Posted by: Catherine | December 26, 2007

Foreclosure Options for homeowners facing default


This is a repeat of a post from a few weeks ago, but because we get so many questions on this topic, we thought it prudent to run it again for your information.

There are a few alternatives to a foreclosure. Always communicate with your lender, first and foremost. Some of these options only work if you’ve missed only a payment or two. Missing more than that without communication could mean you’ll never be able to catch up, and some of these options will not work. In addition to finding a REALTOR experienced in pre-foreclosure options, ALWAYS seek expert legal and tax advice from a qualified professional. As REALTORS we can not offer you legal or tax advice, and foreclosures, short sales, bankruptcy, etc. can have significant tax and legal ramifications you must know about. Wading through the various options to foreclosure can be confusing, but to help, we’re offering a list of common solutions and what they mean:

  • Short Sale. A lender may allow you to sell the home for less than what you owe on your loan before it forecloses on the property. This helps you avoid a damaging foreclosure on your credit report, but with it can come a tax liability (**see recent post on the latest on this topic) on the foregiveness of debt. It can be a lengthy and cumbersome process with lenders strict guidelines, and sometimes, the lender may not approve the sale. You also can not take any money away from the sale. You must act fast to initiate a short sale and in addition to securing the services of a qualified REALTOR, you should also seek the advice of an attorney and/or tax professional.
  • Reinstatement. This can occur only when you can afford to repay the lender your entire past due balance plus any late fees or penalties by an agreed upon date.
  • Forebearance. This is an agreement with your lender whereas your mortgage payments are reduced or suspended for a certain length of time. At the end of your time limit, you would begin regular payments once again and bring the loan current thru a “lump sum” or additional partial payments over a certain period of months. This option may have some room for negotiation, i.e. forgiveness or reduction of the amount owed.
  • Repayment Plan. With lender approval you would add an additional sum of money to your monthly payment until you catch up on the past-due amount you owe.
  • Loan Modification. Can involve a change in your loan terms to help you keep your payments going. This can include lowering the interest rate, adding missed payments to your loan balance or extending the term of the loan in order to reduce the payment amount or to factor in your past due amount. We’re hearing that some banks are considering this solution, and is why communication with your lender up front is so important.
  • Deed in Lieu. A Deed in Lieu of foreclosure is when you voluntarily deed your property title back to the lender (with lender approval) in exchange for a reduction or cancellation of the rest of your debt. It can be less damaging on your credit than a foreclosure, however, you will lose any equity you may have. Again, you may face a tax liability on the amount of forgiven debt. This likely is not an option if you have more than one loan on the home.
  • Bankruptcy. Some people find they need to look into filing for Chapter 13 Bankruptcy. This may only suspend the foreclosure process temporarily, or you may still be forced to give up your home, but sometimes it can get a lender to accept a repayment plan. There are many variables here, and in some cases people who file bankruptcy, in the end have both a foreclosure and a bankruptcy on their credit report. Seek legal and tax counsel from qualified Bankruptcy specialists.

Coming soon, more information about ‘do’s and don’ts’ when facing forceclosure, deficiency judgements, predatory lending and avoiding foreclosure scams.

Your Contra Costa and Bay Area Short Sale Resource. Call today for a confidential consultation and frank discussion of your options to avoid foreclosure.

Catherine Myers, REALTOR
Alain Pinel Realtors, Walnut Creek, CA
www.DiabloValley.net

Terry Osburn, BROKER ASSOCIATE
Alain Pinel Realtors, Walnut Creek, CA
www.TerryOsburn.com


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