Did you know that our state of PA has one of the nations highest foreclosure rates? That means dozens of homeowners are going into foreclosure everyday.
You are not alone!
My company is committed to helping homeowners avoid foreclosure, and that begins with providing you with information so that you can make an informed decision. We understand that the foreclosure process can me confusing, stressful and embarrassing. We also know that there are many good reasons why honest, hardworking people like you fall behind on their mortgage payments. Sometime’s life’s circumstances turn out differently than planned and bad things happen to good people.
Most importantly, we know that you are not in foreclosure….your house is! That’s why we are here to help. Most of the stress and fear caused by foreclosure is really caused by lack of understanding what options are available to you. Most people don’t take the time to understand the foreclosure process, and become educated about what they can do before it’s too late. We hope this special report will help you to understand your options and take control of your situation.
This do it yourself foreclosure education kit is intended to be used as a guide and point you in the right direction. If you ever feel overwhelmed with your situation, please feel free to call one of our foreclosure specialists to discuss your situation at 484-892-6591, or simply visit our contact page on this site. We are always available to help you navigate through this difficult situation.
10 Ways to Stop Foreclosure
“Forbearance” is an agreement with your bank/lender to stop the foreclosure in exchange for paying the overdue amount (called “arrearages”). The arrearages are paid in either one lump sum, or a schedule of payments over a period of time (typically 6-12 months). In some cases, your lender may even allow you to pay reduced monthly payments until you get back on your feet. More than likely, they will INCREASE your monthly payments to cover your owed arrears. Of course, your lender will only agree to forbearance if you can afford to resume your monthly payments. For example, if you got behind on your monthly payments because you lost your job, but were recently rehired, your lender night consider forbearance. Unfortunately, most homeowners facing foreclosure cannot come up with the money to make up back payments, nor can they afford higher monthly payments.
Bottom Line: To take advantage of this solution, you must be able to:
1. Pay the arrearages in a lump sum and be able to resume your monthly payments, or……
2. Afford higher monthly payments (i.e. your original monthly mortgage payment plus a portion of the arrearages) until the arrears have been paid off.
2. Loan Modification
“Loan Modification” means changing the terms of your mortgage. (Also called recasting the mortgage) For example, lowering the interest rate, increasing the loan amount, extending the amount of time you have to repay the loan and/or other charges that your lender agrees to.
A lender will typically consider a loan modification if you will be able to make your new mortgage payments after the change. For example, if you lost your job and got a lower-paying job, your lender may lower your monthly payments, but increase the number of years you must pay your mortgage.
Bottom Line: To take advantage of this solution, you must be able to: show your lender that you can afford the new monthly payments.
3. FHA “Partial Claim” Loan
If you have an FHA insured (Federal Housing Administration) loan, you may qualify for a one-time “partial claim” loan. To qualify, your mortgage must be delinquent 4-12 months and you must be able to resume full mortgage payments.
When a lender files a “partial claim” FHA/HUD (Housing and Urban Development) pays your mortgage current. However, in exchange for the “partial claim” loan, FHA/HUD puts a lien on your home and gives you an interest-free loan that is due when your mortgage is paid in full (for example, after a refinance or when you sell your house). In other words, you have to eventually pay FHA/HUD back for the amount of money they paid your lender, but you don’t have to pay them back until you pay off your mortgage or sell your house. Visit http://www.hud.gov for more info.
Bottom Line: To take advantage of this solution, you must:
1. Have a FHA-insured mortgage.
2. Not already have a “partial claim” loan from FHA/HUD.
3. Be delinquent at least 4 months and no more than 12 months.
4. Show that you can afford to make the monthly payments in the future.
5. Remember that, sooner or later, you will have to pay back the amount of the “partial claim” loan.
4. Refinancing your Mortgage
“Refinancing” is when a lender ( either the current lender or a new lender) gives you a new mortgage to replace your current mortgage. Of course, the new mortgage will likely be more than your current mortgage because the points, late payments and other fees will be added to it.
Unfortunately, most homeowners facing foreclosure cannot refinance because they do not have good credit, or enough equity in their house. “Equity” is the difference between what your house is worth and the the amount of the loans against it. For example, if your house is worth $300,000 and you owe $250,000 on a 1st mortgage and $15,000 on a 2nd mortgage, you have $35,000 in equity because $300,000 house value, less $250,000 representing the 1st mortgage, less $15,000 for the 2nd mortgage equals $35,000 in equity.
Bottom Line: To take advantage of this solution, you must:
1. Have good credit and/or enough income to qualify for a new loan and/or….
2. Have a substantial amount of equity in your home’ sufficient to meet the lenders guidelines.
5. Another Loan (i.e. 2nd mortgage, 3rd mortgage, etc.)
This is a new mortgage in addition to the mortgage(s) you already have on your house. The money from this loan is used to bring your mortgage current and stop the foreclosure.
Unfortunately, the new loan will have a high interest rate (similar to most credit cards) and cost 5-10 points. A “point” is 1% of the borrowed amount. For example, if you borrow $10,000, 10 points equals $1,000.
Also, since it’s another loan, keep in mind that you’ll have higher monthly payments. Beware of this trap, because if you cannot afford your current monthly payment(s), how will you be able to afford higher ones?
Bottom Line: To take advantage of this solution, you must:
1. Have a lot of equity in your house and….
2. Be able to afford the additional payment each month.
6. Deed in Lieu of Foreclosure (DIL)
A “deed in lieu of foreclosure” is when you voluntarily give your house back to your lender and move out. In exchange, the lender stops the foreclosure and agrees not to sue you for more money if the house is sold for less than the amount you owed.
Since a DIL does not wipe out junior liens (i.e. 2nd mortgage and other liens), banks will usually not accept a DIL because they do not want to inherit the junior liens against the house. Also, you will not receive any money for your house when you use a DIL.
Bottom Line: In general, to take advantage of this solution, you must only have one mortgage. If you have a 2nd mortgage, 3rd mortgage, etc, most banks will not accept a DIL.
7. Sell Your House to a Regular Homebuyer
Unless your situation has improved, selling your house is one of the best -and in most cases, the ONLY-way to stop foreclosure.
Although you probably want to stay in your house, the truth is that selling your house and moving is a lot less painful than losing your house to foreclosure and having to move anyway. At least if you sell your home, it will be on your terms – not the lenders – and you have a better chance of getting some cash out of your house. Plus, you’ll stop the foreclosure and save your credit. If you decide to sell your house to a regular home-buyer, you can either try to sell it your self, or use a real estate agent.
If you sell your house yourself, you’ll save money on your real estate agent commissions. However it will probably take longer to sell…..time you don’t have. You will also have to spend time and money advertising and showing the house to a potential buyer. You will also have to understand how to write up a contract, and where to go to complete the transaction (title agency in most states).
If you sell your house through a real estate agent, you’ll probably sell your house a lot quicker – and probably at a higher price. But you have to pay a commission to the agent (typically 6%, which on a $300,000 home is $18,000.
Bottom Line: In order to take advantage of this solution, you must:
1. Have enough time (typically 3-6 months, or more considering current market conditions) to find a qualified buyer and close escrow before the foreclosure auction.
2. Have enough equity to pay the real estate agent’s commissions (if you use an agent).
3. Have enough time and money to perform all necessary repairs, or you can sell the property “as is” for a lesser price.
8. Sell Your House to an Investor
If you don’t have enough time to sell your house to a regular home-buyer, don’t have enough equity to pay real estate agent’s commissions, and/or don’t have the time or money to perform repairs, then selling to an investor is probably YOUR BEST BET.
An investor won’t pay full price for your house, but he/she can close quickly, pay all cash and buy your house in “as is” condition. This allows you to STOP the foreclosure, SAVE any more damage to your credit and get CASH to move on and/or pay other expenses and bills.
Bottom Line: To sell your property to an investor: you must sell your house at a discount, because the investor will have costs to fix your home and resell it. Just be sure to find a reputable company, or investor that you know you can trust!
9. A Short-Sale
A “short sale” is an agreement with your lender to accept less money than they’re owed as full payment for your loan. This solution often makes sense when you owe more than what the property is worth. For example, if you owe $280,000, but your property is only worth $220,000 a short sale may be your only option.
There are no guarantees that the lender will accept the short sale. Keep in mind that your bank does NOT want your house back! It is considered a non-performing asset and they cannot have too many in their books! They want to work something out with you. This process is very time consuming and the negotiations can become very stressful. Rather than trying to negotiate a short sale yourself, call a professional who is experienced in negotiating with lenders.
Bottom Line: To take advantage of this solution, you should talk to an experienced short sale negotiator.
It is very important you understand how bankruptcy works and we suggest you meet with a bankruptcy attorney before considering this option. Many people use bankruptcy as a scare tactic. There are several different “chapters” of bankruptcy. Some are work-out others are wipe-out, but here is the general idea: when someone files bankruptcy it’s almost like someone build a “bullet-proof” barrier around the house. No one can touch you! However, you are not free of all responsibility and most people do not understand that. We are not bankruptcy attorneys, but you need to know the difference between a Chapter 7 and a Chapter 13 bankruptcy, so you know what happens.
Like we mentioned earlier, some bankruptcies are “work out” and others are “wipe out.” The two that we will focus on are Chapters 7 &13. These are the most common in your situation. Chapter 7 is the “wipe out” and Chapter 13 is the “work out”. Bankruptcy is a federal court action designed to help individuals to repay or eliminate their debts depending on their circumstances. Chapter 13 bankruptcies are designed to reorganize debts in an effort to pay off all the debt. Chapter 7 bankruptcies are geared more towards liquidation of assets. Both Chapter 7 and Chapter 13 immediately stop the foreclosure process and any creditors from taking further action against you.
Here is how Chapter 7 works.
When someone files a Chapter 7 bankruptcy, all assets and creditor collections are technically frozen which is called an automatic stay. The person filing bankruptcy cannot buy or sell anything, nor can they give away their property. If they try to sell their home, the court could order the receiving party to return it to the custody of the appointed Trustee. Unsecured debt such as credit cards , unsecured loans, etc. are typically eliminated, although yo should confer with your attorney on the rules regarding this. Then the trustee or the attorney who represents the court and the creditors will look at all the assets (house, car, furniture, equipment) anything of value and decide what must be liquidated to pay some of the debt that was wiped out. The statute provides that there are some minimal assets a person filing bankruptcy may keep.
If the homeowners are involved in a pending foreclosure, a Chapter 7 will stop the foreclosure process temporarily.Usually, your lender will request the court appointed Trustee to release the property from the automatic stay, so they can continue with the foreclosure process. Once the property has been released from the bankruptcy, the foreclosure process starts up again.
Chapter 13 is a little different.
When someone files a Chapter 13, they usually keep their assets and repay their debt in a debt consolidation plan. Whatever amount is agreed upon has to be paid to the Bankruptcy Court for the next 3-5 years. The homeowner usually keeps their house, car and other assets. The homeowner is required to stay current with the mortgage payments and pays the amount agreed upon. If any payments are missed, the trustee will dismiss the bankruptcy and the foreclosure process will begin again.
Bankruptcy is usually the last resort and should not be used to stop foreclosure unless you have no other option, or else you need the protection of a bankruptcy due to other circumstances. If you feel this may be your best option, please seek legal advice.
Bottom Line: To take advantage of this solution you should consult an experienced bankruptcy attorney.
– Andrea Babbino
CEO, House Recruiters, LLC.