Avoiding Foreclosure May Be Possible

Foreclosure is always a possibility whenever you are unable to make your mortgage payments. It is a legal proceeding initiated by your mortgage lender that, when final, enables the lender to take possession of your home. Once that happens your family is left with no choice but to vacate the property.

But that’s not all that can happen. If your mortgage balance exceeds the value of the property, you may be subject to what’s called a deficiency judgment. This is something either the lender or HUD can seek and if granted, means you are responsible for paying additional debt to one party or the other. Both situations will affect your credit and make qualifying for new credit more difficult. So don’t let this happen.

As soon as you realize you will have trouble paying your mortgage, contact the lender. Do not wait until the lender starts sending letters. The sooner you contact the lender, the sooner an alternate financial arrangement can be worked out. Be honest about your situation and provide any information requested by the lender, including your current income and debt. Lenders need this information before they can help. Also, do not abandon the property because doing so may disqualify you from receiving assistance.

Some of the options to foreclosure that you may have include:

Special Forbearance

Lenders may allow for a special forbearance in instances where there has been a change in your income. A special forbearance is simply a lender’s willingness to temporarily modify, lower or suspend your monthly mortgage payments so they’re more in line with your ability to pay. This may be an option if you’ve become unemployed or experienced some other unexpected decrease in income or increase in expenses. Before a lender can agree to this, you will have to show proof of your ability to fulfill your financial obligations under the modified payment agreement.

Mortgage Modification

This is a situation in which the terms of your mortgage are permanently changed, resulting in a lower monthly payment. This option usually involves refinancing or lengthening your loan term. If you have been successful in recovering from an adverse financial situation, but a decrease in income has caused you to fall behind on your payments, ask your lender if you qualify.

Partial Claim

A Partial Claim option involves obtaining from HUD a loan that’s interest free and large enough to cover the amount you owe to your mortgage company. You qualify for a Partial Claim if you: are able to resume making your mortgage payments in full; your mortgage is between 4 and 12 months delinquent; and foreclosure has not been initiated. Once HUD pays your lender you will have to fulfill the terms of an interest free Promissory Note. A lien on your property remains until you fulfill all terms of the Promissory Note. Understand that the Note is due immediately should the mortgage mature or should you decide to leave or sell the property.

Pre-Foreclosure Sale

This is exactly what it sounds; a chance to sell your property and pay the balance due on your home loan. Under a Pre-foreclosure sale arrangement, you can also get help with your portion of the closing costs. If you think you can sell quickly, usually within 90 – 150 days (as decided by the lender) for at least 95% of the appraised value, and the home’s appraised as-is value is a minimum of 70% of what is owed, this option can help you avoid foreclosure and protect your credit. In order to qualify for this option, you must be a minimum of 2 month’s behind on your mortgage payments by the time you close on this type of sale.

Deed in Lieu of Foreclosure

Deed in Lieu of Foreclosure is a situation in which you basically give to the mortgage company your property. In the end, you will still lose your home, but doing so is a way to improve your chances of obtaining a mortgage later on when you’re ready to buy again. This is somewhat of a last resort as it is only an option after determining that none of the other options are feasible and after determining that you have been unsuccessful in your efforts to sell the property. Additionally, you cannot be in default or another mortgage.

As mentioned previously, your lender can work with you to determine which, if any, of these options is best for your current financial situation. Additionally, you can always seek assistance from counseling agencies that specialize in housing.

Be very aware of scams

Not only can representatives of these entities offer advice, their advice can keep you from becoming a victim of a scam. When your home is at risk of foreclosure, you are vulnerable and some people will use your vulnerability to their advantage. Always be especially cautious of buyers looking to complete sales transactions quickly and also of any deals that seem too good to be true. Here are just a few of the ways you can become a victim:

Equity Skimming

This is a situation in which the “buyer” promises not to let the property foreclose but ends up doing so anyway. Under this scenario, the buyer will try to convince you that he or she will pay the balance on your mortgage once the property is sold. Or the buyer promises to sell the home and hand over to you money from the proceeds. Along with these promises, the scammer tries to convince you to sign over the deed and perhaps to even move out. After the scammer collects a few months’ worth of rent but does not pay the mortgage, your home ends up in foreclosure anyway. And even though you may have signed over the deed, you may still be financially responsible for the missed payments. Never get involved in this type of arrangement.

Illegitimate Counseling Agencies

Illegitimate counseling agencies prey on people in danger of losing their homes to foreclosure. In exchange for paying upfront fees, which can be considerable, agency reps promise to perform a multitude of services, but don’t. What’s worse is that the things they promise are options like the ones mentioned above that you can pursue on your own. If you need help keeping your home out of foreclosure, always confirm that the agency you’re working with is HUD-approved.

The bottom line is this

Never sign anything you don’t understand. Never pay for any service unless it’s put into writing. Never assume you are relieved of the obligations as stated in your loan paperwork or home sale contract.

Instead, always seek legal help or help from your lender before becoming involved with others that promise to “help” improve the situation with your property. Additionally, you can check out potential home buyers. The consumer fraud division of your local district attorney’s office, the state Attorney General and also your state’s Real Estate Commission all maintain complaint files that can be accessed and viewed by the public.

Disclaimer: The general information presented here relates to Chapter 7 consumer bankruptcy. This discussion is incomplete and does not involve consumer debt restructuring as defined under Chapter 13 bankruptcy; a different type of bankruptcy filing. The information presented is not meant as a legal opinion and should not be used as a substitute for legal advice. For detailed information regarding Chapter 7 consumer bankruptcy, refer to your state’s bankruptcy laws. For specific and complete information regarding how state bankruptcy laws affect your personal situation, it is advisable to seek independent legal representation.