Finding better ways in negotiating foreclosures.
Foreclosure negotiation strategies
The whole process between the lender and the homeowner is called loss mitigation. As foreclosure is time-consuming and costly, it should be prevented.
Contingencies: your best tool for better negotiation
Even if you are dealing with banks or government agencies to buy their foreclosed properties, you can increase your chances to lower foreclosure property's price and get better terms. How? By including all possible foreclosure contingencies in your offer. You can use every single contingency to get something better in return.
Many foreclosure investors assume that price is the only tool to play and negotiate. That's not true! You may keep your offer price higher while keeping non-price factors as your contingencies. You can ask bank or government agency to reduce the price for defects, mallfunctioning repairs, hen your offer is accepted,
Lender’s strategy: minimize mortage loan loss.
Homeowner’s negotiation strategy: save his or her house from foreclosure. Is it possible to cure the default? Is there any alternative or solution that the lender may accept?
Principles set forth by U.S. government agencies for loss mitigation
In general, lenders are not encouraged to foreclose on properties that are in default immediately. They are encouraged to find ways for the homeowners to continue to make their mortgage payments.
- U.S. Department of Veterans Administration (VA) rule: VA encourages holders to extend every reasonable indulgence to worthy borrowers who are in temporary difficulty. However, when it is evident that the default is insoluble, every effort should be made to see that the security [house] is liquidated promptly to minimize the loss to the Government.
- Federal Housing Administration (FHA) rule: fulfill the goal of helping borrowers in default retain home ownership while reducing, or mitigating the economic impact on the insurance fund.
Minimizing loss in bank and government foreclosures
Government agencies encourage lenders to modify their loans to accommodate borrowers and introduce several avoidance procedures and forbearances. U.S. Government hopes to implement cost-saving foreclosure avoidance procedures.
It was proven that giving homeowners an additional one or two months could prevent more than two-thirds of foreclosures.
Bottom line: cost of preventing foreclosure is less than the cost of foreclosure.
Two typical reasons for default
- Homeowner buys a home that he or she cannot afford. He or she is over-extended.
- Unexpected events occur and they are beyond homeowner’s control. Lender must cooperate if such events can be eliminated by cooperative action.
To get more ideas to negotiate better with homeowners and lenders review negotiation tips, negotiate preforeclosure, and foreclosure negotiation tactics.