Stop Foreclosure
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Basic Foreclosure Information
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How To Stop Foreclosure
Basic Foreclosure Information
1.1 What is Foreclosure?
Foreclosure is a legal process that allows a lender to recover the amount owed on a defaulted loan. The foreclosure process begins when a borrower falls behind on mortgage payments and the lender files a public notice, called a “Notice of Default” or “Lis Pendens”.
1.2 Why stopping foreclosure is important?
A foreclosure is one of the most credit-damaging events that can ever appear in your credit. What’s even worse is that foreclosure stays on your credit report for at least seven years. While foreclosure won’t ruin your credit rating forever it is important to stop foreclosure. In most cases impact a foreclosure has on an individual’s credit report is estimated to be from 150 to 200 points. Combined with late payments on a mortgage the credit score could decrease as much as 300 points.
It usually takes about 2 years, before a credit score will start to recover. For at least 3 years you will not be eligible for a prime conventional mortgage from Fannie Mae or Freddie Mac. In short, 3 years of outstanding post foreclosure credit is a bare minimum before many creditors will even consider landing at a reasonable interest rate.
How to stop foreclosure
2.1 Sell your home to stop foreclosure.
Sounds simple? But for some borrowers whose home isn’t listed, sale may be the best option. For others, reconsidering objectives may lead to a “short sale”, discussed latter in this article.
Market conditions change weekly so consult a real estate agent familiar with, or specializing in foreclosures. Get an opinion of a home’s market value and average days on the market. When attempting to sell a property to stop foreclosure – exposure and marketing of a full-service specialized agent may be the key.
Price it right. The number one thing that will sell your house quickly is price. As the owner, your objectivity is diminished, so broker should to set the price (within reason). A good broker will determine a “quick sale” price based on a two key factors – average day’s neighborhood homes are on the market and how they compare.
Offer incentives. Incentives can help shorten the sales cycle. Adding premiums can help speed a house sale. A popular incentive offered to purchasers is closing-cost help. You also can encourage your sales agent by offering a higher commission for a speedy sale or some other perk if the property moves quickly.
2.2 Stop Foreclosure with Loan Modification
Modifying loan to stop a foreclosure typically done when:
- If borrower can make a regular payment, but is able to catch up with the past-due amount. Banks will often allow past-due amounts to be added into the unpaid principal balance. This amount will be re-amortized over a new period of time.
- Or, if borrower is unable to make payments at a current rate, bank may extend a loan for a longer period of time. A Loan Modification will change existing mortgage note and allow for a fresh new start. Your account will be brought up to date immediately.
Applying for a loan modification in order to stop a foreclosure can be a lengthy and involved process. The negotiations aren’t always easy and take long periods of time.
Modification request should include a carefully outlined plan that explains to the bank why having your mortgage repayments reduced is going to help. The bank will ask to see your income details to verify that your income really isn’t sufficient to fix your finances without immediate help.
While you might be able write an effective loan modification letter, right things to say and the wording is a key! There are loan modification companies who specialize in modification requests. They are professionals who know precisely how to handle just these types of requests.
If you need help with loan modification to stop foreclosure, consider contacting a professional to help you save your home. Finding a trusted and seasoned loan modification counselor is worth the time.
2.3 Stop Foreclosure with “Mortgage Forbearance Agreement”
Depending on your situation, you lender may be required to offer you a solution to repay your missed payments and stop a foreclosure. You could request this type of payment plan from your lender’s Loss Mitigation or the Mortgage Forbearance Department.
A special mortgage forbearance agreement is a written repayment agreement between a lender and a mortgagor that contains a plan to reinstate a foreclosure loan that is a minimum of three payments due and unpaid. Forbearance is not the same as loan forgiveness. Ultimately the mortgage payments have to be reinstated, and anywhere from three to six months of missed payments have to be accounted for.
Forbearance is a way for you to save your home from foreclosure if you are going through a rough patch. But you have to talk to your lender early. People who avoid their mortgage lenders for months and months while the notices and missed payments pile up will find that they do not have many options. Be up front with your mortgage lender and make it clear that you want to find a way to make it work. You will be more likely to have success in stopping foreclosure.
2.4 “Short Sale” instead of Foreclosure.
If your home is worth less than the amount you owe, you may consider a short sale. A short sale affects credit but it’s not as bad as a foreclosure. You’ll need to negotiate with your lender to find out if the lender will cooperate on a short sale. This is called a pre-foreclosure redeemed.
The bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on your part. All negotiations are done through communication with a bank’s loss mitigation or workout department. You will be able to sell your property for less than the outstanding balance of the loan. Lender will get all proceeds of the sale, and sometimes in full satisfaction of the debt.
During a Short Sale, the bank would have the right to approve or disapprove of a proposed sale. Many Short Sales leave a deficiency balance for which you may be liable. A deficiency balance will remain while the mortgage broker, real estate agent, loan officers, title and closing agents retain their profit. These transactions are not governed by any agency.
A short sale typically is executed to prevent a home foreclosure. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a foreclosure.
In short, a short sale is nothing more than negotiating with your bank payoff for less than what you owe. Short sale does not extinguish the remaining balance unless clearly indicated on the accepted offer.
2.5 Stop Foreclosure by a “Deed-in-Lieu of Foreclosure”
This is called deeding the home back to the lender. The homeowner gives the lender a properly prepared and notarized deed, and the lender forgives the mortgage, effectively canceling the foreclosure action.
The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately cancels the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he/she would in a formal foreclosure. Another benefit to the borrower is that it hurts their credit less than a foreclosure does. Advantages to a lender include a reduction in the time and cost of repossession.
Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed. Sometimes, the lender will not proceed with a deed in lieu of foreclosure if the outstanding indebtedness of the borrower exceeds the current fair market value of the property. Other times, lenders will agree since they will end up with the property anyway and the foreclosure process is costly to the lender.
Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached.
The lender might also work an arrangement where a home owner can remain in the home until finding a place to move into. Owners in default should negotiate the right to retain occupancy, arguing that if the lender followed through on the foreclosure, an owner would still enjoy the right of possession during that procedure.
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