Your options for avoiding foreclosure and staying in your home
My foreclosure option #1- Catch everything current- Let’s start with your options for staying. Some of these options are obvious like you can cure the default and catch everything current. That’s an option if you have money. Obviously I’m assuming that you wouldn’t have gotten in the situation if you had money to pay your loan current.
My foreclosure option #2- Litigation to erase your loan balance- Another option that you may have is litigation. Although we live in a litigious society for most of us or atleast for my self I know that I don’t enjoy going to court and it’s never fun. However, there are attorneys that have made their business to challenge lenders on predatory lending practices. Even if there was no predatory lending often times banks will violate any one of the many sections of the volumes of banking code. Some attorneys have been known to find violations of these banking codes and actually bring those to light in the court room and try to erase your loan. If you’re lucky you’ll stay in your house forever for free. At the very least it can become a delay tactic to give you more time to live in your house. (note- I am currently looking for attorneys that have experience actually erasing mortgage debt. If you know of a good one or you are one please contact me by filling out the feedback form on my FORECLOSURE PREVENTION ATTORNEYS page.
My foreclosure option #3- File Chapter 13 Bankruptcy- Another option if you want to stay in your house indefinitely to be able to do that is to file a chapter 13 bankruptcy. If you want to stay in your house chapter 13 bankruptcy is an option for some people. For most people it doesn’t work and it ends up simply being a delay tactic which is might not be a bad thing. Chapter 13 bankruptcy is a federal court action that trumps all other lower court actions, foreclosure actions and a trustee appointed by the federal court will actually require force all your creditors accept payment arrangements.
Chapter 13 rarely works because because usually the payment plan created is extremely aggressive. I’ve been told the trustees in charge managing these bankruptcy’s have a financial incentive to create very aggressive payment plans that can make nearly impossible to succeed in completing them.. If you make your agreed payments on time every single time according to the plan you lender has to accept those payments. However if you’re a day late even once any lender can pop out of the chapter 13 and pursue you, say for foreclosure or judgment or something like that. You have to be aware of that and be able to possibly increase your income, increase your likely hood of being successful in a chapter 13 plan.
My foreclosure option #4- FHA partial claim- Another option you may have is something called partial claim. Partial claims are available for people who have FHA loans. A lender may be able to help you get out of foreclosure by actually making a claim on the FHA insurance. HUD insures or backs the loan and so that claim ends up being extra money that you owe on top of the mortgage. It will bring you current and then that amount of money that you borrow basically ends up being put on the back of the loan when it gets paid off. This is one of the added benefits you recieve if you happen to have an FHA loan.
My foreclosure option #5- Loan modification- Another option is a loan modification program. A loan modification is basically a complete change in the terms of your loan. Your lender actually remakes the loan. The lender has a lot of leeway to modify a loan. When they choose to allow you to modify a loan, they can do things like: extend the terms, lower the payment and lower interest rates. Or they may increase rate but reamortize the loan and to make the payments more affordable. They have a lot of different ways you can modify a loan. Generally a lender is going to try and not do a loan modification if possible and possibly do a forbearance plan instead, which requires you to put more money up front. We’ll talk about the forbearance plan, however loan modification is one of the most beneficial things you can do if you can get a lender to do it. More and more lenders in their desperate state are going straight to loan modifications. They are not playing the games they use to several years back where they try to force you into a much more difficult plan that just sends you further into foreclosure. In fact lenders are now so desparate that I even saw a first mortgage lender offer to pay off a second mortgage and on top of that reduce the balance by 10 percent just to avoid taking their borrower to court.
My foreclosure option #6- Forebearance plan- The forbearance plan is a sibling of the loan modification plan. A lot of people don’t know the difference however it is very significant. If you are already in foreclosure and you do a forebearance plan your lender will typically just pause the foreclosure. This means the foreclosure is not canceled. They don’t redo the loan at all they simply ask you to start making payments plus a little bit or a lot of bits extra to repay the back payments. Typically they ask you to put pretty large deposit up front to help with the attorneys legal fees and other bull shit fees. Normally for the average person who’s having a hard time handling a loan anyways and they got behind, a forbearance plan simply is not a realistic option unless the lender is very generous in the terms they offer.
My foreclosure option #7- Foreclosure Bail Out Refinance- In addition to the other methods for staying in your home that I have already talked about there’s something called the foreclosure bail out refinance. Federal law has created a lot of opportunities with the crises in mortgage and loans they’ve increased incentives for banks to work with you. One of the things they’ve done is if you were in a subprime loan that adjusted up and you went behind after that adjustment up you may qualify, even though your credit is totally shot and your score is zero. Your income still has to be qualify but not your credit. And you can get a FHA loan at a good rate that’s fixed for 30 years. If your property appraises for what your new loan amount is going to be when you refinance that’s something that very well could be an option for you and you should look into.
For most people refinancing is not an option for foreclosure if you’ve got 90 days late your credit is so shot that no lender will touch your except if you owe very small percentage of what your house is worth or if you fit into this foreclosure bailout refinance plan.
My foreclosure option #7- Foreclosure Mediation- Another potential option for you works along side some of the other options is something called court mediation. This is a relatively new phenomenon. It didn’t use to happen very often but with all the things that are happening the courts are stepping up to try to do their part so that they don’t have to be the condiute for so many people losing their homes to foreclosure. For instance, Ohio created a plan which is being adopted by most of the judicial foreclosure states. The county courts are encouraged to offer mediation to all foreclosure cases. If the defendant (you) accepts the offer from the mediation the court can actually force a lender plaintiff to fly a representative from across the nation, to come meet with you face-to-face. In mediation no party is required to actually do anything other than meet however anything agreed upon in mediation is legally binding and everything is recorded by the proffessional court ordered mediator. If a lender has to spend the money to send someone to meet you face to face they suddenly become much more motivated to make that money count and to make something happen. This could be an oppurtinity work with a person from that actually lives in our country and speaks english to create a loan modification or forebearance plan that actually can work for you.
Mediation can also be worked into some of the other strategies other than staying in the house. You can get a lot of different results from mediation that are beneficial to both you and the bank. It is one of the most effective ways to work with your lender on a level playing field if you have the oppurtunity.
My foreclosure option #8- Lease back- Another way you could possibly stay in your house is called a lease back. Lease backs aren’t always legal so you want to check with an attorney that understands your local and state law as well as the federal regulations.. If you’re doing a short sale and you combine that with the lease back then you’re going to want to make sure that the details of the lender acceptance letter for the short sale doesn’t specifically say that you can’t do a lease back or that you can’t sell it to an purchaser that you’ve made extra arrangements with.
A lease back is where you would actually short sale or just sell it like normal to say a friend or “friendly person” or investor. That person would then lease it back to you, usually with a purchase price agreed to at a certain point in the future. This gives you time to repair your credit and purchase your home back. I have to warn you credit repair doesn’t always work. However if you sell the house and pay off the loan and avoid actuall foreclosure, you should be able to purchase a house within two years. I’ll talk more about lease backs in the future but all the strategies in the full “Short Sale of Your Hme and Get Paid” course will work even if you’re selling it to a friend on a a lease back.
I invite your comments and questions regarding this transcript or the video below. If I don’t answer you directly on the comments section I am going to attempt to answer your questions by video on this blog. Thank you!
