InsightsHelping determine the best path for avoiding foreclosure

Helping determine the best path for avoiding foreclosure | ServiceLink

As servicers work with distressed borrowers to resolve their mortgage challenges, a new ServiceLink tool — the Short Sale Property Report — offers essential insight.

Working with borrowers to keep their homes out of foreclosure is key to not only serving customers well but also keeping the declining foreclosure trend going as the national delinquency rate continued to decline in March. For mortgage servicers and investors, helping distressed homeowners work out their payment challenges through loss mitigation, ranging from loan modification to short sale to deed-in-lieu of foreclosure, is a strategy to also help mitigate their own losses.

“We’re not seeing many properties going into default, primarily because the average homeowner has so much equity right now,” says Amy Borsi Daniel, senior vice president, title & close, ServiceLink. “When those who are moving toward default go to their servicer saying they can’t make the payments and need a way out, that servicer needs to consider a lot of factors: the current value of the home, the amount still owed, any outstanding liens, market activity in the area, etc. Then they can confidently advise the borrower of their options.”

Indeed, the first thing any servicer does when a property goes delinquent is to run a valuation to determine the current value of the property. If the value is higher than the amount the borrower owes, they reach out to that customer to explain their options for either modifying their loan or getting out of the mortgage altogether. It’s important, however, to be aware of any issues related to the title prior to having that conversation.

“No one wants to find out after a property has been listed for short sale or, worse, is under a new contract, that the title isn’t clear,” says Jody Walshe, assistant vice president, deed-in lieu-title, ServiceLink. “Taking a look at the title before agreeing to a short sale is a smart strategy. Servicers and borrowers can save a lot of time and money that might have been wasted on listing and marketing a property that can’t be sold unless its title is cleared.”

With this in mind, ServiceLink offers the Short Sale Property Report, a decision-making tool designed to provide servicers with critical information about a property’s title before they commit to a short sale. The concise nature of the report ensures that any negative issues jump out immediately.

“The Short Sale Property Report reveals whether a title is clear of junior liens, judgments, IRS and state tax liens, code violations and other issues,” says Walshe. “It gives a servicer immediate insight into the property and tells them up-front which route — loan modification, short sale or deed-in-lieu — is likely to be the best path forward for all parties involved.”

Sharing loss mitigation options with borrowers

Foreclosure is not in the best interest of the borrower or the servicer. It is costly, time-consuming and can cause irreparable damage to the borrower’s credit report. That’s why time invested in loss mitigation is most certainly time well-spent. The more information a servicer has up-front, and the more they enlighten the borrower, the better the outcome is likely to be.

Loan modification

For borrowers with a clear title who have the financial means to get back on track with some modification of their loan, the path forward can be fairly easy. After assessing the property value and the borrower’s current financial situation, a servicer may offer a reduced interest rate, monthly payment or principal balance, or may extend the term of the loan to make payments more affordable for the borrower. Government-sponsored loan modification assistance programs may be is available to some borrowers as well.

Short sale. In circumstances where a borrower lacks the financial wherewithal to continue making payments or simply wants an exit strategy, a short sale may be the right solution. Short sales are drawing a lot of interest in the current market, Walshe says, as they offer advantages to both borrowers and servicers.

“A short sale enables the homeowner to sell their property for less than what they owe so they can get out from underneath the loan completely and move on with their lives,” says Walshe. “Short sales also represent cost savings for the investor, because they aren’t burdened with paying daily holding costs to keep the property up, especially in circumstances where the homeowners have already moved out.”

Shorter closing timelines are a notable advantage in some markets, as low inventory levels persist across the country. Many homes are going under contract within 30 days of hitting the market, Walshe says, making short sales all the more appealing to servicers, as well as borrowers who may be eager to sell to avoid impending financial consequences.

“Short sales can be a good option for not just borrowers who are delinquent in their monthly payments, but also those who will be unable to make the balloon payment coming due soon for many who deferred payments during the pandemic,” Walshe explains. “If they’re unable to refinance to cover that amount — they’ve already taken out all the equity in their home, for example — a short sale may be their best option for avoiding foreclosure.”

Daniel believes that short sale volumes may pick up even more in the coming months. “High interest rates are making it more difficult for borrowers with adjustable-rate mortgages to afford their monthly payments and for potential homebuyers to qualify for new mortgages. As we start seeing home values decrease, we could see more homeowners going upside down on their mortgages. Short sales could help them,” she says.

Deed-in-Lieu. Borrowers may be able to deed the property back to the bank through a deed-in-lieu (DIL) of foreclosure. Like a short sale, a DIL offers the borrower an exit strategy while protecting their credit report from the damage a foreclosure could inflict.

On the servicer side, a DIL saves a substantial amount of time and money compared with a foreclosure. But servicers considering the DIL path need more complete information, and a more comprehensive report, than they do for a short sale.

Daniel explains, “If a servicer orders a Short Sale Property Report from ServiceLink and the information that comes back indicates a short sale is not an option, the servicer can upgrade that report to include everything they need for the full DIL report. Instead of starting over from scratch, our team would leverage and build on the information we’ve already collected to save the servicer money.”

That information would go back 40 years and typically include two owners, versus the Short Sale Property Report, which is a basic one-owner (current-owner) report. “When we do a 40-year search for DIL, we’re including much more depth and detail, so the servicer has a complete understanding of the property they are bringing back into their inventory,” says Walshe.

Daniel adds that ServiceLink can support servicers with short sale as well as DIL transactions. “We have an entire team of experts with experience in processing short sales; they are always available to answer questions. On the DIL side, we do everything from DIL document preparation, junior lien negotiation, title grading and clearance through recording. Our goal is to manage these processes smoothly to benefit borrowers and servicers alike.”

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