How To Delay or Stop Foreclosure
I’ve worked with a ton of short sales over the past year. The single biggest source of stress for a short sale listing agent is watching the foreclosure date approach as you try to close the deal. That date looms on the calendar, circled in red, with the clock moving faster and faster towards it. I've had deals where on the day before foreclosure I was sitting on the phone, biting my nails, trying to push a postponement through. Mostly, I've been successful. Although you hear people complain that "banks must want to foreclose," and though I admit their processes sure make you feel like that, they really don't want to foreclose. Frankly, they will lose more money by foreclosing (in most cases) then trying to work out a sale with a potential buyer at a "short" payoff.
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I am in Texas and we have some of the swiftest foreclosure proceedings out there. From the time the homeowner misses a payment and is served a notice of default, a foreclosure can be completed in as little as 30 days. Not all foreclosures end up on the courthouse steps here in Texas. Many times the bank will just hold on to the property and list with a Realtor. They’ve discovered they can get more for the property that way.
There are methods to postpone the foreclosure date!
As an investor that works with motivated sellers, you will eventually meet someone with equity in their home that is just weeks or even days away from being foreclosed. If you do not have the time to close the deal before the foreclosure date, then here’s what you do:
Stop a Foreclosure: Properties That Have Equity:
Get a 3rd party authorization:
Many of the big box lenders(Chase, Bank of America, and Wells Fargo) have their own that you MUST use. You can not use a generic form for these lenders. You can find these forms on their respective website. Have the seller sign it and fax directly to the loss mitigation department of the lender (along with the sales contract & proof of funds, see below). Follow up with a phone call in 24 hours.
Get purchase contract signed, executed, and receipted:
The contract must be executed and is a good idea to have your earnest money to the title company so you can have a receipted contract to send. Additionally, the title company can begin their work so that closing can take place. Fax the executed contract along with your 3rd party authorization including PROOF OF FUNDS. Be sure the loan number is on the top of every piece of paper you send in. By sending in these documents, you are showing the lender you are capable and ready to close the deal.
Follow up, follow up, follow up:
Allow 24 hours for your docs to get in the system and then start hounding them. When you call, instruct customer service that this is not a short sale. Depending on what lender it is they may transfer you to another department. You will need to also request the payoff immediately as well. With a property with equity, there should not be too much of an issue pushing the sale through.
Stop a Foreclosure: Properties With Negative Equity:
In a situation where it will be a short sale, I would recommend using an agent who is short-sale proficient. For one thing most of the big box lenders now require the homeowner to use a licensed real estate agent to sell their property. However, you can try to go it alone. In addition to the 3rd party authorization, the homeowner will also need to submit a completed package which also includes their financial information and hardship letter. Again, most of the big lenders have their own package that they use. Fax the 3rd party authorization in immediately, so that you can let them know the homeowner is requesting a short sale. Depending on the lender and the loan type, this will many times postpone the foreclosure.
- Property value: Get a realistic evaluation of what the property is worth to submit your offer. The bank will require a 3rd party valuation of the property. Valuations typically come in right at market rate. If the property needs repairs, include a detailed list with your offer, including pictures. It will help justify a lower offer. Submit your signed, executed, receipted contract with the homeowners financials. Make sure the loan number is on the top of every document.
- Follow up: As before this is very important. I typically call lenders daily to inquire on an update. Remember, depending on the state you live in, the lender, and what type of loan it is, response time may vary between two weeks to nine months.
Stopping a foreclosure in its tracks is possible. It just takes some diligence and patience.
Good luck and happy investing!