If You Are Behind on Mortgage Payments Understand Your Options Before Foreclosure!
Facing foreclosure? Facing the prospect of foreclosure can be overwhelming, but less so if you know your foreclosure options. Homeowners with distressed loans often ignore their alternatives to foreclosure until it’s too late. Don’t make that mistake. Consider foreclosure options right away. The more time you have before you ultimately lose your home through foreclosure, the more viable your other foreclosure options may be. Things may seem bleak, but now is not the time to falter. Knowledge and determination will give you the resolve you need to overcome the financial challenges you face. Remember your situation is temporary and there is light at the end of the challenges you face today.
WHAT IS FORECLOSURE?
Foreclosure is the legal process for a mortgage lender to sell property to satisfy a defaulting borrower’s debt secured by that property. Foreclosure can take quite a toll on homeowners, both emotionally and financially. Depending on your circumstances, foreclosure may force you and your family out of your home; damage your credit; increase your tax liability; and expose you to other personal liability.
POSSIBLE ALTERNATIVES TO FORECLOSURE:
- Loan Workout: If you experience difficulty paying your mortgage, you should immediately contact your lender or a housing counselor to try to work something out. If you just need a little time to get back on your feet, your lender may agree to a loan workout plan to temporarily reduce or suspend your payments, allow you to repay what’s past due in monthly installments, or provide some other type of relief.
- Loan Modification: Even if your financial difficulties are severe and long term, you should contact your lender or a housing counselor to try to work something out. Your lender may agree to a loan modification to permanently change one or more of your loan terms. A loan modification may involve a reduction of your interest rate, an extension of your loan term to 40 years, a reduction in your loan balance, or other changes to the terms of your loan to make your mortgage payments more affordable. Your lender may participate in the government subsidized Home Affordable Modification program which gives monetary incentives to both lenders and borrowers for modifying certain distressed loans.
- Short Sale: Another option is to sell your property. Selling your home may be challenging if you are “upside down”, which means your unpaid balance is more than your sales price. Your lender may agree to a short sale by accepting a loan payoff of less than what’s owed. As with foreclosure, a short sale may affect your credit, tax liability, personal liability, and pose other consequences. With a short sale you can at least avoid the stigma of foreclosure. Doing a short sale allows you to take a proactive approach to dealing with your distressed loan, rather than go through what can be an agonizing wait for the foreclosure process to run its course. Contact Kathleen Daniels, San Jose Short Sales to determine if you qualify for a short sale and discuss the process of listing and selling your property.
- Refinance: If you cannot do a loan workout or loan modification with your existing lender, you may be able to refinance your loan with your lender or another lender. Low FICO scores, low appraisals and the lack of income are common obstacles to refinancing distressed loans. Qualifying for a refinance depends on your individual circumstances. You may be eligible for federal assistance through the Home Affordable Refinance program for up to 125% of the property’s value if you currently have a Fannie Mae or Freddie Mac loan or the Hope for Homeowner program for a FHA-insured fixed rate refinance up to 96.5%of the property’s value, but other terms apply.
- Deed-in-Lieu of Foreclosure: A deed-in-lieu of foreclosure is a voluntary agreement between a borrower and lender for the borrower to give title to a property to the lender in full satisfaction of the loan secured by that property. Your lender may look favorably at a deed-in-lieu of foreclosure because it saves the lender time and money pursuing foreclosure.
- Bankruptcy: Bankruptcy is a federal court proceeding for settling your debts with your creditors under a judge’s supervision. If you face foreclosure, the filing of a bankruptcy case may provide an “automatic stay” to temporarily stop the foreclosure proceedings. If, however, you file for liquidation under Chapter 7 of the Bankruptcy Code, the court may, in time, lift the automatic stay to allow the mortgage lender to resume the foreclosure proceedings. If you file under Chapter 13, you may be eligible to keep your property, but you must generally repay the overdue amount in a three-to-five year plan along with your regular mortgage payments.
- Other Alternatives: There may be other alternatives to foreclosure. You may be able to supplement your income by renting out a room or getting a second job. If you have a struggling small business you may qualify for an interest-free, deferred-payment America’s Recovery Capital (ARC) loan up to $35,000 from the U.S. Small Business Administration. If your lender fails to follow proper foreclosure procedures, you may be able to file an injunction to stop the process.
You May Have Options to Avoid Foreclosure
Carefully consider the pros and cons, including possible credit, tax, legal and other consequences to any and all foreclosure alternatives.
THIS INFORMATION IS INTENDED TO PROVIDE GENERAL ANSWERS TO GENERAL QUESTIONS. IT IS NOT INTENDED AS A SUBSTITUTE FOR INDIVIDUAL LEGAL AND/OR TAX ADVICE. EVERY SITUATION IS UNIQUE TO EVERY INDIVIDUAL. THEREFORE SPECIFIC LEGAL AND/OR TAX QUESTIONS MUST BE ADDRESSED WITH A LEGAL OR TAX PROFESSIONAL.