Option 1: Loan Forbearance or Modification
A strategy worth pursuing is called a loan forbearance. The loss mitigation department of your mortgage company may make arrangements with you to pay some of the back payments now and the balance within a certain time period. A typical example – You owe $9,000 in back payments, attorney’s fees, etc. Your mortgage company may accept $4,500 now and $750 per month for the next six months. Of course, you would have to resume making your normal monthly payments. A loan modification is a permanent change to your mortgage that may lower your payments and the delinquent payments may be added to the mortgage balance. A loan modification or forbearance is easier to arrange prior to the Mortgage Company filing a foreclosure lawsuit. Some lenders will not consider this after filing, but it’s worth trying.
Option 2: Reinstate Your Mortgage
You have up to and including the morning of the auction to catch up your payments. Perhaps you could borrow from friends or family, credit cards, or a retirement program. You may be able to arrange a second mortgage to catch up the back payments and fees. Check in the Yellow Pages under "Mortgages." There are a number of companies listed that claim they can help in these situations
Option 3: Refinance
You’ve probably received letters from mortgage brokers and lenders saying you are already pre-approved for a new mortgage. The fact is that it is very difficult to arrange new financing when you’re already in default on your existing mortgage. Be very cautious about sending advanced fees of $300 to $600 to lenders or mortgage brokers. Usually it’s a ploy to take advantage of your financial situation.
Arranging new financing will depend on your income, credit report, value of your home, and the amount of your equity. If you’re not sure of the value of your home, give us a call. Usually we can give you a fairly accurate estimate of value within a half-hour. We would be glad to help and of course, there’s no obligation. If you attempt to refinance, you should always have a backup plan available to you. Many times, we have had homeowners call days before the auction saying their financing did not go through, and then it’s too late!
Option 4: Chapter 13 Bankruptcy
A viable alternative if your financial situation has improved, filing bankruptcy prior to the auction will stop the sale. Unfortunately for most people, it only postpones the sale for one or two months. Immediately after filing a Chapter 13 bankruptcy, you will have to file a repayment plan with the courts. This plan has to show that you have sufficient monthly income to pay basic living expenses such as food and utilities and other monthly payments such as credit cards, car payments, etc. In addition, your income must be sufficient to resume making your monthly mortgage payments. All past due amounts are usually spread out between 24 and 60 months; e.g., if you owe $9,000 in missed payments, attorneys fees, etc., and if spread out over 48 months, there would be an additional $187.50 due each month to the court appointed trustee. If you feel as though you have the income to immediately begin repayment of all your debts and the courts agree, this may be a good choice for you to save your home.
Over the years, we’ve spoken with many individuals who filed for bankruptcy protection only to have their cases dismissed. Not only were they out their attorney’s fees (usually $1,000 - $2,000), but now had a bankruptcy and foreclosure on their credit report. Bankruptcy is considered an action of last resort.
Option 5: Short Sale
If you owe more than your home is worth, you can look at negotiating a discounted payoff with your mortgage company. We can negotiate with your mortgage company on your behalf to get approved for a Short Sale. We have done hundreds of these and here’s the best part: The lender nearly always pays all the sales costs including title and escrow fees, commissions and most repairs.
Don’t procrastinate; explore all the options available to you. If saving your house seems unlikely, you should call us as soon as possible! Placing you home on the market a few weeks or a month from now may not give us enough time to find the buyer, arrange financing, and schedule the closing. Because of the time-sensitive nature of your situation, this is not a time to go it alone as a "for sale by owner" or list your home with a friend or friend of a friend.
Option 6: Let Your Home Be Sold On the Courthouse Steps
By far, the worst option available to you! Many people feel, "I have no equity, let the bank take it," but homes that are sold on the courthouse steps typically sell between 50-70 percent of their fair market value. Moreover, if a bank suffers a loss due to the pending foreclosure action against you, they also have an option. They can file a deficiency judgment against you and pursue you for the amount of their loss.
Typically ten days after the foreclosure auction, a certificate of title will be issued by the courts to the new owner. If you have not voluntarily vacated your house at this time, you could be forced to move out within 24 hours.
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