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AVOIDING FORECLOSURE - STRATEGIES & OPTIONS
If your home is in foreclosure or the threat of foreclosure is imminent, you should explore the variety of legal options available to you, including:
- New Legislation Proposed and Enacted by Congress
- Bankruptcy
- Deed in Lieu of Foreclosure
- Loan Modification
- Repayment Plan / Forebearance Agreement
- Short Sale
Many of these options require negotiation with your lender. You can do this with assistance or on your own. Given the situation in the home mortgage and foreclosure market, it is clear that the banks must be more flexible working out solutions for delinquent borrowers.
Which path you choose to pursue is important because each strategy will have a different effect on your FICO credit score and your rights in the property.
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California SB 1137, enacted September 2008, requires lenders to work with borrowers and provides a 30 day waiting period prior to filing Notice of Foreclosure.
Congress has also been working on several, much needed, measures that will provide help for homeowners by allowing court supervised modification of home mortgages, especially sub-prime loans. Some such legislation failed in congress earlier in the year, but may be re-visited soon after the November elections.
There are also proposals to implement new programs as part of the federal banking bailout.
Lenders have been fighting to prevent these laws from taking effect, but may ease their resistance in light of recent developments.
Washington & Sacramento are looking at other ways to combat the foreclosure epidemic, and it looks like there will probably be a federally backed rescue plan in the near future - but that won't help you if you are in foreclosure now. |
Bankruptcy: Bankruptcy can be a powerful tool to stop foreclosure proceedings and possibly save your home, but it also has serious implication on your credit and your future ability to purchase a home. Anyone considering bankruptcy should explore their other options before filing.
Faced with foreclosure, many will find that filing bankruptcy is a viable option. There are several advantages that bankruptcy gives the homeowner in foreclosure:
- Filing Automatically Stops Foreclosure Actions
- Bankruptcy Laws May Help You Save Your Home Permanently
- Filing Gives You Time to Sell the Home Yourself or Make Other Arrangements
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Deed in Lieu of Foreclosure: Most lenders have criteria in place that allow borrowers to walk away from their homes without going through the foreclosure process. The lender will typically require that you attempt to sell the home first.
You can contact the loss mitigation department of your lender and find the criteria. The deed in lieu of foreclosure is a viable option for those who are "upside down" on their homes (they owe more than the home's actual value), as it has a lesser effect on your credit score than some of the other alternatives. |
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Loan Modification: Because banks don’t want to own homes, and they take huge losses on the properties they acquire through foreclosure, you would think that they would prefer to negotiate the terms of your loan or work-out an alternative payment plan. This used to be rare, but recently banks have begun to make significant cuts in both rates and principal.
You can negotiate your loan on your own, or you can hire us or another company to service negotiate the loan for you. There are agencies in almost every county that will assist you with this for FREE.
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Repayment Plan / Forebearance Agreement: Your lender might agree to a repayment plan in which you make-up the missed payment over the course of time, or agree not to foreclose if you make certain commitments. |
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Short Refinance or "Short Re-fi" If your credit is such that you might be able to obtain a loan from another lender, you may be able to re-purchase your home for its current value and thus save yourself the difference between the amount owed on the property and its current value. The mechanics of the short refinance are very similar to those of the short sale, discussed below.
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Short Sale: If you want to sell your house for less than you owe on it, or otherwise have access to funds that would enable you to buy your lender's note (if you own another home with equity, for example), you may be able to negotiate a short sale - a settlement with the bank in which you pay them off for less than the amount owed.
The difference between the price paid and the amount owed may be taxable, so make sure to consult a professional before signing a short sale agreement. |
Note: If you search the web, you may find additional creative solutions such as investors who are willing to buy your property and bail you out of your crisis. Legitimate operations may exist, but be very wary of scams!
Law Office of David W. Martin 5350 James Avenue, Oakland CA 94618 (800) 229-0546 |
