OPTIONS TO AVOID FORECLOSURE
A loan modification is a permanent restructuring of the terms of a borrower’s loan in order to provide a more affordable payment. A loan modification is a form of loss mitigation. You may be able to delay or stop a foreclosure by applying for a loan modification prior to the sale. Under new Federal rules passed by the Consumer Financial Protection Bureau (CFPB), if a complete loss mitigation application is received more than 37 days before a foreclosure sale, the lender/servicer may not proceed with a foreclosure while a loss mitigation application is pending. When your loan modification is approved, as long as you keep up with the modified payments, you will not have to worry about foreclosure proceedings. Note that, lenders generally approve of a temporary or probationary modification, before approving a permanent modification.
Forbearance Agreements provide short-term relief for delinquent homeowners. With a Forbearance Agreement, the lender agrees to reduce or suspend payments for a certain period of time and not to initiate foreclosure proceeding during the forbearance period. Generally, under this type of agreement the borrower must resume the full payment at the end of the forbearance period. The specific terms of a forbearance agreement varies, depending on the borrower’s circumstances and the lenders’ policies.
A Repayment Plan is an agreement to spread the past due amount over a specified period of time. For example, the lender may spread your overdue amount over a number of months. Generally, during the repayment period a portion of the overdue amount is added to each regular mortgage payment amount. At the end of the repayment period, the mortgage payments will be current. The homeowner/borrower then resumes paying normal monthly payments.
Refinance Existing Loan Through the HARP Program
HARP (The Home Affordable Refinance Program) is part of the federal government’s Making Home Affordable initiative. HARP provides a way to re-finance loans owned or guaranteed by Freddie Mac or Fannie Mae. The program provides that if a homeowner is current on their mortgage, they may be eligible to refinance and get a mortgage with a lower interest rate, a lower monthly payment, a fixed-rate, or a shorter mortgage term. This program is not contingent on the home’s value or appraisal. However, a property is only eligible if the LTV (Loan to value ratio is 80% or higher). Note: HARP is scheduled to expire September 30, 2017.
Veterans Interest Rate Reduction Refinance Loan
The VA Interest Rate Reduction Refinance Loan (IRRRL) may lower an interest rate by refinancing an existing VA home loan. This will decrease the amount of the monthly mortgage payment. An adjustable rate mortgage (ARM) can also be re-financed into a fixed rate mortgage. Under this program, veterans do not have to worry about out of pocket costs. Appraisals, credit underwriting, and a certificate of eligibility is also not required. An IRRRL can only be used to refinance a property on which a veteran has already used his or her VA loan eligibility.
A Real Estate Short Sale
A real estate short sale is where a Lender agrees to accept less than the full balance of the remaining mortgage loan when a property is sold. The Lender and borrower must both agree on the sales price. The lender will generally agree to a short sale if: The mortgage is in arrears or facing foreclosure; The homeowner faces an economic hardship which prevents him/her from making payments; The underlying property is in poor condition; The homeowner owes more than the property is worth and, or the surrounding area has depreciated in value. When a successful short sale is negotiated, the agreed upon price is deemed as a payment in full. However, the borrower should be aware, that he or she may still owe the difference between the discounted value and the mortgage balance, and may be liable to pay taxes on the discounted amount.
OPTIONS TO STOP A FORECLOSURE
The Lender May Agree to Stop a Foreclosure
Some foreclosures are stopped because the owner and lender reach an agreement or the lender agrees to give the borrower some “breathing room” to work on a long term solution. Any such agreement (Usually referred to as a ‘cancellation letter’) should always be in writing and the lawyer handling the foreclosure sale for the lender should be informed.
The Filing of a Bankruptcy Case Immediately Stops a Foreclosure Because of the ‘Automatic Stay’
Filing a Bankruptcy case is the most certain method of stopping a foreclosure sale. Once you file for bankruptcy, something called an ‘automatic stay’ immediately takes effect. The automatic stay operates as a restraining order, which prohibits your mortgage lender from foreclosing on your home or otherwise trying to collect its debt.
A bankruptcy filing can stop a foreclosure, even if the bankruptcy petition is filed the same day as the sale, but before the sale starts at 10:00 am. There are some cases where a foreclosure sale is void; even if the foreclosure sale takes place after the Bankruptcy case is filed (Such as where the foreclosing lawyer was not aware of the filing). The bankruptcy case for an individual will either be a Chapter 7 or a Chapter 13 filing. There may be certain cases where filing multiple bankruptcies in order to stop a sale will not result in an automatic stay.
Note that the lender may file a motion for relief from the automatic stay. If the court agrees to lift the stay, the lender will be able to proceed with the foreclosure. Note that if the bankruptcy court grants this motion and allows the foreclosure to proceed, the homeowner will benefit from having delayed the foreclosure sale at least a month or two.
Generally, by filing a bankruptcy you are temporarily stopping the foreclosure process. Secured debts, such as mortgages, however, cannot be discharged in the bankruptcy proceeding. Once your bankruptcy proceeding has been finalized, you will still be responsible for the mortgage payments and the bank can proceed with foreclosure proceedings. This is why individuals who use bankruptcy as a short-term solution eventually lose their homes to foreclosure. Therefore, they end up with a bankruptcy and a foreclosure on their credit reports.
Obtaining a ‘Restraining Order’ in State Court to Stop a Foreclosure Sale
In Rare Cases, a State Court May Stop a Foreclosure Sale, where the debtor will have to present clear evidence that the lender has acted unlawfully or has agreed, in writing to cancel the sale. This can be an expensive option and success in obtaining a court order is highly unusual.
Sell Your Home to Avoid a Foreclosure
If you’ve exhausted all options and aren’t able to work out a deal with the lender that will allow you to stay in your home, you may still be able to avoid a foreclosure by selling your home. If you have equity in the home, you can sell it and use the proceeds to pay off the mortgage. If you owe more than your home is worth, your lender may allow you to sell your home via a short sale.