Foreclosure Relief

You should realize you may not need to sell your home; a Short Sale is only one of the many options available to you in the process of foreclosure prevention. However, a Short Sale may likely be the only option open to many homeowners under the threat of foreclosure. The best advice we can give you when you have problems making your monthly mortgage payments is contact your lender immediately, be totally honest in explaining your situation and provide them with all your financial details. Just remember, your lender does not want your home back, but you must also keep in mind that time is of the essence and every minute that goes by diminishes your options significantly. 

 

There is a variety of options available to distressed homeowners facing foreclosure:

 

It’s the worst thing a distressed homeowner can do! They WILL lose their home. Foreclosure will irreparably damage a homeowner’s credit score for up to 15 years! Foreclosure is worse than bankruptcy in terms of detrimentally affecting a consumer’s credit standing. When applying for credit, loan originators ask if the applicant has ever been through foreclosure. Be upfront and don’t be misleading under any circumstances, the foreclosure will be on your credit report and a report will be pulled.

 

Pay-off the entire loan including:

 

·         All late fees

·         Accrued interest

·         Legal fees and costs

·         All delinquent payments

·         A pre-payment penalty may also apply

 

Retiring the debt is generally not an option, otherwise the homeowner would not be in distress to begin with; or if your financial circumstances have changed for the better in acquiring sufficient funds to completely pay-off the debt, this may be a viable option.

 

This option generally requires significant equity in the property. Refinancing will rectify the default, IF this is a viable option for the 1% who qualify – 99% of distressed homeowners who’ve received a Notice Of Default will not qualify for refinancing. Should they be fortunate enough to be one of the lucky 1%, a higher interest rate will apply and chances are the new monthly payment will be higher than previously … IF the homeowner qualifies!

 

Completely paying the entire delinquency, including:

 

·         All late fees

·         Accrued interest

·         Legal fees and costs

·         Delinquent mortgage payments

·         Late property taxes

 

Similarly to Option #2 (Retire The Debt), how viable is this option for the homeowner? The reality is the homeowner would not be in this situation if they had the financial ability to make the payments, let alone the cumulative amount.

 

A negotiated payment relief plan. The default homeowner will undergo a stringent qualification process and approval will depend on their financial situation. Forbearance options may include:

 

·         Temporary reduction in monthly payments

·         Limited suspension of payments

 

Once the period of Forbearance concludes successfully, the loan will be reinstated. The homeowner must prove they have the financial resources to resume regular monthly mortgage payments and demonstrate the reason for default has been cured.

 

Essentially, the existing mortgage lender reorganizes the debt structure and/or extends the term of the loan. However, only a small percentage of default homeowners qualify for a Loan Modification. Given that Loan Modification generally follows and may be the end result of Forbearance there is a stringent qualification process and many default homeowners may not qualify for a Loan Modification.

 

A workout option whereby FHA/HUD pays the delinquent amount for up to 12 months of PITI payments. The homeowner must be at least 4 months delinquent before a Partial Claim may be negotiated.

 

The property is surrendered to the lender in lieu of foreclosure, thus the name Deed-In-Lieu. Generally it’s a “last resort” option for the lender to authorize a Deed-In-Lieu … the lender does NOT want the property, their financial losses escalate once the property reverts to bank ownership as an REO. The property must be in good condition and well maintained. Proof is also required that the homeowner cannot afford the payments and there is a verifiable hardship. A Deed-In-Lieu will not be acceptable if there are junior or any additional liens.

 

This should be a homeowner’s last resort option. Under bankruptcy protection the distressed homeowner will be a “financial leper” for 7 – 10 years. There are several Bankruptcy options under the United States Bankruptcy Code:

 

·         Chapter 7:           Liquidate assets to clear personal debt

·         Chapter 11:         Debt solution for businesses where debt is restructured under a Court approved repayment plan

·         Chapter 12:         A debt clearance plan similar to Chapter 13, but available only to farmers and fisherman

·         Chapter 13:         A debt clearance plan over 3 – 5 years where payments are made to clear the debt based on the homeowner’s ability to pay (generally for wage and salary earners)

 

The homeowner can simply sell the property without lender approval. The terms and conditions of the “Due On Sale” clause in the mortgage must be met with full payment of the loan balance.  If there are insufficient funds from the sale, the homeowner must bring funds to close in order to cover the shortfall.

 

Homeowners generally wind-up in the hands of the lender’s Collection Department whose primary function is to collect the debt. The Collection Department has no authority to offer a workout plan.

 

Secondly, the borrower can spend up to a month or more being transferred all over the mortgage company from one person to another, none of whom is the right person with whom they should be speaking. Furthermore, many are speaking with loan servicers in India or South America, never speaking with the same person twice. The homeowner subsequently gives up in frustration and devastated, accepts defeat. Foreclosure then becomes inevitable.

 

If the borrower does stumble across the right department, they have no knowledge of the process, nor do they have the required paperwork and Loss Mitigators have literally hundreds of files on their desks, having no time to muddle through the process with an untrained homeowner. Remember, the clock is ticking and time is of the essence. The fact is the homeowner is best served by a trained professional to represent them.