The state of Oregon received federal dollars to help struggling homeowners in our community, but you MUST APPLY by January 14th, 2011!!  If you or someone you know is a homeowner facing financial difficulties, this could be a program to investigate.  You can start by visiting www.oregonhomeownerhelp.org or calling 1-800-SAFENET to find out if you qualify!  Qualified Oregon homeowners can have their mortgages paid for up to one year or $20,000!!

For those in the Portland metro area, there’s a specific Multnomah County application center located at the Doubletree Hotel (just off the Lloyd Center MAX stop).  It is open Monday through Friday from 9am-9pm and Saturdays 9am-5pm.  Visit www.economicfairnessoregon.org for more information.

So, what if you simply owe more than your home is worth?  What if, due to the changing market conditions or changes in your personal situation you are forced to make a decision to opt for attempting to negotiate a “short-sale” (sell for less than is owed on the property) or a “foreclosure” (the lender steps in to repossess your property) or a “strategic default” (a homeowner can afford to make payments, but opts to stop because the loan amount is more than the value of the property)?  Here’s the beef on how these decisions affect your credit standing and ability to borrow again on a home.  (Remember to check with you accountant, CPA and/or attorney prior to making any decisions that might affect your long-term financial standing).

Generally speaking, a foreclosure will have a more dramatic negative impact on your credit score than a short sale. Foreclosure will lower your score anywhere from 250 to over 300 points and affect your score for over 3 years. Only late payments on a mortgage will show up on your credit score, a successful short sale will be reported as “paid as agreed”, “paid as negotiated” or “settled”.  Of course, the “catch” here is that you must be late on your payments for most banks to even discuss a short sale.  This will lower the score as little as 50 points if all other payments are being made. A short sale’s effect can be as short as 12 to 18 months. Foreclosure will remain as a public record on a person’s credit history for 10 years or more.  A short sale is not reported on a credit history. Foreclosure can have a challenging affect on your security clearance.  If someone has a foreclosure and is a police officer, in the military CIA or other position that requires a security clearance, that clearance could be revoked and the position terminated!  On its own, a short  sale does not challenge most security clearances.

Employers do have the right to check the credit regularly of all employees who are in sensitive positions.  A short sale is not reported on a credit report and is therefore not a challenge to employment.  Many employers are now requiring credit checks on all job applicants.  A foreclosure could challenge employment.

In 100% of foreclosures (except in states where there is no deficiency judgement) the bank has the right to pursue a deficiency judgment.  In some short sales it is possible to convince the lender to give up the right to pursuit a deficiency judgment against the homeowner.  My understanding is that the state of Oregon only allows “Deficiency Judgments” on only 2nd mortgages or lines of credit (again I would check with an attorney).  However, Fannie Mae stated that they will pursue deficiency judgement in states that allow this by law.

A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage, FHA, VA or Conventional mortgage for a period of 5 years.  With a short sale, it could be as little as only 2 years for Fannie Mae, 3 years for FHA or VA and 2 years for conventional financing.  An investor will find that they can get another Fannie Mae or conventional loan for 7 years, whereas you can get a Fannie Mae backed investor loan again after a short sale in only 2 years.  Fannie Mae recently announced that they will make people who can make their payments and who choose to do a strategic default wait 7 years before they are eligible for a Fannie Mae loan.  Furthermore, Fannie Mae stated that they will pursue deficiency judgments in states that allow this by law. 

Anyway, hopefully it never comes to that for any of us.  But, a little knowledge can help in the decision as to how to proceed.

Be careful out there!!! If you are in need of some counseling regarding a potential short sale (having to sell your home for less than is owed to the creditors), a foreclosure (the bank is taking ownership of the property) or attempting to engage in a loan modification (negotiating with the bank for new terms of an existing loan), please be very cautious as there are still a lot lot of “scammers” that try to prey on stressed homeowners. This is happening nationwide, as well as in the Portland Oregon real estate marketplace!
Many homeowners that are having difficulty making their monthly mortgage payments are being targeted by criminals who charge large upfront fees and falsely “guarantee” to rescue a home from foreclosure. In the worst cases, homeowners have become victims of identity theft or were tricked into signing away their ownership of a house.

1. Try to deal only with lenders, businesses and other organizations you already know or that have been recommended.
2. You don’t need to pay a lot of money for help or information.  Lenders, loan servicers and legitimate housing counseling services generally won’t charge a fee to help with a loan modification.
3. Make your mortgage payments directly to your lender or the mortgage servicer.  Don’t let anyone convince you to send your payment elsewhere.
4. Be especially suspicious of unsolicited offers that arrive via phone, e-mail or a knock on your door.  Check with the Better Business Bureau or state consumer protection office. 
5. Try to read and understand any documents before you sign them.  It may help to obtain advice from a lawyer or trusted financial advisor.
6. If you think you’re already caught up in a scam, alert the proper authorities.  You could start with the Federal Trade Commission (1-877-FTC-HELP or www.ftccomplaintassistant.gov ) and/or your state Attorney General (www.naag.org/attorneys_general ).  Or call or write me for a referral to a real estate attorney.
7. Web sites for help:  www.nw.org or www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm

On a similar note, for instance, I recently received a “2010 Property Tax Reduction Form” on official looking stationary.  It states that “Property Tax Adjusters show that my property may be over-assessed for property tax purposes”.  Well….yeahhhhh!  All I have to do is send a fee of $189 (????) on or before a certain date and these kind souls “will prepare and submit all necessary documentation to the County Assessor’s Office and Assessment Appeals Board”.  Well, they fail to mention that in the state of Oregon we have two different tax assessment levels.  One is called the “market total” (usually closer to actual market value…even in today’s market) and “M50 Assessed Value” (the figure on which our taxes are currently based).  So, unless your home is worth at or under this “M50 value”, your chances of getting your taxes lowered are slim.  These are the kind of “surprises” no one needs!!!

I’ve had multiple clients attempt loan modifications without any cooperation from their various lenders.  So, where do you go from there?  One possibility is to put the home on the market and attempt to negotiate with the lender or lenders involved to sell short of what is actually owed on the home.  This takes some extra paperwork and extreme patience.  But, this type sale can minimize the damaging impact to your credit and can lessen your financial exposure and liability.  A foreclosure can remain on your credit for up to seven years while a short sale usually gets reported as a “settled debt” and is significantly less damaging.  With a short sale, your FICO score will not be as negatively impacted as it would be with a foreclosure, and you will be able to get into a new home sooner.  As with foreclosure, there are several potential tax and liability considerations when doing a short sale or loan modification, however, they are typically less severe than they would be with a foreclosure.  Seeking qualified advice from your CPA or tax attorney is suggested.

Why would a lender agree to a short sale?  In most distressed mortgage situations, foreclosure is a last resort for all parties involved.  Both the homeowner and the lender usually want to avoid foreclosure at all costs.  That is why lenders have come up with various alternatives to foreclosure.  A short sale gives the lender the ability to cut its losses upfront, thereby avoiding the expense and time of a foreclosure and potentially greater losses.  Lenders want to make loans; they do not want to be in the business of owning and managing real estate.  In may cases, a short sale offers a better return on the lender’s investment than a foreclosure.

As a seller, you must first authorize your Real Estate agent to speak and negotiate on your behalf.  Next, some time should be spent composing a sympathetic “hardship letter” to explain the circumstances that force the sale.  This is your opportunity to appeal to them.  You will possibly be asked to corroborate your hardship with financial statements and other verifications.  Your Realtor should be experienced in the procedures and able to be your guide throughout the process.

Next will be the really hard part; that is divorcing yourself from the transaction and your attachment to the home or the “value” of the home.  This is going to be a sale that “sells short”.  The ultimate price that ”our present real estate market” will accept is not a reflection of the quality of the home or love and attention you once gave your home.  And, it is not a reflection on you, as a person.  You are simply another person who is traversing a new terrain.  One that, very often, was not precipitated by you…rather one that was created by outside circumstances!

I understand….no, actually, I really DON’T understand the problem or the incredible complexity of the situation with banks vs the homeowners being forced into foreclosure. I do know there’s no ONE person or institution or profession to blame. And, I know this is definitely affecting the property values and the ability to sell for Portland, Oregon homeowners. The banks averted their eyes and allowed many people who, plainly and simply, were not qualified to receive the financing the lending institutions allowed. There were plenty of mortgage brokers and real estate brokers who participated in this fantasy. There were some buyers who did not take personal responsibility for own financial well-being. There were some buyers who were fraudulently mislead. All of this is a part of the whole truth. I have to say that I didn’t personally witness much of it in my business. But, all I know is that the fall-out affects everyone, whether you live in Portland or elsewhere. As goes the housing market, goes the rest of the economy. So, without some relief for homeowners, there will be little relief for the rest of the economic market. I was dismayed to see that legislation that would have allowed bankruptcy judges to modify mortgages died in the Senate last week, handing the Obama administration a significant defeat in its plans to mitigate the foreclosure crisis. I know there has to be some middle ground. See this article from the Business Digest of the online Washington Post:  http://bit.ly/HPvEc