Investors Facing Foreclosure
From 2000 through 2006 many people bought single family homes and 1 to 4 unit properties as investments. Most decided that they were going to be landlords and rent these units. Real estate values were steadily increasing. They expected the values to continue to increase. They figured that they would sell these properties sometime in the future and make a nice profit.
The Impact of Designer Loans
Many of these properties were purchased with minimal down payments. Frequently the mortgages they got to buy the properties were 1 month option adjustable rate mortgages, regular 3/1 or 5/1 adjustable rate mortgages or interest only mortgages. With the foreclosure and financial crisis that is plaguing the country, these people suddenly find themselves in a bind. It has become more difficult for them to find qualified renters for their properties.
The Snowball Effect
Many of the mortgage companies through which they got their loans are no longer in existence. They are making their payments to other mortgage companies. Also, many of the types of mortgages they got are not being offered anymore. Some of these investors are overextended. They spread themselves too thin and did not have the financial reserves to cover themselves if some of their homes or units are vacant for extended periods of time. They have not been able to make their monthly mortgage payments and are facing foreclosure.
Investors With Few Options
The challenge investors have is they don't qualify for typical loan modifications. Investment properties don't qualify for a modification under the Making Home Affordable Modification Program. If the mortgages are owned by the two government sponsored entities, Fannie Mae and Freddie Mac, they won't qualify for a modification through them. What options do they have open to them? If their mortgage is held in the portfolio of the mortgage company and was not sold to Fannie Mae or Freddie Mac, the company may work with them on a solution. Here are a few options available to investors:
- One option is a forbearance agreement. If they have fallen behind on their payments because they have been unable to rent their property, they should be able to catch up when the property is rented. So the agreement is that the mortgage company will delay going ahead with the foreclosure provided the investor catches up on their payments over a certain period of time. The period of time and the amount of the payments is specified in the agreement.
- The second is that the amount of payments that the investor is behind is added to the end of the mortgage. Here again both the investor and the mortgage company have a written agreement specifying this.
- The third option is bankruptcy. If the mortgage company will not work with the investor to develop a plan to stop the foreclosure or if the mortgage is owned by Fannie Mae or Freddie Mac, the investor may have no option but to file for bankruptcy.
Investors facing foreclosure have a more challenging time dealing with their mortgage companies. They should definitely get assistance from a lawyer or an expert skilled in working on cases similar to theirs. They have too much to lose if they don't get expert advice.
As a real estate investor since the 1980's, Georgette Willis, Broker at Tico Realty Group has seen the devastating impact foreclosure has had on investors. This has led her to study and gain much knowledge and insight into how to help investors by keeping up to date with real estate trends.