Alternatives to Foreclosure
So, your house is in foreclosure….now what?? Try to look at the situation without attaching your emotions. If viewing the situation from a strictly business viewpoint, you can more successfully analyze which option might best suit your needs and desires and move you towards resolving you financial difficulty. One very important thing to remember: Time is of the essence, so sit and take serious thought of your situation and take a quick action in order to allow yourself enough time to complete the chosen process.
9 Options when facing Foreclosure:
- Do Nothing: If a homeowner does nothing, they most likely will lose their home at a foreclosure auction. Loan applications generally ask if the applicant has ever been foreclosed upon. Credit reports also disclose this damaging information. Therefore, doing nothing is not the best option.
- Payoff/Refinance: Completely paying off the entire loan amount plus any default amount and fees. Usually, this is accomplished through a refinance of the debt. New debt is a normally higher interest rate and there may be a prepayment penalty because of the recent default. With this option, you will want to make sure there is equity in the home.
- Reinstatement: Completely paying the entire default amount plus interest, attorney fees, late fees, taxes, missed payments and fees.
- Loan Modification: Utilizing the existing mortgage company to refinance the debt or extend the terms of the loan. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problems 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. Information will be required from the lender to show that you are able to meet the new payment plan requirements.
- Partial Claims: A loan from the lender for a 2nd loan that includes 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 payments and taxes must be current. Most loan applications ask if this has ever happened.
- Bankruptcy: This option can liquidate debt and/or allow more time. I can refer you to a qualified bankruptcy attorney.
- Chapter 7 (Liquidation) To completely settle personal debt
- Chapter 13 (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3-5 years.
- Chapter 11 (Business Reorganization) A business debt solution
- Sale: If the property has equity (money left over after all loans and monetary encumbrances are paid). The homeowner may sell the home without lender approval through a conventional home sale. In this case, the homeowner will get cash from the sale. On the other hand, a Short Sale (also known as a pre-foreclosure sale) can be negotiated with your lender by the Real Estate Professional if what is owed is MORE than the properties value.
What is a “Short Sale”?
WHAT IS A SHORT SALE? A “Short Sale” (Also referred to as: “Negotiated Settlement”, “Short Pay” or “Pre-Foreclosure”) occurs when a Lender agrees to accept less than the amount owed on the original note or total payoff, as an alternative to foreclosure. If the property is worth less than the amount owed on the loan, then even if the Lender forecloses and takes back the property, they know they are going to take a loss. We can often convince a Lender that they will “do better” if they take less than what is owed now rather than taking the property back by foreclosure and trying to re-sell it.
HOW LONG WILL IT TAKE? The Short Sale negotiation process can be rather lengthy. It may take several weeks to several months for an approval. Many Lenders will have several layers of bureaucracy, insurers, and investors that we will have to maneuver through in order to get a Short Sale approved. So, it is important to be patient during this long process.
BUT MY HOUSE IS GOING TO FORECLOSURE, WILL I HAVE ENOUGH TIME? Maybe-Maybe not. Just starting a Short Sale will NOT automatically stop a foreclosure. However, many times we can convince a Lender to stop the foreclosure to let us attempt to negotiate the Short Sale. While there are no guarantees, it is worth the attempt.
CAN I STAY IN THE HOUSE? The key word in a “Short Sale” is sale. The purpose of a Short Sale is to get the property sold. This is not a program that can stop a foreclosure and allow you to keep the house indefinitely. Moreover, it will be easier to sell the house if it is vacant. Therefore, you should most certainly begin making plans to vacate the property.
HOW DO I KNOW THIS WILL WORK? Again, there are no guarantees. We can not, have not, and will not make promises to you that this will work. Once you miss a payment, the Lender is in charge and can proceed to foreclosure if they want to. But we know they do not want to and we are very good at presenting alternatives to the Lender that they often want to accept, as opposed to moving forward with a foreclosure. We are very proficient at what we do, but NO GUARANTEES are being made as to whether or not the Lender will accept the Short Sale.
WILL I GET ANY MONEY FROM THE SALE? No. A universal requirement of Lenders in granting a Short Sale is that the borrower will not get any proceeds from the sale of the property. Being, the Lender is going to take a loss on your loan, they are most certainly not going to allow you to profit from the situation.
WHAT HAPPENS IF THIS DOESN’T WORK? Your house will likely go to foreclosure. A Short Sale is something we try after you have exhausted your other options.
If you need help regarding a foreclosure please email your contact information to: ShortSales@TeamCandler.com or call us for a FREE Consultation 530-328-1926