How Realtors Can Help Homeowners with Foreclosure

By Ken Trepeta, Director, Real Estate Services

RISMEDIA, December 2008-For decades, homeownership has benefited families and communities all over America with greater stability, economic prosperity, safer neighborhoods, better educational opportunities, and even improved health. Yet, the recent increase in foreclosures threatens these previous gains, as millions of families who had hoped for sustainable homeownership are now struggling to pay their mortgages. Everyone knows the instrumental role Realtors® play in helping families find their homes. But, in these interesting times, Realtors can also be extremely helpful in keeping families in their homes.

Realtors are in the business of helping people become homeowners and furthermore they do everything they can so that people can afford to stay in their homes. Since Realtors are with the homeowner through each step of the buying process, oftentimes they will be the first called when a homeowner is having financial problems with their home. For this reason, it is important that Realtors understand the issues around foreclosures and that they have the tools to help their clients through this process.

How Realtors Can Help?

One of the first steps a Realtor should take is to encourage the homeowner to contact their lender, loan servicer or the company that collects their payments about their situation. By taking this step, homeowners could have a better chance to work out a solution with their lender or loan servicer and avoid foreclosure.

Potential solutions that could arise from this action include:

• Loan Modification – Loan servicers can help a homeowner catch up on late payments or amend the mortgage to make it more affordable. Options could include, but are not limited to, adding all the missed payments to the loan amount and changing the monthly payment to cover the larger loan; giving the homeowner more years to pay off the loan, lowering the interest rate, and/or forgiving part of the loan to lower the monthly payment; switching from an adjustable rate mortgage to a fixed rate mortgage; or requiring amounts for taxes and insurance to be included with your monthly mortgage payment so homeowners can avoid big bills in addition to their mortgage.
• Repayment Plan – If a homeowner can start making payments to catch up, the lender may let them pay an additional amount each month until they are caught up.
• Forbearance – Lenders may let the homeowner make a partial payment, of skip payments, if they have a reasonable plan to catch up (for example, a tax refund, bonus or new job is pending.)
• Reinstatement – Allows homeowners to make a payment that covers all their late payments, usually at the end of a forbearance period.

If the homeowner’s lender or loan servicer is not willing or able to help, homeowners can check into refinancing their current mortgage with another lender. Realtors can assist the homeowner by finding responsible lenders that make fair and affordable loans. Also, Realtors can direct homeowners to state and local government and local nonprofit organization foreclosure prevention programs and who to call.

However, sometimes after exploring the above situations the only option available to the homeowner is selling the home. If that becomes the case, then no one is better at helping a seller than a Realtor. For example, if a homeowner is struggling with their loan and the value of the property is less than the mortgage amount, Realtors can help explain to the lender why it makes sense to sell the property for the best price and then forgive the remainder of the debt. Until recently, the amount of debt the lender cancelled was treated as income when you filed your tax return. Realtors and others helped pass legislation that will prevent this tax burden from being placed on eligible homeowners who are relieved of their obligation to pay some portion of their mortgage debt between January 1, 2007 and December 31, 2012. Full relief is available only if the amount of forgiven debt does not exceed the debt that was used to acquire, construct, or rehabilitate a principal residence.

To help educate home buyers and homeowners about today’s mortgage options, The National Association of REALTORS® (NAR), in partnership with the Center for Responsible Lending and NeighborWorks®, have produced brochure called Learn How to Avoid Foreclosure and Keep Your Home.

This brochure is designed as a quick reference for resources to assist families who are at risk of foreclosure. It explains the types of mortgages that are placing families at risk, provides suggestions for getting help by talking to a reputable counseling organization, urges borrowers to work with experts and their lender as soon as possible and lists some of the ways lenders may be willing to help borrowers avoid foreclosure. The brochure will help homeowners understand their options and give them tips on how to avoid losing their homes – regardless of type of mortgage they have. The brochure is available on NAR’s website at www.realtor.org/subprime.

According to The Center for Responsible Lending, it is estimated that over two million American households with subprime mortgages have lost or will lose their homes by the end of 2009. Their neighbors will suffer financial losses, too, as these foreclosures cause nearby property values to drop. Realtors are in a unique position to help these homeowners and communities by providing them with the necessary resources to deal with the prospects of foreclosure. By helping families stay in their homes, Realtors continue to show their commitment to their clients and communities, reaffirming once again their strong bonds and building lifetime relationships.

Kenneth Trepeta is director of Real Estate Services at the National Association of Realtors®. For more information, please visit www.realtors.org/res.

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