OVERVIEW
Foreclosure is a legal process where a lender (bank, mortgage, company, mortgage servicer) sells your home at a public auction to collect the amount you owe.
One of the great myths about Foreclosure is that the process is simple cut-and-dry; you miss payments and you are evicted. Totally False. YOU HAVE CHOICES.
The topics are divided into 2 Main Headings – (1) Keep the Home and (2) Let the Home Go.
1. KEEP THE HOME
The main reason to hold on to your home is equity. Equity is present if the value of your home exceeds the amount you owe. The main reason to let the home go is that you are “upside down” meaning you owe more than the value of the house. Another criteria is the interest rate – a low rate points to keeping the home and a right rate points to letting the house go.
A. LOAN MODIFICATION
The most common, straightforward alternative to foreclosure is a change in the load. These deals are described in various ways such as loan modification, negotiations, settlement, debt relief, workouts. They are often used interchangeably. Load modification is probably the most used. In any event here are the results you should try for. Often you can negotiate more than one.
Lower the interest rate
Agree to a freeze in the interest rate
Lower the payments
Forgive some of the debt, for example forgive the amount you are behind in your payments
Lengthen the payment period
Settle the balance due – in some cases the creditor will not budge but others might go as low as 25% or less.
B. CHAPTER 13 BANKRUPTCY
If you have a steady income you may be able to make up the missed payments (arrearage) under a Chapter 13 Payment Plan (usually 5 year period) AND keep current on the future mortgage payments.
C. CHAPTER 7 BANKRUPTCY
You can use Chapter 7 if you are current on your mortgage payments when you file – or can get current in a hurry. Then, with most of your other debt discharged in the bankruptcy you might be able to save the house. This rarely happens.
D. GOVERNMENT PROGRAMS
“Making Home Affordable” This is a key part of the Obama Administration's effort to help homeowners avoid foreclosure. It hasn't been very successful so far but it might be worth a try.
http://www.makinghomeaffordable.gov/faqs/Pages/default.aspx (888.995.HOPE)
http://www.makinghomeaffordable.gov/news/latest/Pages/pr_02192010.aspx
2. LET THE HOME GO
A. DEED IN LIEU OF FORECLOSURE (DIL)
The deed is handed over to the bank and the bank agrees not to file a lawsuit for the amount by which the debt to the bank exceeds the proceeds that the bank receives on the sale of the house.
B. SHORT NOTICE
Debtor sells the house for less than the amount owed to the bank and the bank agrees not to file a lawsuit for the amount that the debt to the bank exceeds the amount received on the sale of the house. Short sales are rate.
C. WALK AWAY
Debtor just leaves the house and allows the foreclosure to proceed. Don't do this. The bank will file a lawsuit against you for the excess of the amount you owe less the amount received by the bank.
D. STAY IN THE HOME PAYMENT – FREE
You have time on your side. The time from when foreclosure papers are filed in court to the time of a foreclosure sale can run a year or longer. You can also delay the case further if you fight the foreclosure in court. You can get even more time if you file for Bankruptcy. Give me a call at 502-592-9771.
