Your Options in the Face of Foreclosure:
You have the following options when facing foreclosure:
- Do Nothing
- Pay off or Short Refinance
- Reinstatement or Repayment Plan
- Loan Modification
- Partial Claim
- Deed in Lieu of Foreclosure
- Bankruptcy Chapter 7,13 or 11
- Sell (Short Sale
Read more below for details on each option
As an agent, my compassion is in educating homeowners. If my clients feel uncomfortable and judged, you will be less likely to hear and understand the options I present. As a real estate agent, I have the opportunity to remedy your situation. I can give you a light at the end of the tunnel.
What I have found is just the fact that someone cares enough to help is a blessing. I have genuine compassion for homeowners and their families. My mother, brother and sister have gone through a loan modification and short sales. I Do not give guarantees and do not give legal advice, but I am honest and forthcoming in my delivery of compassion and let you know that I am here for you.
"What you will find is that as I explain the options clearly, homeowners will be able to review their financial picture and determine which option will best suit their needs and future goals. One very important thing to remember is that time is of the essence. It is important to be able to process all the information clearly and take quick action in order to allow enough time to complete the chosen option."
Implications of the Options
Do Nothing – If homeowners do nothing, they most likely will lose their homes at foreclosure auction. Credit reports, tax ramifications and deficiency judgments may apply. (State Specific) Or they may choose to continue making the current payments.
Payoff/Refinance/Short Refinance– Completely paying off the entire loan amount plus fees. Usually this is accomplished through a refinance of the debt. With properties worth less than what is owed, homeowners must negotiate with the bank to take less than what is owed. The following are only guidelines and may change as the industry becomes more accepting of short refinancing. There are several steps and qualifications that have to fall in place in order to begin the process a short refinance. Keep in mind that these are constantly changing and currently are a lot harder to get done than just a normal short sale. Your current mortgage holder has to be participating in the short refinance program. Each lender has a set of rules.
Reinstatement – Paying the entire default amount plus interest, attorney fees, late fees, taxes & missed payments.
Loan Modification – Utilizing the existing mortgage company to extend the terms of the loan by negotiating changes in interest and/or principle. This may allow homeowners to catch up at a more affordable level. To qualify, they must prove to the lender they have fixed the problem that caused the late payment.
Forbearance – Lender may be able to arrange a repayment plan based on the homeowners' financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. The lender will require proof that the homeowner is able to meet the new payment plan requirements.
Partial Claim – A loan from the lender for a 2nd loan to include back payments, costs and fees.
Deed in Lieu of Foreclosure – Give the property back to the bank instead of the bank foreclosing. Banks generally require the home to be well maintained, all mortgage payment and taxes must be current. Most loan applications ask if the applicant has ever done this.
Bankruptcy – Can liquidate debt and/or allow more time for the homeowner to make some financial decisions.
Chapter 7 (Liquidation) To completely settle personal debt.
Chapter 13 (Wage Earner Plan) Establishes a payment plan to pay off debts in 3-5 years.
Chapter 11 (Business Reorganization) A restructuring of business debt.
Sale/Short Sale – Straight Sale applies if the property has equity. The homeowner may sell the home without lender approval through a conventional sale and may even profit from the sale. If the homeowner owes more that the property is worth, a Short Sale can be negotiated with their lender to accept less than what is owed on the property at the property’s current market value to get it sold.
Foreclosure - The legal process by which an owner's right to a property is terminated, usually due to default. Typically involves a forced sale of the property at public auction, with the proceeds being applied to the mortgage debt.
A Foreclosure process typically follows these steps:
- Homeowner receives the foreclosure process alerts the as soon as they are late on their payments.
- Each bank has its own designated period of allowable late payments a homeowner can have prior to filing a notice of default or a notice of intent to foreclose.
- Within this period, homeowners can reinstate their loans by paying the entire default amount plus interest, attorney fees, late fees, taxes & missed payments.
- If reinstatement does not occur, the foreclosing lien holder will file a foreclosure sale date or notice of trustee sale that must be publicly announced.
- Some states have redemption periods before the foreclosure date, some after the sale date and some states have no redemption period at all. The redemption allows the homeowner within a specific period of time to pay the amount due in full to the lien holder to regain possession of the property.
- Actual day of the sale, property is typically sold on the courthouse steps. If a bidder doesn't end up buying the property it will go back to the lien holder that foreclosed on the property.
- If it goes back to the lender, typically a representative will come to the home and start negotiate with the homeowner the date and dollar amount to move out, and leave the property condition as good as possible.