If you’re facing foreclosure , you must act quickly. In many states, such as Texas, the mortgage lender doesn’t need to take you to court to move forward with foreclosure, they can simply give you notice and within 20 days you could be on the streets. When you’re facing a foreclosure, the first thing you must do is contact your mortgage lender as soon as you realize that you are having trouble paying your mortgage. Do not delay taking this important action because it can win you time and oftentimes the cooperation of the lender in helping you avoid foreclosure. When you’re trying to work out a plan with your mortgage lender you have four options to avoid foreclosure:
1. Forbearance. When a mortgage lender grants you a mortgage forbearance you will be allowed to delay paying your mortgage for a short period of time. However, you will be required to repay the missed loan payments at a later date. The mortgage lender will request that you sign a forbearance agreement. Make sure you are able to repay the skipped payments at a later date before you sign the agreement.
2. Voluntary Mortgage Modification. A voluntary loan modification actually changes the terms of your mortgage agreement. The benefit of mortgage modification is that it can make your monthly mortgage payments more affordable. Unfortunately, this doesn’t always happen. Sometimes mortgage modifications are less affordable than the original mortgage terms, so be careful and have the new terms reviewed by an attorney before signing the new mortgage papers.
3. Short Sale. Sometimes a mortgage lender will agree to a short sale. A short sale is when your home is sold for LESS than the mortgage owed on the home and the balance of the mortgage loan is forgiven by the lender. The drawback of this type of agreement is that the forgiven loan balance may be taxable. Check with a tax accountant or tax attorney to find out the current tax laws regarding short sales.
4. Deed In Lieu Of Foreclosure. A deed in lieu of foreclosure allows you to return the home to the lender. With this arrangement the lender attempt to resell the home recoup part of or all of the mortgage you still owe. Although the lender will note your account as “paid” you may still owe the balance of the loan depending on what agreement you work out with the lender.
Whichever of these options you choose to pursue with your mortgage lender, you must get it in writing. But before you sign any agreements invest in a board certified attorney who can translate many of the legal terms into laymen’s terms and help you understand what signing the agreements will mean for you legally and financially.
What If The Mortgage Lender Won’t Help Me?
If you can’t convince your mortgage lender to help you avoid foreclosure, don’t despair you do have another option– Chapter 13 Bankruptcy . After you have exhausted all of your negotiations with your lender, Chapter 13 bankruptcy is probably the only option that can help you move fast enough to save your home from foreclosure. Remember, the foreclosure process can move very fast, as fast as 20 days. If you don’t move fast enough you could lose your most valuable asset–your home. That’s why it is important to move quickly if your mortgage company is not cooperative.
How Chapter 13 Bankruptcy Works
When you file for Chapter 13 bankruptcy, you will be allowed to repay your missed mortgage payments over a period of 3 to 5 years. A Chapter 13 bankruptcy may also assist you with your credit card debts, medical bills, judgments and signature loans. Once you file your Chapter 13 bankruptcy papers with the court, all creditor calls, collection activities and legal actions against you, including foreclosures must stop. That also means that creditors can’t garnish your wages, seize your bank account or file a lawsuit against you while you’re in Chapter 13 bankruptcy.
Pitfalls You Must Avoid
When you are facing foreclosure you must look out for dangerous pitfalls that may actually push you into more financial troubles rather than help you avoid them.
Don’t take advice from people who are not attorneys. Let’s face it, in times like these the worse sharks come out and many of them are targeting homeowners facing foreclosure. Most states publicly publish the names of homeowners in foreclosure and both attorneys and non-attorneys will use this list to send direct mail campaigns offering assistance. Tread cautiously. It can be very difficult to tell the difference between a real attorney and an imposter trying to snag you with a foreclosure scam. These scammers will often demand large sums of money upfront and guarantee that they can save your home from foreclosure; but then they disappear with your money having made no effort to save your home. Also, non-attorneys are not subject to the State Bar code of ethics or regulations so it will be difficult to receive recourse if they engage in illegal or unethical behavior.
Don’t bury your head in the sand. When you are facing foreclosure, it can be overwhelming because you may not understand all of your rights and options. You may decide to bury your head in the sand, avoiding the bills and notices sent by the mortgage lender in the hopes that your financial troubles will disappear. Don’t do this! This is the natural way for most mortals to respond to an overwhelming situation, but when it comes to foreclosure there is no magical pill, the financial troubles will not simply pass away and if you fail to address your foreclosure problem you will end up homeless.
Don’t give up. Battling foreclosure can be an exhausting experience. You will face some obstacles, especially when dealing with the lender; but don’t allow that to discourage you. Working with the right knowledge and a professional you can beat foreclosure.
Resources For Homeowners Facing Foreclosure
HOPE NOW, ( http://helpforhomeowners.org/ ) is a program created by the Federal Housing Authority which offers detailed information on all four of the foreclosure options described above.
VA Mortgage Assistance. If your home was purchased through the VA, there is currently a program designed to help veterans in financial distress, including those facing foreclosure. Visit http://www.homeloans.va.gov/ for more information.
Also, the government is currently exploring the possibility of allowing homeowners facing foreclosure to modify their home loan during a Chapter 13 bankruptcy. Legislation allowing homeowners facing foreclosure to modify their mortgages in Chapter 13 bankruptcy was passed in the House; but is still awaiting a vote in the Senate. If the bill passes, a mortgage lender who fails to negotiate with a homeowner facing foreclosure may be forced to modify the mortgage if the homeowner files Chapter 13 bankruptcy.
An example of what this would look like if the legislaition passes:
John Doe contacted his mortgage company and they denied him assistance to save his home from foreclosure. His home is set to be foreclosed on in 30 days, and he is upside down in his mortgage, owes $240,000 on a mortgage property that was appraised at $180,000 with an interest rate of 9.9%. The judge would have the power through bankruptcy law to allow John Doe to repay only the value of his home, $180,000 over a 40 year period, which would be extended from his original 30 year agreement. His ARM rate of 9.9 % can also now be adjusted to a fixed rate of 5.5%.
Although this legislation has not yet become law, we believe that with the continued support of the community, homeowners and renters alike, this legislation will be passed and save thousands of homeowners from foreclosure. We believe that this law could be approved quickly, as soon as this summer offering a much needed reprieve from the onslaught of foreclosures destroying homeowner’s hopes and dreams.
If you’re facing foreclosure, with a low credit score (400 – 500’s) negotiating one of the above mentioned foreclosure options with your lender could significantly increase your credit score especially if you are current with your other debts and avoid late mortgage payments in the future. However, if you’re facing foreclosure and have other debts which are delinquent or in default, it may be in your best interest to file for Chapter 13 bankruptcy. Filing for Chapter 13 bankruptcy will allow you bring all of your debts current (including your mortgage) and could significantly increase your credit score providing that you stick with the repayment plan. Whatever choice you make, remember that foreclosure can be fought and stopped if you move quickly using the legal tools available to you.
Commentary provided by: Allmand Law Firm PLLC, the largest consumer bankruptcy filer in the Dallas/Fort Worth Area. We serve our clients with respect and give them individual, unrushed service. The managing partner, Reed Allmand, is a Texas Board Certified Consumer Bankruptcy Attorney and author of the book, The Truth About Bankruptcy .