Avoid Foreclosure with Hard Money
Hard-money bailout loans sometimes can help clients sidestep foreclosure.

Foreclosure rates are increasing across the country, which can be cause for alarm. In places such as Arizona, which had more than 3,000 filings this past November, the number of pre-foreclosure cancellations is decreasing, signaling a possible increase in actual foreclosures. With a robust economy and above-average home price, Arizona typically has not been a hot spot of foreclosure activity.

In addition, the market also is seeing an increase in defaults with higher loan-to-value ratios (LTVs), making it more difficult for borrowers to refinance. But for many borrowers, there is an alternative to foreclosure: hard-money bailout loans.

Hard-money bailout loans are loans in which real estate is the collateral asset. The lender assumes a lien position on the property. As with any collateralized loans, the loan's size, rate and term is determined by the borrower's equity in the property, the property's marketability and the borrower's financial standing.

These loans are also commonly referred to as bridge loans because they often provide temporary financing used for credit repair and property seasoning.

How hard money can help

Homeowners who have now found a job may be unable to pay the full amount owed to the bank, but they can still make their monthly payment.

A foreclosure will ruin their credit and seems unnecessary, given their ability to make a loan payment. The bank, however, typically won't accept anything but the payment in full, which leaves the home-owners with few options. This is where hard money can help, and an educated mortgage broker can be the best asset for any homeowner.

There are many myths about hard-money loans. Most revolve around the impression that hard-money loans are marked by soaring interest rates and low LTVs. Actually, though these loans may carry higher interest rates, they are more likely in the 12-percent range than in the 18-percent range.

And perhaps most important, the key to any hard-money loan is the valuation of the property. A good hard-money lender should have several methods of determining property values. One of those methods should include an appraisal by an objective third party that has no connection to the transaction.

A market appraisal gives an accurate valuation of a property's purchase price on the open market. An appraisal report can be fairly extensive and traditionally includes information about the property.

In addition, most reports feature side-by-side comparisons of similar properties. An overall evaluation of the real estate market in that area, as well as any other relevant issues, is also detailed in the report. An appraisal may also point out any flawed characteristics of the property, from average sales times to property damages.

Take the time to learn

Hard money is not the No. 1 focus for many mortgage brokers in today's market. But given the current environment of rising foreclosure rates, smart brokers must position themselves to assist borrowers on every level.

Keep in mind that hard money is not for borrowers with multiple foreclosures or outstanding debts. It is designed to help homeowners who have a hiccup on their credit report and who need bridge financing until they can repair the issue.

When faced with the choice to confront foreclosure or save their property, most borrowers want to preserve the hard-earned equity already invested in their homes. Many collateral-based lenders have competitive rates. Paying an extra 2 percent per year in interest versus losing thousands of dollars of equity may be an easy decision for these borrowers. It is therefore crucial that brokers familiarize themselves with hard-money products and the lenders that offer them.

For a mortgage broker, being educated on hard-money lending can increase your business and often can guarantee a customer for life.

You may apply online or contact us directly at 800-310-7577.

By Anthony Chao, COO, Allied Mortgage and Financial Corp.
Reprinted From Scotsman Guide Residential Edition and scotsmanguide.com, February 2007
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