We don't want anyone to lose their home. We don't want anyone to be forcibly displaced. There is no place for foreclosures and evictions in an intelligent society. They are symbols of moral, economic and social corruption. Unfortunately, they are of our own making. Our own craving for materialistic pleasures leads to consumerism and a system of governance that is more concerned about the health of its financial institutions than the health of its citizens.
In order to help home owners facing foreclosure, the government of United States introduced HAMP. As of 04/30/2013, 18% of the home owners offered permanent modifications under this program had redefaulted and many were on the brink of default. The program itself is only available until 2015, so it does not really provide us a viable long term alternative to foreclose.
Some market partipants have, however, come up with some options that look like viable long term alternatives to foreclosure. I would like to discuss three of them.
The first one is an Assisted Short Sale program offered by Ocwen Loan Servicing in association with Altisource. The purpose of this program is to help fetch the best price for the property while ensuring that only minimum costs are incurred, encouraging the first mortgagee to approve the short sale instead of foreclosing on the loan. As a part of this program Altisource work on reducing costs by negotiating liens, judgements, HOA dues and other encumbrances and let the seller list the property on their online platform HUBZU.COM. This program is viable long term alternative to foreclosure because it addresses three major concerns of associated with a short sale - time, financial viability and finding a buyer. A short sale can be completed, in most cases, in less than two months from the date the seller opts for this program. Many short sales fail because the costs associated with them are high compared to a foreclosure (particularly in non-judicial foreclosure states). This generaly happens due to junior liens, HOA dues, judgements etc. The major strength of this program lies in the way it is able to deal with these issues. Finally, HUBZU tries to find buyers. In case the seller already has offers, this a good opportunity to see if it is possible to find better offers. Overall, this looks promising and has folks at Altisource very excited about it. I hope firms other than Ocwen also get together with Altisource to design similar programs.
The second viable long term alternative comes courtesy real estate agents. Wherever and whenever possible a realtor may get an investor to buy the home through a short sale and rent it out to the seller with an option to buy. This would have to be disclosed to the lender at the very beginning. I understand that some lenders may not allow this. However, wherever possible, this is a great way of letting the distressed home owner continue living in his home. This prevents foreclosure and displacement.
The third option is what can roughly be termed as "a deed in lieu of foreclosure in exchange for contract to rent". The first and the second options are great if you can find a buyer. However, there may be properties which may not find a buyer but have a home owner not wanting to be displaced. In such cases, wherever and whenever feasible, the home owners should have the option of offering the property via a deed in lieu of foreclosure to the lender or an REIT/investor (through the lender) in exchange for being allowed to rent the home.
The only fool-proof way to avoid losing material possessions is to not have them in the first place. Its not the loss of possessions that causes stress but our attachment to them. However, since we all have material desires ourselves, we can understand the stress others undergo when they are on the verge of losing material possessions. It is with this understanding that we must help others. Let us get together and end foreclosures. Let us say no to forced displacement. Let us push for viable alternatives to foreclosure.
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Saurabh Singh is a student of the Vietnamese monk Thich Nhat Hanh and is currently employed with Altisource. All views expressed here are his personal views and are not necessarily endorsed by his employer. The author does not guarantee the accuracy of any information contained in this post. Real Estate, finance, banking and online transactions are complicated and governed by various regulations and readers are advised to consult with certified professionals before making any decision.
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