Ways to Avoid Foreclosure

There are many options you have in avoiding foreclosure. Being organized and effective in your communication efforts is key to being able to work out a plan to stay in your home. 

While many options are still available to you in avoiding foreclosure, you might take this opportunity to seek professional counsel with regard to your choices. An experienced, licensed attorney who specializes in real estate law is an excellent source to help you avoid foreclosure. Typically, homeowners have no one to provide them with assistance in rectifying their delinquency situations - they simply aren't familiar with the rights or options they have available to stop the foreclosure process. 

An experienced attorney may also be able to provide you with another opportunity to modify your loan. In many instances it has been shown that lenders have violated regulations regarding mandatory disclosure to borrowers under federal and state law. This breach by the lenders gives the attorney the leverage they exploit in dealing with the lender for a settlement which manifests itself as a modification to your loan that you can afford. If bankruptcy is the option of last resort for you, then they usually can handle that, too.

There are many approaches to foreclosure avoidance. Becoming familiar with the options available will help you better decide which is best for you.

Repayment plan: A repayment plan enables the homeowner to submit payment of a portion of the past-due amount and penalties with future payments until the past-due amount and penalties are paid-off. This is an option for homeowners who may have experienced a temporary financial hardship but have since recovered and are prepared to resume their regular mortgage payments. In some cases, the homeowner may be able to negotiate with the lender to remove any derogatory or negative remarks regarding their account on their credit report to reinstate an improved credit score. However, if you find yourself in financial hardship that appears long-term, this option might not fit your needs.

Forbearance: Typically, when the threat of foreclosure is a result of a temporary loss of income, the lender may agree to a forbearance wherein they will allow the homeowner to delay payments for a short period, or negotiate a payment plan to make up for missed payments over the course of several months. The lender may also agree to some combination between reinstatement and forbearance, enabling the homeowner to delay payment for a short period and then bring payments current by a specific date.

Loan Reinstatement: This is the most commonly accepted method of saving your home if the lender has initiated the foreclosure process. With a reinstatement, you work out a solution with your lender to repay all of your missed payments, late fees and/or attorney costs (if applicable). All monies due the lender must be paid in full to bring your account status current for reinstatement. This option is best for homeowners who may have experienced a temporary financial hardship but have since recovered and are financially prepared to bring their mortgage current. If you are considering borrowing money to reinstate your home loan, beware the risks involved and the potential of deepening your debt, making your financial situation worse.
Again, this option may not be viable for homeowners experiencing possible long-term financial hardship.

Deed-in-lieu: Is a deed instrument in which a mortgagor (i.e., the borrower) conveys all interest in a real property to the mortgagee (i.e., the lender) to satisfy a loan that is in default and avoid foreclosure proceedings. The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he would in a formal foreclosure. Advantages to a lender include a reduction in the time and cost of repossession, and additional advantages if the borrower subsequently files for bankruptcy. In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed. Generally, the lender will not proceed with a deed in lieu of foreclosure if the current fair market value of the property exceeds the outstanding indebtedness of the borrower. Because of the requirement that the instrument be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is being made voluntary. This will protect the lender from a possible subsequent claim that the lender acted in bad faith, or pressured the borrower into the settlement. Both sides may then proceed with settlement negotiations.
Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached.

Short sale: A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.

Chapter 13 Bankruptcy –For some homeowners this will be an option of last resort. It is primarily used to stop foreclosure of your home. In order to qualify the homeowner will have to have a steady income. The bankruptcy petition would need to be filed before the foreclosure sale date of the homeowner’s property. After filing, the homeowner will propose a plan to repay the amount they fell behind on the mortgage. The homeowner will also begin to again pay their regular mortgage payments, which under the operation of law must be accepted by their mortgage company. A forced loan modification can be sanctioned by the courts if it is proved that the borrower cannot afford the current payments. The concept is similar to debt consolidation, but it permits consumer(s), to pay unsecured debt down without accruing interest (student loans are an exception) and without having to deal with those annoying calls from debt collectors. Under a typical plan, the consumer makes monthly payments to a court appointed bankruptcy trustee for generally three to five years. The amount of the consumer’s monthly payment is determined by several factors such as the amount of debt they have, their ability to repay and the extent that they have assets. In exchange for stopping any and all collections activity, one proposes to pay all or, in specific circumstances, a portion of the debt through a Chapter 13 plan. 
The filing of a Chapter 13 bankruptcy typically stops ALL collection activity through something called the automatic stay. The automatic stay remains in effect during the life of the case unless the court orders otherwise. The homeowner can always refinance or sell their home while under Chapter 13 if they wish to pay off the bankruptcy and move on with their life. The Chapter 13 stops the foreclosure immediately; however the lender has the right to file an appeal to remove the automatic stay provision. Often, the homeowner’s only other option would be to refinance, or enter into a repayment agreement with their mortgage company. All too often, they want a double payment each month until the homeowner can catch up, which usually by this point is not a viable option for the homeowner.