Foreclosure Information
Foreclosure is the legal process lenders use to try to recover the
loan amounts they are due on past due home loans. Most
lenders do not want to own real estate and would rather have the loan
paid off, or the loan payments current.
Most homeowners who have suffered a financial setback also would like to
prevent foreclosure, keep their home, and get the loan payments
current. This page is designed to help sort out the options to
avoid foreclosure and hopefully reinstate your home loan.
Fannie Mae, Freddie Mac, HUD and the VA all endorse programs
designed to keep homeowners in their home if it is at all possible, or
to minimize the credit and financial damage if it is not possible to
avoid foreclosure. The process of determining whether a homeowner
is likely to be able to recover from a financial setback is similar to
the loan underwriting.
Personal and financial information along with supporting
documentation is collected and forwarded to the existing lender, who
will review, then approve or decline a possible workout based on owner
income, assets and expenses. In many cases, the homeowner can
successfully complete this process on their own if they have the time to
properly assemble and submit a complete documentation package for lender
review.
The paragraphs below cover individual aspects that should be
considered when trying to prevent foreclosure. Once the
decision has been reached about keeping or selling the home, topics are
listed in the order of which options are typically least expensive for
the homeowner up to those which are more expensive/credit damaging.
Links to various resources are below those topics.
Ultimately, the only thing that will end foreclosure proceedings is repayment of the debt, everything else is delay of the proceedings.
KEEPING THE PROPERTY VS. SELLING THE PROPERTY
If your monthly house payment (including property taxes and
insurance) does not exceed 40% of your gross monthly income, it should
be possible for you to keep the property. If the payment is greater than
40% of gross monthly income, consider selling or transferring the
property to avoid negative impacts to your credit. The objectives in
order of importance should be:
1. Keeping the property if possible.
2. Don't give away equity if you can keep it or liquidate and put it in
your pocket.
3. Minimize damage to your credit. You will need it later on.
LENDER WORKOUT
Before exploring new options, have you tried to come to terms with your existing lender? Lenders want the loan to be current, not to have to complete a foreclosure. Can you make up the defaulted amount over a period of months? Can you re-write the note and include the defaulted amount? Can you give the lender a deed-in-lieu of foreclosure and preserve your credit? These are questions you should ask yourself and possibly your lender if you haven't done so already. They will want to know why the loan is in default and why you think you will be able to make the payments in the future. Temporary financial setbacks that have since been cured are the best candidates for this. Your lender will probably not be inclined to discontinue foreclosure proceedings if they have reason to believe they will have to start again in 6 months.
REFINANCING AND NEW JUNIOR LOANS
Basic lending guidelines will require all home loans will total up
to less than 70% of the current market value of the property. If you
have more equity than that, you should have no difficulty in obtaining a
new refinance or 2nd Trust Deed to bring your loan current. Expect
higher interest rates and loan fees.
LOANS TO GET YOU CURRENT
If you experienced a temporary financial setback that has since
been cured and are going to be able to keep the property, first consider
family and friends for a loan to get current. It's much cheaper than
hard money loans, but MAKE SURE you will be able to pay them back. You
do not want to put them in the position of having to foreclose to get
their money back. Hard money loans are typically private investors who
will lend money based on equity in the property. Credit and income are
not issues of importance and loan approval is usually a matter of days
with funding following shortly. Loan amounts will usually be enough to
bring existing loans current, pay the financing costs and put some money
in your pocket. Loans will be amortized over 30 years to keep the
payments lower and the balance will be due in 2 to 5 years.
BANKRUPTCY
This is a major step that will have lasting impact on credit reports. Seek appropriate legal advice. If the Notice of Default or Lis Pendens has just been filed on your home, you have sufficient time to explore the options for new loans or selling the property. If the public auction is going to be held very shortly, Chapter 13 bankruptcy is a very common way to delay the sale. When you file bankruptcy, your financial matters fall under the jurisdiction of the courts which could limit your options. SEEK LEGAL ADVICE.