references
before doing business with any investor.

Rather than provide a list of the clubs available which may become outdated, you
should refer to CFEOnline.com, which is regularly updated:
http://www.creonline.com/real-estate-clubs/index.html

Finally, The BIG Secret Revealed!
Many talk about a BIG secret, that secret is simply that lenders/banks DON'T want to
own your home. They want mortgage payments on-time every month, not home
ownership. This then gives you some power to negotiate terms to get your payments
current, or some level of debt forgiveness such as a short sale or forbearance.

FAQ’s
Q. How long does a foreclosure stay on my credit?

A. A foreclosure judgment will stay on the credit report for ten years from the date of
release.

Q: Why did my mortgage company send me my payment back?

A: If you ignore your lender and do not work-out your loan, your mortgage company will
accelerate your loan, meaning that they will use the terms of your mortgage agreement
to require you to pay off your full loan at once. When this happens, they no longer
accept a payment less than the full amount due.

Q: How much time do I have before I am evicted?

Page 34


A: It depends on which state your property is in. Checkout your States laws in the
Appendix at the end of this book. It also depends on how full the court system is. It
could take as little as 3 weeks or several months.

Q: I just received a Notice of Default. Where can I get accurate information on how long
I have until my home is auctioned?

A: The Trustee hired by your foreclosing lender is the person to contact. This person
can give you details of the foreclosure process for your particular State. The phone
number of the Trustee and their address is listed on the Notice of Default (NOD). If you
are in default, you probably received this notice in the mail.

Q: How will a Foreclosure, Bankruptcy, Short Sale, or Deed-In-Lieu affect my credit
score?

A: A foreclosure and deed-in-lieu will lower your credit 200-280 points, while a short
sale will lower your credit score 75-125 points. In a bankruptcy your credit score is
frozen during the bankruptcy process, and is unfrozen after you have completed
bankruptcy. So if your credits score was 650 before bankruptcy, it will remain 650 when
you come out of bankruptcy. This is not the case with a foreclosure, short sale, or
Deed-In-Lieu. Every time you miss a mortgage payment it hurts your credit score and
because you are still obligated for those payments you cannot claim them as errors.
You are on the hook until foreclosure procedures are complete or you sell the home
through a short sale.

Q: How soon can I be evicted after the foreclosure sheriff sale?

A: Homeowners probably have at least two weeks to a month after the sheriff sale date
to arrange for a new place to move into. However, you should call the sheriff's
department to ask them when then eviction will take place.

Q: Will I be liable for a deficiency judgment?

A: A deficiency judgment refers to a mortgage lender’s judgment against the borrower
for the difference between the outstanding balance of the mortgage note, plus costs and
attorneys fees, and the value of the property foreclosed. The property value is
determined on the date of the foreclosure sale. If a court allows the lender to recover his
dues through deficiency judgment then you will be liable to pay for the balance.

Q: Where can I go for counseling, or help during the foreclosure process?

Page 35


A: The U.S. Department of Housing and Urban Development (HUD) funds free or very
low cost housing counseling nationwide. Housing counselors can help you understand
the law and your options, organize your finances and represent you in negotiations with
your lender if you need this assistance. Contact a HUD-approved Housing Counseling
Agency: Toll FREE (800) 569-4287; TTY (800) 877-8339.

Hope Now Alliance- a group consisting of banks and major lenders has been formed
under the name "Hope Now" to head off what is expected to be a tsunami of
foreclosures by expanding and improving assistance to troubled homeowners. Their
goal is to keep people in their homes and when that is not possible, prevent foreclosure.

Contact them at: 1.888.995.HOPE. HOPE NOW efforts come at no cost to the borrower.

Q: Should I just walk-away from my home?

A: Before you make that decision, see what other options you may have. Can you rent
out a room in order to make monthly payments? Or, can you rent out the entire house,
and live someplace else for a while? Keeping the house continues to give you ta x
advantages and allows you to build equity. (Even though the market is in current
turmoil, many think it will turn around, and your home may regain its value. Read the
following by Kenneth Harney of the San Francisco Chronicle, before you do anything
rash:

Fannie Warns Homeowners Who Walk Away
The country's two largest sources of mortgage money have a blunt warning for anyone
thinking about joining the growing "walkaway" trend, where homeowners stop making
payments and months later send the house keys back to their lender: You will feel the
pain.

On March 31, Fannie Mae sent out new guidelines to lenders intended for walkways
and other foreclosure situations. Fannie will now prohibit foreclosed borrowers from
getting another mortgage through the giant investor for five years, unless there are
"documented extenuating circumstances." In those cases, the mortgage prohibition is
for three years.

Even after fi ve years, borrowers with foreclosures in their files will be required to make
at least a 10 percent down payment, and will need minimum FICO credit scores of 680.

Freddie Mac, Fannie's rival, counts foreclosures as major credit blots for seven years,
and a senior official said the company is now aggressively pursuing some walkway
borrowers "to preserve our deficiency rights" where permitted under state law.

The walkway trend is particularly noteworthy in former housing boom markets -

Page 36


including California, Florida and Nevada - where many homeowners find themselves
upside down on their loans, owing tens of thousands more than the current market
value of their houses. If they in vested little or nothing in down payments, some owner’s
reason, continuing to make payments - even if they can afford to - may be throwing
good money after bad.

A number of Web sites have popped up claiming to cut the hassles of bailing out of a
mortgage. One company promises that clients "will be able to live in (the) home for up to
eight months with no mortgage payments," after paying $895 for a customized plan. The
same site says it will provide clients with "legal credit repair" to "improve your FICO
scores."

Another Web site claims that "your credit can be repaired and (you will) be able to
purchase a house in as few as two years" - after paying a $495 fee. Still another
company says walkways can expect "up to one year living payment free" as the lender
goes about filing for foreclosure. That company charges $995 for its how-to-do-it kit.

Fair Isaac Corp. of Minneapolis, developer of the FICO scores used in most mortgage
transactions, is unhappy at any suggestion that a foreclosure could be minimized or
wiped away in a short period of time. Its scoring model counts foreclosure as a long-
standing and severe event, nearly comparable with bankruptcy, with negative
consequences for all forms of credit that walkways might seek to obtain. That includes
credit card applications, auto loans, student loans - and even insurance and
employment.

FICO spokesman Craig Watts said that the impact of a foreclosure on an individual's
score depends heavily on the payment history, length and number of credit trade lines
in a consumer's file, but "it is always significant."

Robin Stout Migala, consumer outreach manager for Freddie Mac, said in an interview
that "there are so many bad reasons for walking away" from a home loan. Not only are
borrowers' credit standings wrecked - forcing them into excessively high interest rates
on any credit they can manage to obtain. But the y also face other potential problems,
including federal income tax liabilities.

Federal legislation enacted last year allows homeowners who negotiate loan
modifications with lenders and have portions of their principal debt eliminated to escape
income tax liability for the amount forgiven. Walkway borrowers, by contrast, have
nothing forgiven, and the IRS may demand income taxes on the balance they never
paid, according to Migala.

Many borrowers facing foreclosure today have endured serious financial crises, said
Migala - loss of employment, loss of an income-earning spouse, medical issues,

Page 37


predatory loan terms - that led to their inability to make their mortgage payments.

When they apply for a loan from either Freddie Mac or Fannie Mae, she said, the
standard application form asks whether they have ever e xperienced a foreclosure or
handed over their deed in lieu of foreclosure.

If applicants check "yes," the loan is immediately shifted to manual underwriting. Every
piece of information is scrutinized by underwriters, who probe for the facts surrounding
the loss of the house.

For borrowers who faced genuine financial hardships leading to foreclosure,
underwriters are likely to be more sympathetic a few years down the road. But if you
walk away, here's the deal: Don't expect to get a new home loan - certainly not one with
favorable terms - for five to seven years.

That's no matter what some promoter promised you online.

By Kenneth Harney

San Francisco Chronicle

Q: What should I look for in a Realtor who is performing my short sale?

A: You must have a Realtor with experience who has excellent negotiation skills, legal
knowledge and is reliable. A person who knows how to work with lenders, and
understands their jargon; knowing what is required for that particular lenders short sale
package, and how to put it together to facilitate the lenders decision. They must be
accurate in preparing the paperwork; and know how to clearly explain and answer any
questions regarding the process to you, the buyer and their agent. Use a service like
ZipRealty to find and compare a list of real estate agents.

Page 38


Appendix 1: Foreclosure Laws by State
State Security Instrument Foreclosure T ype Initial Step # of Redemption Deficienc y
Months Period

Alabama Mortgage Nonjudicial Publication 1 12 MM Allowed
Alas ka Trust Deed Nonjudicial Notice of Default 3 None Allowed
Arizona Trust Deed Nonjudicial Notice of Sale 3 None Allowed
Arkansas Mortgage Judicial Complaint 4 None Allowed
California Trust Deed Nonjudicial NOD 4 None Prohibited
Colorado Trust Deed Nonjudicial NOD 2 75 DD Allowed
Connecticut Mortgage Strict Complaint 5 None Allowed
Delaware Mortgage Judicial Complaint 3 None Allowed
Dist. of Col. Trust Deed Nonjudicial NOD 2 None Allowed
Florida Mortgage Judicial Complaint 5 None Allowed
Georgia Security D eed Nonjudicial Publication 2 None Allowed
Hawaii Mortgage Nonjudicial Publication 3 None Allowed
Idaho Trust Deed Nonjudicial Notice of Default 5 None Allowed
Illinois Mortgage Judicial Complaint 7 None Allowed
Indiana Mortgage Judicial Complaint 5 3 MM Allowed
Iowa Mortgage Judicial Petition 5 6 MM Allowed
Kans as Mortgage Judicial Complaint 4 6-12 MM Allowed
Kentuc ky Mortgage Judicial Complaint 6 None Allowed
Louisiana Mortgage Exec.Process Petition 2 None Allowed
Maine Mortgage Judicial Complaint 6 None Allowed
Maryland Trust Deed Nonjudicial Notice 2 None Allowed
Massachus etts Mortgage Judicial Complaint 3 None Allowed
Michigan Mortgage Nonjudicial Publication 2 6 MM Allowed
Minnesota Mortgage Nonjudicial Publication 2 6 MM Prohibited
Mississippi Trust Deed Nonjudicial Publication 2 None Prohibited
Missouri Trust Deed Nonjudicial Publication 2 None Allowed
Montana Trust Deed Nonjudicial Notice 5 None Prohibited
Nebras ka Mortgage Judicial Petition 5 None Allowed
Nevada Trust Deed Nonjudicial NOD 4 None Allowed
New Hampshire Mortgage Nonjudicial Notice of Sale 2 None Allowed
New J ersey Mortgage Judicial Complaint 3 10 DD Allowed
New Mexic o Mortgage Judicial Complaint 4 None Allowed
New Yor k Mortgage Judicial Complaint 4 None Allowed
North Carolina Trust Deed Nonjudicial Notice Hearing 2 None Allowed
North Dakota Mortgage Judicial Complaint 3 60 DD Prohibited
Ohio Mortgage Judicial Complaint 5 None Allowed
Oklahoma Mortgage Judicial Complaint 4 None Allowed
Oregon Both Both NOD 4 None Allowed
Penns ylvani a Mortgage Judicial Complaint 3 None Allowed
Rhode Island Mortgage Nonjudicial Publication 2 None Allowed
South Carolina Mortgage Judicial Complaint 6 None Allowed
South Dakota Mortgage Judicial Complaint 3 180 DD Allowed
Tennessee Trust Deed Nonjudicial Publication 2 None Allowed
Texas Trust Deed Nonjudicial Publication 2 None Allowed
Utah Trust Deed Nonjudicial NOD 4 None Allowed

Page 39


Vermont Mortgage Judicial Complaint 7 None Allowed
Virginia Trust Deed Nonjudicial Publication 2 None Allowed
Washi ngton Trust Deed Nonjudicial NOD 4 None Allowed
West Virginia Trust Deed Nonjudicial Publication 2 None Prohibited
Wisconsin Mortgage Judicial Complaint Varies None Allowed
Wyoming Mortgage Nonjudicial Publication 2 3 MM Allowed

Page 40


Appendix 2: Loss Mitigation Departments
Lender Phone Number
ABM AMRO Mortgage 800-783-8900
AmTrust Bank 888-696-4444
Beneficial 800-333-5848
Charter One 800-234-6002
Chase 800-446-8939
CitiFinancial Mortgage 800-753-3673
CitiMortgage 800-283-7918
Countrywide 800-262-4218
Fifth Third Bank 800-375-1745, Option 3
First Merit Bank 888-728-9931
GMAC Mortgage 800-850-4622
HSBC Mortgage 800-338-6441
Huntington National Bank 800-323-4695
Key Bank 800-422-2442
LaSalle National Bank 800-783-8900
Mortgage Electronic Registration Systems 888-679-6377
National City 800-367-9305, Ext. 53221
Ocwen Federal Bank 800-746-2936
Ohio Savings Bank 888-696-4444
Option One 866-711-1962
Saxon 800-665-7367
Select Portfolio Servicing 888-818-6032
SkyBank 800-290-3359
Third Federal Savings 888-844-7333
US Bank 800-365-7900
Wachov ia Bank 866-642-8608
Washington Mutual 866-926-8937
Wells Fargo 877-216-8448

Page 41


Appendix 3: Monthly Profit & Loss Worksheet
Expenses Weekly Monthly Annual
Savings 401 (k) account
IRA or Roth IRA account
Emergency fund
College fund
Other savings
Rent/mortgage
Monthly payment
Condo/neighborhood fees
Food
Eating out
Lunch at work
Sodas, snacks at work/ school
Stops at convenience store
Fast food
Groceries
Other
Entertaining
Dinner parties
Birthday parties for kids
Video games
Going to the movies
Renting /Buying movies
Cable on-demand movies
Taking kids to science/other
Tickets to a show
Tickets to games
Joining sport leagues
Classe s
Tennis
Club memberships
Other
Holidays & Gifts
Gifts plus mailing costs
Travel
Decorating
Holiday parties, etc.
Anniversaries
Weddings, funerals
Other
Communications
Telephone
Cell phones
PDA (BlackBerry, Palm Pilot)
Other
Computer
High-speed internet access
Software programs and games

Page 42


Hardware
Digital camera printing fees
New computers
Other
Television
Cable or satellite TV fees
TiVo boxes and monthly fees
New TV
Other
Automobiles
Car loan payments
Gas
Car washes
Oil changes
Other maintenance
Vacations
Hotels
Transportation
Meals
Tickets
Pet/House sitting
Other
Health & Beauty
Health club/gym membership
Facials
Nails
Massages
Hair cuts
Cosmetics
Other
Pets
Vet bills
Groomer fees
Toys and collars
Dog walker
Regular medicines
Pet food
Cleaning couch/carpets
Pet insurance premium
Other
Kids
Daycare
Babysitters
School fees, tuition
Books, supplies
Allowance
Toys, games
Other
Credit cards
Monthly minimums
Late fees

Page 43


Student loans
Monthly minimums
Late fees
Other loans
Monthly minimums
Late fees
ATM use
ATM user fees
Home
Utilities (gas & electric)
Painting, repair, maintenance
Decorating, furnishings, rugs, etc.
Yard service
Garden/lawn plantings, etc.
Maid/Housekeeping services
Other
Financial
Property taxes
Home/apartment insurance
Auto insurance
Alimony/child support
Life/disability insurance
Other
Medical
Health insurance
Doctor/Dentist co-pays
Uncovered expenses/deductibles
Prescription drug costs/co-pays
Over-the-counter medicine
Braces, etc.
Other
Charity
Donations
Other
Reading
Books, magazine subscriptions
Music
CDs
Ipods
Computer download expenses
Satellite radio fees
Other
TOTAL EXPENSES

TOTAL INCOME
REMAINING

Page 44


Appendix 4: Hardship Letter Template (1)

Date

Mortgage Company Name

Address

City/State/Zip

Re: Loan # and property address

Explain what happened to cause you to be delinquent.

Use specific dates of events that correspond to your delinquency period.

Explain whether your circumstances are on going or temporary.

Explain what you have done to remedy the situation (i.e. you sold your yacht).

Describe what solution you are hoping the lender might provide.

The hardship letter needs to be powerful. You want the mortgage company to give you
a second chance. Limit the length to one page.

Respectfully

Your name

Page 45


Appendix 4a: Hardship Letter Template (2)

Date

Lender Name

Address

Loan Number

Dear Sir/Maam,

{In this section explain your hardship and why you must utilize a short sale - some example hardship
reasons are listed below}

Unemployment

Reduced Income

Divorce

Separation

Medical Bills

Too Much Debt

Death of my Spouse

Death of a family member

Payment Increase

Business Failure

Job Relocation

Illness

Damage to Property

Military Service

Incarceration

Other (Please Specify)

Borrower’s Signature

Date

Co-Borrower’s Signature

Page 46


Appendix 4b: Example Hardship Letter
To Whom It Ma y Concern:

I am writing to explain my unfortunate set of circumstances that have caused us to
become delinquent on our mortgage. We have done everything in our power to make
ends meet, but unfortunately we have fallen short and would like you to give strong
consideration to working with us to modify our loan. Our number one goal is to keep our
home and we would appreciate the opportunity to do that.

The main reason that caused us to be late is (insert reason here and get straight to the
point). Soon after being late and our income was not nearly enough, we had fallen
further and further behind. Now, it's to the point where we cannot afford to pay what is
owed to (lender). It is our full intention to pay what we owe. But at this time we have
exhausted all of our income and resources so we are turning to you for help.

Our situation has gotten better because (reason here) and we feel that a loan
modification would benefit us both. We would appreciate it, if you can work with us to
lower our delinquent amount owed, or monthly payment so we can keep our home and
also reestablish our good name with your firm.

We hope that you will consider working with us, and we are anxious to get this settled
as soon as possible. We look forward to your response.

Thank you in advance for your prompt attention to this matter.

Respectfully,

Mr. & Mrs. ___________________

Signature____________________

Loan # ______________________

Address______________________

Phone_______________________

Page 47


Appendix 4c: Authorization

Date

Bank Name

Loss Mitigation Department

Address

City, State Zip

Re: Loan ID#

Name

Address

City, State Zip

Re: (enter property address)

To Whom It Ma y Concern:

I am writing this letter to give my Real Estate Agent (enter agent name), who is
employed by (enter brokerage name) authorization to access all of my personal loan
information on my property located at (enter property address). My account number is
(enter account number).

Sincerely,

Signature

Printed Name

Page 48


Appendix 4d: Short Sale Package Content Recommendations
Cover Letter

Contract-authorization from seller authorizing agent to negotiate w ith the lender on
his/her behalf.

Authorization to Release Information (see example)

Sellers Hardship Letter (see example)- the homeow ner must be truthful, yet not too
lengthy in w riting this document.

Seller ’s financial information – most banks have a form for this.

Supporting Financial Information: This is usually the same information that w as required
when you applied for your loan.

2 years w2’s

2 months pay stubs

2 months bank statements

2 years tax returns

Supporting Hardship info – for example liens, medical information, disability information,
lay-off notice, etc.

Repair Estimate for the property- providing the bank w ith a detailed repair estimate from
a reputable contractor w ill be a big help in getting your short sale accepted. The bank
doesn’t w ant to ow n property, and certainly not property that needs a lot of w ork.

Comps for the property-provide the bank w ith at least 3 to 5 comps of properties in the
area that have sold in the last 6 months. Highlight comparable sales that reflect the
low est value.

Letter of facts about the property. Explain everything that is w rong w ith the property and
why it is impossible to sell it for a higher price.

Notice of Default (NOD)

Marketing Plan-What measures w ill be taken to sell the house.

IRS For m 982

Page 49

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