How to Swim Out from an Underwater Mortgage

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Financial advisor Dwan Bent Twyford survived the financial nightmare millions dread.

Shortly after her divorce her finances were a mess. She took odd jobs as she struggled to pay the bills and to support her daughter.

“I waited tables, I tried to take on some sales positions,” she says. “And then I found my way into real estate.”

Searching for a job that would allow her to raise her daughter, without placing her in day care, Twyford bought a foreclosed home in Florida, renovated it, and sold it shortly after, making a $22,000 profit.

“All the guys at Home Depot (Stock Quote: HD) knew me,” she says. “Eventually, they’d start avoiding me. I was basically there every day.”

Since then, she’s sold more than 1,200 houses, and now counsels those facing foreclosure.

FOR MORE INFORMATION ON “UNDERWATER” MORTGAGES, READ MainStreet Explains: Underwater Mortgages.

Underwater Does Not Mean Out of Options
“Homeowners in these situations must recognize their options,” says Twyford, whose book, How to Sell a House When It’s Worth Less Than the Mortgage: Options for “Underwater” Homeowners and Investors, is to be published in February, says. “If they intend to keep their house, they should look into loan modifications, forbearance agreements, maybe renting out their home [or rooms in their home] and short selling.”

Education can allow underwater homeowners to feel empowered, she adds. “Foreclosure doesn’t have to be inevitable.”

Loan Modification
“If you have 25 years left on your loan, you’ll want to do a modification,” Twyford says. Depending on how far behind a homeowner is on their payments, the bank may roll in a portion of the money owed. However, banks will usually approve a loan modification if they see the homeowner is taking steps that will lead to reliable payments. “They’ll want to see a homeowner get a job if they were previously unemployed, or take on a roommate, maybe rent out part of the home,” Twyford says. “They’re looking for stability.”  If approved, the bank may alter the loan, often raising the interest slightly.

Depending on a homeowner’s situation, a bank can potentially roll in the full amount of back-payments, increasing the monthly mortgage payment.  Also, a bank can wind up rolling half the amount in, leaving the home owner responsible for bringing forth the rest, with a new interest rate, Twyford says. Homeowners can even call the bank and negotiate this directly.

 If the bank agrees to roll in the full amount, due to the home owner’s credentials, there is usually a low fixed interest rate. After approval, the bank will restart the loan, and keep the terms the same.

“When a bank accepts a loan modification, the homeowner is completely out of foreclosure," Twyford says.

Refinancing a Home
Refinancing occurs when a homeowner qualifies for a completely new loan. Unlike a loan modification, this option requires new closing costs and points. "To qualify," Twyford says, "a homeowner cannot be behind on too many payments." Also, your credit score should be solid to qualify, and being in a state of pending foreclosure makes it very difficult to qualify, she adds. “It’s when you realize you might fall behind on your payments, and you begin pulling out equity,” she says. “A refinance is for people whose payments are still good.” 

Forbearance Agreement
This agreement is a repayment plan in which no details in the loan shifts. Once the homeowner is approved by the bank, they may have to put down a 25% payment, in addition to the regular payments that will appear. The regular mortgage payment remains the same, with an additional charge for 3 to 24 months, and usually no longer than 36 months, Twyford says. During the time of forbearance, you are in a pending state of foreclosure, Twyford says. “Wherever you were (in terms of foreclosure) before the forbearance agreement is where you stay the whole time.”

Take note: 80% of people with forbearance agreements don’t make it out, Twyford says. Many homeowners will be approved for a forbearance agreement, Twyford says, but it’s a temporary fix with limited incentive. “If you mess up one time with a forbearance agreement, you end up right back where you started,” Twyford says, which is days away from the sheriff’s sale. “And it really raises the mortgage payment.”

Short Sale
Another option for homeowners is short selling their home. “Saving the house is always our first choice,” Twyford, who also authored Short-Sale Pre-Foreclosure Investing: How to Buy “No Equity” Properties Directly from the Bank – at Huge Discounts, says. “But if that is not possible, they should speak to the bank about doing a short sale, and take what they can get.” One reason, according to Twyford, this could be a good option: No foreclosure would appear on the home owner’s credit report.


Twyford’s tips on working with an investor:

• Ask them how many deals they’ve done
• Ask for letters of recommendation from banks or homeowners
• Find out what they’re goals are. Ask them if they are looking to buy or sell the house
• FINAL WORD OF WISDOM: If the investor asks for the deed to the house, don’t work with them!


ATTENTION MAINSTREET READERS: Dwan Bent Twyford and her husband, Bill, hold three day seminars on issues ranging wholesaling options and exit strategies to short sales.

Dwan is offering 100 FREE sets of tickets valued at 2,500 per pair to ANY of  the three day conventions set to take place in 2008 and 2009.

See the full list here.

Contact Dwan at 1(303)838-5532 and mention MainStreet to get your set of tickets. The seminars will be held in Clinton, Iowa.

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