How Long Foreclosure Takes
Considering Foreclosure? There are Still Options Available to You
A foreclosure happens when the homeowner becomes delinquent in their mortgage payments and defaults on the home loan. The bank or lending institution is then forced to either repossess or sell the home to satisfy the debt.
Some of the things that you can do to avoid a home foreclosure are listed below. The solution will obviously depend on your financial status, the type of loan and the applicable state laws.
Reinstatement
Before your home is resold, you have a right to a reinstate on your delinquent loan. Reinstating your home gives you the opportunity to make up any past due amount plus any fines or legal expenses. Doing this will cancel your foreclosure and will allow you to continue living in your home as if the foreclosure never happened. The problem with this is that many delinquent homeowners have a financial situation that would make it impossible to make up their back payments, let alone any fines or legal fees.
Short Sale
A short sale occurs when your lender agrees to accept less than what they are owed in order for you to sell your property quickly.
Short Refinance
In a short refinance, the lender may agree to forgive some part of your debt and refinance the remaining debt into an entirely new loan. This is particularly beneficial if you have a high interest rate or if you purchased your home with an adjustable rate mortgage.
Special Forbearance
Forbearance is the result of a negotiation made between the lender and the delinquent borrower in which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees on a mortgage plan that will eventually bring the borrower up-to-date on his or her payments.
A forbearance is primarily designed for borrowers who have temporary financial problems caused by unforeseen circumstances such as temporary unemployment or health problems. It is not a long-term solution.
Generally speaking, borrowers that have chosen an adjustable rate mortgage on which the interest rate has reset to a level that makes the monthly payments unaffordable – must usually seek remedies other than a forbearance agreement.
You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.
Mortgage Modification
A mortgage modification is a modification to an existing loan made by a lender in response to a borrower’s long-term inability to repay the loan. Loan modifications typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default. A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers who will never be able to repay an existing loan.
You may qualify if you have recovered from a financial problem and can afford the new payment amount. Most lenders can work with home owners even if they have poor credit and have a foreclosure date. Chances to obtain a loan to regain a current status on your mortgage become diminished once you have received a notice of default (NOD). Notice of Default is usually sent after 90 days of the mortgage payment being late.
Partial Claim
Your lender may be able to work with you to obtain a one-time payment from the FHA Insurance fund to bring your mortgage current. You may qualify if:
- Your loan is at least 4 months delinquent but no more than 12 months delinquent;
- You are able to begin making full mortgage payments.
When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full. The Promissory Note is interest-free and is due when you pay off the first mortgage or when you sell the property.
Pre-foreclosure sale
A pre-foreclosure sales is for owners who don’t care to save the property, or who have no other choice than to let the property go, selling the property may be a smart choice. If you have enough equity in the house to allow you to pay off the mortgage in full, then a sale is usually your best option. This option preserves your equity and what’s left of your credit score. Selling also leaves you in a much better financial position should you want to buy another home in the future.
Deed-in-lieu of foreclosure
A potential option taken by a mortgagor (a borrower) to avoid foreclosure under which the mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange for the release of all obligations under the mortgage. Both sides must enter into the agreement voluntarily and in good faith. A deed in lieu of foreclosure has advantages for both a borrower and a lender; mainly the avoidance of time consuming and costly foreclosure proceedings. In addition, the borrower avoids some public notoriety, and may even be able to lease the property back from the lender.
The homeowner needs to assess certain risks which include, among other things, the risk that the property is not worth more than the remaining balance on the mortgage and that junior creditors might hold liens on the property.
This won’t save your house, but it is not as damaging to your credit rating as a foreclosure. You may qualify if:
- You are in default and don’t qualify for any of the other options;
- Your attempts at selling the house before foreclosure were unsuccessful; and
- You don’t have another FHA mortgage in default.
If you are considering any of these options, or would like to learn more abour your rights as a homeowner; there are many resources on the Internet. One source I would recommened is http://www.handelonthelaw.com.
About the Author
Chris R. writes articles about foreclosures and other legal matters for http://www.handelonthelaw.com
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