Have you fallen behind on making payments on a mortgage? Feeling like foreclosure is right around the corner? Fortunately, you do have a few options to delay the process and save your home.
Applying for a loan modification
Loan modifications help struggling homeowners by lowering monthly mortgage payments. The modification is a written agreement that alters the original terms. Loan modifications typically lower the interest rate and expand the terms of the loan.
A loan modification should not be done in the last minute because it’s not for sure the process will immediately be stopped, but can delay the process of a foreclosure sale. The bank could be limited from dual tracking. Dual tracking is when the bank continues with the foreclosure while a loss mitigation, the process where lenders work a plan of action with buyers to avoid foreclosure, is unresolved. This is an illegal process.
If you are looking into applying for a loan modification, contact first your servicer’s loss mitigation department, sometimes known as a home retention department. Normally you can find their contact information on your monthly mortgage statement. You will need to provide a completed application (include your personal information, mortgage information, property information, etc.), most recent pay stubs, tax returns, bank statements, income/expense financial worksheet, and a hardship or affidavit.
In the long run, if your modification solicitation goes through, the foreclosure will be stopped.
Filing for bankruptcy
If the foreclosure sale is about to happen in just a few days, filing bankruptcy halts actions by creditors which stops foreclosure right away. This is called an automatic stay. The stay prohibits the bank from foreclosing on your home. During the bankruptcy process, any foreclosure action shall be ceased.
At times, the bank may file a motion for relief from the stay. This is when the bank requests consent from the bankruptcy court to proceed with foreclosure. If the court concedes this petition, the foreclosure process will still be postponed a month or two giving you enough time to investigate other recourses with your bank.
The time the foreclosure is prevented will depend on whether you file for Chapter 7 or Chapter 13 bankruptcy, your ability to maintain monthly payments and how hostile the lender is to go after a foreclosure sale.
Chapter 7 bankruptcy clears many types of insecured debts such as credit cards, medical bills, mortgage debts and personal loans. All the debtor’s property is momentarily under supervision by the bankruptcy court and a case trustee. Typically, Chapter 7 cases last around 4-5 months. This isn’t a good way to save your home but is a a good way to gain time living in your home without making payments while saving up for a rental. During this time, you can work a plan with the bank to completely avoid foreclosure.
Chapter 7 bankruptcy discharges your personal liability for the mortgage debt so even if you do go through a foreclosure, creditors will be prevented from collecting on any debts that were included in the bankruptcy.
You can save your home by filing a Chapter 13 bankruptcy, also known as a wage earners’ plan. This process restructures your debts by creating a repayment plan and allowing you to pay some of them in parts and others in full in a 3-5 year period. This gives you an opportunity to repay debts without sacrificing your home.
Filing a lawsuit
If your bank is atempting to complete the foreclosure outside of the court system, which is a nonjudicial process, you have a chance to file a lawsuit against your bank to delay or stop the foreclosure. If the foreclosure is judicial, this tactic won’t work because you previously had time to be heard in court and did not proceed before the foreclosure sale.
In a nonjudicial process, the lender doesn’t have to go to court to foreclose on your home. Nonjudicial processes normally move quicker than a judicial process and usually cost more. If your home loan is secured by a mortgage, the chances you will be going through a judicial process are very high. If your loan is secured by a deed of trust, you are most likely going through a nonjudicial process.
Some states require judicial processes which are generally easier and less expensive, but when you are required to go through a nonjudicial process, this means you have to file a suit in court in order to have a judge review the foreclosure sale. In the lawsuit, you request the court to pause the proceeding of the foreclosure until you can inform the judge the reasons as to why the foreclosure should not progress.
In certain circumstances, the lawer will advise you to hire an attorney to be sucessful fighting a judicial or nonjudicial process. If you are unable to prove your case, this only delays the process and leads to a lot money to be lost, because you will need to pay the banks’ court costs and attorneys’ fees.
Considering a short sale
If your home is worth less than the amount you owe, you might be advised to opt for a short sale. This does affect credit but isn’t as bad as a foreclosure and the process typically lasts less. This will need to be negotiated between you, your agent and your lender.
When lenders agree to a short sale, they are accepting less than the total amount due. Sometimes lenders will not negotiate and at times some properties aren’t eligible for a short sale. With a short sale, you sell your home and the bank takes the money. Some lenders will expect you to make up the difference when the sale doesn’t cover the mortgage loan.
In short sales, you are in charge, not your bank. This will spare yourself from a foreclosure sale and the sale will be treated just as any other type of home sale.
There’s always a solution…
Whether you are settling for a short sale, filing a lawsuit, or filing for bankruptcy, there are solutions. Maybe at the end you won’t have your home, but you should’ve had enough time to look for temporary solutions that can help you settle in elsewhere.